<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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HESKA CORPORATION
(Exact name of registrant as specified in its charter)
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<C> <C> <C>
DELAWARE 2836 77-0192527
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
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1825 SHARP POINT DRIVE
FORT COLLINS, COLORADO 80525
(970) 493-7272
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
FRED M. SCHWARZER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HESKA CORPORATION
1825 SHARP POINT DRIVE
FORT COLLINS, COLORADO 80525
(970) 493-7272
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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<C> <C>
KAREN A. DEMPSEY, ESQ. MICHAEL J. SULLIVAN, ESQ.
SALLY A. BRAMMELL, ESQ. REX R. O'NEAL, ESQ.
DANIEL L. CULLUM, ESQ. LISA S. DUMAW, ESQ.
PILLSBURY MADISON & SUTRO LLP COOLEY GODWARD LLP
P.O. BOX 7880 5 PALO ALTO SQUARE, 4TH FLOOR
SAN FRANCISCO, CALIFORNIA 94120 3000 EL CAMINO REAL
PALO ALTO, CALIFORNIA 94306-2155
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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. [ ]
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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
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PROPOSED
MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
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<S> <C> <C>
Common Stock, $.001 par value............................... $80,500,000 $24,394
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(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<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 ANY 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 APRIL 24, 1997
Shares
[HESKA CORPORATION LOGO]
Common Stock
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Of the shares of Common Stock (the "Shares") offered hereby,
shares are being offered by Heska Corporation ("Heska" or the "Company") and
shares are being offered by a stockholder of the Company (the "Selling
Stockholder"). See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sale of Shares by the Selling Stockholder. Prior
to this offering, there has been no public market for the Shares. It is
currently anticipated that the initial public offering price per share of the
Common Stock will be between $ and $ per share. For a
discussion of the factors to be considered in determining the initial public
offering price, see "Underwriting."
Application has been made to have the Common Stock approved for listing on the
Nasdaq Stock Market's National Market under the symbol "HSKA."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" ON PAGE 6 HEREIN.
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.
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDER
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<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total(2)...................... $ $ $ $
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(1) Before deducting expenses payable by the Company estimated at $650,000.
(2) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of additional
shares to cover over-allotments of Shares. If the option is exercised in
full, the total Price to Public will be $ , Underwriting Discounts
and Commissions will be $ and Proceeds to Company will be
$ .
The Shares are offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the Shares will be ready
for delivery on or about , 1997, against payment in immediately
available funds.
CREDIT SUISSE FIRST BOSTON MERRILL LYNCH & CO.
Prospectus dated , 1997
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[INSIDE FRONT COVER OF PROSPECTUS]
[ARTWORK]
DESCRIPTION FOR EDGAR OF ART ON INSIDE FRONT COVER
Photographs of: companion animals with veterinarian, child with dog,
horse, a Heska laboratory, Diamond's facility, Heska's trivalent vaccine and a
kit of Heska's veterinary diagnostic laboratory sample collection supplies.
Caption reads: Heska -- The Science of Caring for Companion Animals
<PAGE> 4
[INSIDE FRONT COVER OF PROSPECTUS]
[ARTWORK]
HESKA, the HESKA logo, DIAMOND, the DIAMOND logo, Bloxham and the Bloxham logo
are trademarks of the Company. This Prospectus also includes trade names and
trademarks of companies other than Heska.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the consolidated financial statements
and related notes appearing elsewhere in this Prospectus.
THE COMPANY
Heska discovers, develops, manufactures and markets companion animal health
products, primarily for dogs, cats and horses. The Company's strategy is to
become the companion animal health care company of choice for veterinarians by
enabling them to comprehensively manage diseases using a broad line of
diagnostic, vaccine and therapeutic products and services. Heska has six
products currently on the market and over 25 products in research and
development. The Company also offers diagnostic laboratory services to
veterinarians and operates a full scale USDA and FDA licensed facility which
manufactures products for Heska and other animal health companies. Heska has
corporate partnerships with Novartis AG, Bayer AG and Eisai Co., Ltd. and plans
to expand its products and services through complementary acquisitions, licenses
and collaborations. Heska believes that it has the largest and most
sophisticated scientific effort in the world devoted to applying biotechnology
to the large and growing companion animal health market.
According to industry estimates, the worldwide market for companion animal
health products and diagnostic services exceeds $2.5 billion. In the United
States the market for companion animal health products is the fastest growing
segment of the animal health industry and has expanded in response to the
introduction of novel products. There are approximately 67 million cats, 57
million dogs and seven million horses in the United States, and approximately
100 million cats, dogs and horses in Western Europe, Japan, Canada, Australia
and New Zealand. There are over 35,000 veterinarians in the United States whose
practices are devoted principally to companion animal medicine.
Heska is focused on providing products and services for the comprehensive
management of a broad range of companion animal diseases, such as allergy,
heartworm infection and flea-associated conditions. The Company believes that
several of its products under development may serve to expand the companion
animal health market and advance the practice of veterinary medicine. Heska
recently introduced a canine allergy diagnostic product that it believes is a
substantial advance in the state of the art in allergy diagnosis. The Company
recently introduced a new feline heartworm diagnostic test that is substantially
more sensitive than the other commercially available tests. Heska has a novel
therapeutic product in the final stages of FDA registration for canine
periodontal disease, which is estimated to affect 80 percent of all dogs by
three years of age. Heska expects to receive FDA clearance for this product in
1997. The Company is also working on vaccines to be administered annually to
prevent heartworm infection in dogs and cats, as well as vaccines to help
control fleas on dogs and cats. In addition, Heska is developing a vaccine to
prevent the onset of flea bite allergy in dogs, which afflicts a significant
percentage of all dogs in flea endemic areas. Currently there are no effective
immunologically based preventatives or treatments for this condition.
Heska operates veterinary diagnostic laboratories in Colorado and the
United Kingdom that provide a range of diagnostic and pathology services to
veterinarians, including in vitro allergy testing and the Company's new feline
heartworm diagnostic. The Company believes that these laboratories provide a
valuable marketing point of contact with veterinarians. The Company is also
developing easy to use, point-of-care diagnostic products for the veterinarian's
office.
Heska scientists have developed a large body of knowledge about the
physiology of parasites, such as fleas and heartworms, and the basic immunology
of dogs and cats that the Company believes is unmatched in the industry. Heska
believes this body of knowledge is essential to creating innovative diagnostics,
vaccines and therapeutics. The Company's employees hold more than 20 veterinary
doctoral degrees and over 45 Ph.D.s. Most of these employees have been
affiliated with prestigious academic research institutions or leading
biotechnology or animal health companies.
In April 1996, the Company acquired Diamond Animal Health, Inc., a USDA and
FDA licensed biological and pharmaceutical manufacturing facility. Diamond has
been a licensed manufacturer of veterinary vaccines since the 1950s and operates
a 166,000 square foot manufacturing facility. In addition to manufacturing
Heska's
3
<PAGE> 6
products, Diamond operates as a contract manufacturer of biological and
pharmaceutical products for other major animal health companies.
Heska has entered into agreements with three major pharmaceutical
companies, Novartis AG, Bayer AG and Eisai Co., Ltd., which provide funding for
certain of its research and development programs. In April 1996, Novartis made a
$36.0 million equity investment in the Company. These partners have rights to
market certain resulting Heska products. Heska believes that the size and
experience of these partners will enable the Company to penetrate markets more
quickly and extensively.
To broaden its portfolio of products and technologies, the Company is
aggressively pursuing licenses to promising technologies from leading
biotechnology companies and research institutions. The Company also intends to
build its business through the acquisition of complementary products and
businesses. For example, in March 1996 the Company purchased a canine allergy
product line and in February 1997 acquired Bloxham Laboratories Limited, one of
the largest veterinary diagnostic laboratories in the United Kingdom. The
Company believes that significant acquisition opportunities exist in the
companion animal health market and plans to actively pursue such opportunities.
Heska Corporation was incorporated in California in 1988 and reincorporated
in Delaware in 1997. The Company is located at 1825 Sharp Point Drive, Fort
Collins, Colorado 80525 and its telephone number is (970) 493-7272. Heska and
its subsidiaries currently employ more than 400 persons. As used in this
Prospectus, "Heska" and the "Company" refer to Heska Corporation and its
consolidated subsidiaries, unless the context requires otherwise.
------------------
Except as set forth in the consolidated financial statements and notes
thereto or otherwise as specified herein, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option, (ii) reflects
the conversion of all of the Company's outstanding shares of Preferred Stock
into shares of Common Stock upon the closing of this offering, and (iii)
reflects the Company's reincorporation in Delaware to occur prior to the closing
of this offering and associated changes in the Company's charter documents. See
"Underwriting," "Description of Capital Stock" and Notes 2 and 10 of Notes to
Consolidated Financial Statements. This Prospectus contains, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. The Company's actual results and the timing of certain events
could differ materially from those discussed or projected by the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in the sections entitled "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
Prospectus.
4
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THE OFFERING
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Common Stock offered by the Company.......... shares
Common Stock offered by the Selling shares
Stockholder................................
Common Stock to be outstanding after the shares(1)
offering...................................
Use of Proceeds.............................. For research and development, expansion of
sales and marketing activities, expansion and
development of manufacturing operations,
potential acquisitions, working capital and
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... HSKA
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
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1992 1993 1994 1995 1996(2) 1996 1997
------- ------- ------ ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Products and services, net...... $ -- $ -- $ -- $ -- $ 8,013 $ 39 $ 2,626
Research and development........ 283 1,817 3,858 2,230 1,946 117 438
------- ------- ------ ------- -------- ------- -------
Total revenues.......... 283 1,817 3,858 2,230 9,959 156 3,064
------- ------- ------ ------- -------- ------- -------
Costs and operating expenses:
Cost of sales................... -- -- -- -- 6,648 20 2,148
Research and development........ 1,188 2,427 3,685 6,031 14,038 2,626 4,519
Selling and marketing........... -- -- -- -- 2,493 -- 1,573
General and administrative...... 490 540 904 864 4,540 375 2,418
Amortization of intangible
assets....................... -- -- -- -- 1,101 -- 407
------- ------- ------ ------- -------- ------- -------
Total costs and
operating expenses.... 1,678 2,967 4,589 6,895 28,820 3,021 11,065
------- ------- ------ ------- -------- ------- -------
Loss from operations.............. (1,395) (1,150) (731) (4,665) (18,861) (2,865) (8,001)
Other income (expense)............ (58) (37) (153) 99 886 55 120
------- ------- ------ ------- -------- ------- -------
Net loss.......................... $(1,453) $(1,187) $ (884) $(4,566) $(17,975) $(2,810) $(7,881)
======= ======= ====== ======= ======== ======= =======
Pro forma net loss per share(3)... $ (1.71) $ (0.67)
Number of shares used in computing
pro forma net loss per
share(3)........................ 10,511 11,733
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MARCH 31, 1997
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ACTUAL AS ADJUSTED(4)
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CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $ 15,903
Working capital............................................. 14,992
Total assets................................................ 38,597
Long-term obligations....................................... 5,702
Accumulated deficit......................................... (38,157)
Total stockholders' equity.................................. 25,168
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(1) Based on shares outstanding at March 31, 1997. Does not include 2,490,198
shares issuable upon exercise of stock options outstanding and outstanding
warrants to purchase 31,392 shares of Common Stock. See "Capitalization,"
"Management -- Stock Option Plan," "Description of Capital
Stock -- Warrants" and Note 10 of Notes to Consolidated Financial
Statements.
(2) Includes revenues and related expenses attributable to the Company's
wholly-owned subsidiary, Diamond Animal Health, Inc., which was acquired in
April 1996.
(3) See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of pro forma net loss per share.
(4) Adjusted to reflect the sale by the Company of shares of Common Stock
offered hereby at an assumed public offering price of $ per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
5
<PAGE> 8
The discussion in this Prospectus contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
The Company's actual results and the timing of certain events could differ
materially from those discussed or projected by the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in the sections entitled "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
Prospectus.
RISK FACTORS
In evaluating the Company's business, prospective investors should consider
carefully the following risk factors in addition to the other information
presented in this Prospectus.
DEPENDENCE ON DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS
Most of the Company's products are still under development and there can be
no assurance such products will be successfully developed or commercialized on a
timely basis, or at all. The Company believes that its revenue growth and
profitability, if any, will substantially depend upon its ability to complete
development of and successfully introduce its new products. The Company will be
required to undertake time-consuming and costly development activities and seek
regulatory approval for these new products. There can be no assurance that the
Company will not experience difficulties that could delay or prevent
successfully developing, obtaining regulatory approvals to market or introducing
these new products, that regulatory clearance or approval of any new products
will be granted by the United States Department of Agriculture ("USDA"), the
United States Food and Drug Administration ("FDA"), the Environmental Protection
Agency ("EPA") or foreign regulatory authorities on a timely basis, or at all,
or that the new products will be successfully commercialized. The Company's
strategy is to develop a broad range of products addressing different disease
indications. The Company has limited resources to devote to the development of
all its products and consequently a delay in the development of one product or
the use of resources for product development efforts that prove unsuccessful may
delay or jeopardize the development of its other products. Further, to a certain
extent, the Company is dependent on collaborative partners to successfully and
timely perform research and development activities on behalf of the Company. In
order to successfully commercialize any new products, the Company will be
required to establish and maintain a reliable, cost-efficient source of
manufacturing for such products. If the Company is unable, for technological or
other reasons, to complete the development, introduction or scale up of
manufacturing of any new product or if any new product is not approved for
marketing or does not achieve a significant level of market acceptance, the
Company could be materially and adversely affected. Following the introduction
of a product, adverse side effects may be discovered that make the product no
longer commercially viable. Publicity regarding such adverse effects could
affect sales of the Company's other products for an indeterminate time period.
The Company is dependent on the acceptance of its products by both veterinarians
and pet owners. The failure of the Company to engender confidence in its
products and services could affect the Company's ability to attain sustained
market acceptance of its products. See "Business -- Manufacturing,"
"-- Government Regulation" and "-- Collaborative Agreements."
LOSS HISTORY AND ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE PROFITABILITY;
QUARTERLY FLUCTUATIONS
Heska has incurred net losses since its inception. At March 31, 1997, the
Company's accumulated deficit was $38.2 million. The Company anticipates that it
will continue to incur additional operating losses for the next several years.
Such losses have resulted principally from expenses incurred in the Company's
research and development programs and, to a lesser extent, from general and
administrative and sales and marketing expenses. There can be no assurance that
the Company will attain profitability or, if achieved, will remain profitable on
a quarterly or annual basis in the future. The Company believes that future
operating results will be subject to quarterly fluctuations due to a variety of
factors, including whether and when new products are successfully developed and
introduced by the Company or its competitors, market acceptance of current or
new products, regulatory delays, product recalls, competition and pricing
pressures from competitive products, manufacturing delays, shipment problems,
product seasonality, and changes in the mix of products sold. Because the
Company is continuing to increase its operating expenses for personnel and new
product development and marketing, the Company's operating results will be
adversely affected if its sales do not correspondingly increase or if its
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product development efforts are unsuccessful or subject to delays. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LIMITED SALES AND MARKETING EXPERIENCE; DEPENDENCE ON OTHERS
In 1996 Heska began to build a sales force and commenced initial sales of
its products. To be successful, Heska will have to develop and train its direct
sales force or rely on marketing partners or other arrangements with third
parties for the marketing, distribution and sale of its products. The Company is
currently marketing its products to veterinarians through a direct sales force
and certain third parties. There can be no assurance that the Company will be
able to successfully establish and maintain marketing, distribution or sales
capabilities or make arrangements with third parties to perform those activities
on terms satisfactory to the Company. See "Business -- Sales, Marketing and
Customer Service."
In addition, the Company has granted marketing rights to certain products
under development to third parties, including Novartis AG ("Novartis"), Bayer AG
("Bayer") and Eisai Co., Ltd. ("Eisai"). Novartis has the right to manufacture
and market throughout the world (except in countries where Eisai has such
rights) under Novartis trade names any flea control vaccine or feline heartworm
vaccine developed by the Company on or before December 31, 2005. The Company
retained the right to co-exclusively manufacture and market these products
throughout the world under its own trade names. Accordingly, if both elect to
market these products, the Company and Novartis will be direct competitors, with
each party sharing revenues on the other's sales. Heska also granted Novartis a
right of first refusal pursuant to which, prior to granting rights to any third
party for any products or technology developed or acquired by the Company for
either companion animal or food animal applications, Heska must first offer
Novartis such rights. Bayer has exclusive marketing rights to the Company's
canine heartworm vaccine and its recombinant feline toxoplasmosis vaccine
(except in countries where Eisai has such rights). Eisai has exclusive rights in
Japan and most countries in East Asia to market the Company's feline and canine
heartworm vaccines, feline and canine flea control vaccines and feline
toxoplasmosis vaccine. The Company's agreements with its marketing partners
contain no minimum purchase requirements in order for such parties to maintain
their exclusive or co-exclusive marketing rights. On the other hand, certain of
the Company's license and manufacturing agreements contain minimum purchase or
sale obligations by the Company in order for the Company to maintain its rights
under such agreements. There can be no assurance that Novartis, Bayer or Eisai
or any other collaborative party will devote sufficient resources to marketing
the Company's products. Furthermore, there is nothing to prevent Novartis, Bayer
or Eisai or any other collaborative party from pursuing alternative technologies
or products that may compete with the Company's products. See "Business --
Collaborative Agreements."
HIGHLY COMPETITIVE INDUSTRY
The market in which the Company competes is intensely competitive. Heska's
competitors include companion animal health companies and major pharmaceutical
companies that have animal health divisions. Companies with a significant
presence in the animal health market, such as American Home Products, Bayer,
Merck & Co., Inc., Novartis, Pfizer Inc and IDEXX Laboratories, Inc., have
developed or are developing products that do or would compete with the Company's
products. Novartis and Bayer are marketing partners of the Company, and their
agreements with the Company do not restrict their ability to develop and market
competing products. These competitors have substantially greater financial,
technical, research and other resources and larger, more established marketing,
sales, distribution and service organizations than the Company. Moreover, such
competitors may offer broader product lines and have greater name recognition
than the Company. Additionally, the market for companion animal health care
products is highly fragmented, with discount stores and specialty pet stores
accounting for a substantial percentage of such sales. As Heska intends to
distribute its products only through veterinarians, a substantial segment of the
potential market may not be reached, and the Company may not be able to offer
its products at prices which are competitive with those of companies that
distribute their products through retail channels. There can be no assurance
that the Company's competitors will not develop or market technologies or
products that are more effective or commercially attractive than the Company's
current or future products or that would render the Company's technologies and
products obsolete. Moreover, there can be no assurance that the Company will
have the financial resources, technical expertise or marketing, distribution or
support capabilities to compete successfully. See "Business -- Competition."
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UNCERTAINTY OF PATENT AND PROPRIETARY TECHNOLOGY PROTECTION; LICENSE OF
TECHNOLOGY OF THIRD PARTIES
The Company's ability to compete effectively will depend in part on its
ability to develop and maintain proprietary aspects of its technology and either
to operate without infringing the proprietary rights of others or to obtain
rights to such technology. Heska has United States and foreign issued patents
and is currently prosecuting patent applications in the United States and with
certain foreign patent offices. There can be no assurance that any of the
Company's pending patent applications will result in the issuance of any patents
or that, if issued, any such patents will offer protection against competitors
with similar technology. There can be no assurance that any patents issued to
the Company will not be challenged, invalidated or circumvented in the future or
that the rights created thereunder will provide a competitive advantage.
The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
There can be no assurance that the Company will not in the future become subject
to patent infringement claims and litigation in the United States or other
countries or interference proceedings conducted in the United States Patent and
Trademark Office ("USPTO") to determine the priority of inventions. The defense
and prosecution of intellectual property suits, USPTO interference proceedings,
and related legal and administrative proceedings are both costly and time
consuming. Litigation may be necessary to enforce any patents issued to the
Company or its collaborative partners, to protect trade secrets or know-how
owned by the Company or its collaborative partners, or to determine the
enforceability, scope and validity of the proprietary rights of others. Any
litigation or interference proceeding will result in substantial expense to the
Company and significant diversion of effort by the Company's technical and
management personnel. An adverse determination in litigation or interference
proceedings to which the Company may become a party could subject the Company to
significant liabilities to third parties. Further, either as the result of such
litigation or proceedings or otherwise, the Company may be required to seek
licenses from third parties which may not be available on commercially
reasonable terms, if at all.
The Company's products may incorporate technologies that are the subject of
patents issued to, and patent applications filed by, others. As is typical in
its industry, from time to time the Company and its collaborators have received
and may in the future receive notices claiming infringement from third parties
as well as invitations to take licenses under third party patents. It is the
Company's policy when it receives such notices to conduct investigations of the
claims asserted. With respect to notices the Company has received to date, the
Company believes, after due investigation, that it has meritorious defenses to
the infringement claims asserted. Any legal action against the Company or its
collaborators may require the Company or its collaborators to obtain a license
in order to market or manufacture affected products or services. However, there
can be no assurance that the Company or its collaborators will be able to obtain
licenses for technology patented by others on commercially reasonable terms,
that they will be able to develop alternative approaches if unable to obtain
licenses, or that the current and future licenses will be adequate for the
operation of their businesses. The failure to obtain necessary licenses or to
identify and implement alternative approaches could prevent the Company and its
collaborators from commercializing certain of their products under development
and could have a material adverse effect on the Company's business, financial
condition or results of operations.
The Company also relies upon trade secrets, technical know-how and
continuing invention to develop and maintain its competitive position. There can
be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology, that the Company can
meaningfully protect its rights to its trade secrets, or that the Company will
be capable of protecting its rights to its trade secrets. See
"Business -- Intellectual Property."
LIMITED MANUFACTURING EXPERIENCE AND CAPACITY; RELIANCE ON CONTRACT
MANUFACTURERS
To be successful, the Company must manufacture, or contract for the
manufacture of, its current and future products in compliance with regulatory
requirements, in sufficient quantities and on a timely basis, while maintaining
product quality and acceptable manufacturing costs. In order to provide for
manufacturing of biological products, the Company acquired Diamond in April
1996. Significant work will be required for the
8
<PAGE> 11
scaling up of each potential product prior to commercialization, and there can
be no assurance that such work can be completed successfully or on a timely
basis.
In addition to Diamond, the Company intends to rely on contract
manufacturers for certain of its products. The Company currently has supply
agreements with Atrix Laboratories ("Atrix") for its canine periodontal disease
therapeutic, with Quidel Corporation ("Quidel") for certain manufacturing
services relating to its point-of-care canine and feline heartworm diagnostic
tests, and with Iatric Corporation for allergy test kits and allergy
immunotherapy treatment sets. These agreements all require the manufacturing
partner to supply the Company's requirements, within certain parameters. Certain
of these partners do not have substantial manufacturing experience on a
commercial scale. There can be no assurance that these partners will be able to
manufacture products to regulatory standards, the Company's specifications or in
a cost-effective and timely manner. If any supplier were to be delayed in
scaling up commercial manufacturing, were to be unable to produce a sufficient
quantity of products to meet market demand, or were to request renegotiation of
contract prices, the Company's business would be materially and adversely
affected. While the Company typically retains the right to manufacture products
itself or contract with an alternative supplier in the event of the
manufacturer's breach, any transfer of production would necessarily involve
significant delays in production and additional expense to the Company to scale
up production at a new facility and to apply for regulatory licensure for the
production of products at that new facility. In addition, there can be no
assurance that the Company will be able to locate suitable manufacturing
partners for its products under development or alternative suppliers if present
arrangements are not satisfactory. See "Business -- Manufacturing."
GOVERNMENT REGULATION; NO ASSURANCE OF OBTAINING REGULATORY APPROVALS
The development, manufacture and marketing of most of the Company's
products are subject to regulation by various governmental authorities,
consisting principally of the USDA and the FDA in the United States and various
regulatory agencies outside the United States. Delays in obtaining, or failure
to obtain any necessary regulatory approvals would have a material adverse
effect on the Company's future product sales and operations. Any acquisitions of
new products and technologies may subject the Company to additional government
regulation.
The Company's manufacturing facilities and those of any contract
manufacturers the Company may use are subject to the requirements of and subject
to periodic regulatory inspections by the FDA, USDA and other federal, state and
foreign regulatory agencies. There can be no assurance that the Company or its
contractors will satisfy such regulatory requirements, and any failure to do so
would have a material adverse effect on the Company's business, financial
condition or results of operations.
There can be no assurance that the Company will not incur significant costs
to comply with laws and regulations in the future or that laws and regulations
will not have a material adverse effect upon the Company's business, financial
condition or results of operation. See "Business -- Government Regulation."
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
While the Company believes that its available cash, together with the
proceeds of this offering, will be sufficient to satisfy its funding needs for
current operations for at least the next 12 months, assuming no significant uses
of cash in acquisition activities, the Company has incurred negative cash flow
from operations since inception and does not expect to generate positive cash
flow to fund its operations for the next several years. Thus, the Company may
need to raise additional capital to fund its research and development programs,
to scale up manufacturing activities and to expand its sales and marketing
force. The Company's future liquidity and capital funding requirements will
depend on numerous factors, including the extent to which the Company's products
under development are successfully developed and gain market acceptance, the
timing of regulatory actions regarding the Company's potential products, the
costs and timing of expansion of sales, marketing and manufacturing activities,
procurement, enforcement and defense of patents important to the Company's
business, results of product trials and competition. There can be no assurance
that such additional capital will be available on terms acceptable to the
Company, if at all. Furthermore, any additional equity financing may be dilutive
to stockholders, and debt financing, if available, may include restrictive
covenants. If adequate funds are not
9
<PAGE> 12
available, the Company may be required to curtail its operations significantly
or to obtain funds through entering into collaborative agreements or other
arrangements on unfavorable terms. The failure by the Company to raise capital
on acceptable terms when needed could have a material adverse effect on the
Company's business, financial condition or results of operations. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the efforts of its senior management and
scientific team, including its Chief Executive Officer and Chief Scientific
Officer. The loss of the services of any member of its senior management or
scientific staff may significantly delay or prevent the achievement of product
development and other business objectives. Because of the specialized scientific
nature of the Company's business, the Company is highly dependent on its ability
to attract and retain qualified scientific and technical personnel. There is
intense competition among major pharmaceutical and chemical companies,
specialized biotechnology firms and universities and other research institutions
for qualified personnel in the areas of the Company's activities. Loss of the
services of, or failure to recruit, key scientific and technical personnel could
adversely affect the Company's business, financial condition or results of
operations. See "Business -- Employees" and "Management -- Directors, Executive
Officers and Key Employees."
MANAGEMENT OF GROWTH; IDENTIFICATION AND INTEGRATION OF ACQUISITIONS
The Company anticipates additional growth in the number of its employees,
the scope of its operating and financial systems and the geographic area of its
operations as new products are developed and commercialized. This growth will
result in an increase in responsibilities for both existing and new management
personnel. The Company's ability to manage growth effectively will require it to
continue to implement and improve its operational, financial and management
information systems and to train, motivate and manage its employees. There can
be no assurance that the Company will be able to manage its expansion, and a
failure to do so could have a material adverse effect on the Company's business,
financial condition or results of operations.
In 1996, Heska consummated the acquisitions of Diamond and the canine
allergy business of Bioproducts DVM, Inc. In February 1997, Heska acquired
Bloxham Laboratories Limited, a veterinary diagnostic laboratory in the United
Kingdom. Moreover, the Company anticipates using a portion of the proceeds from
this offering to make additional acquisitions. See "Use of Proceeds."
Identifying and pursuing acquisition opportunities, integrating acquired
products and businesses and managing growth requires a significant amount of
management time and skill. There can be no assurance that the Company will be
effective in identifying and effecting attractive acquisitions, integrating
acquisitions or managing future growth. The failure to do so may have a material
adverse effect on the Company's business, financial condition or results of
operations.
POTENTIAL PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
The testing, manufacturing and marketing of the Company's current products
as well as those currently under development entail an inherent risk of product
liability claims and associated adverse publicity. To date, the Company has not
experienced any material product liability claims, but any such claims arising
in the future could have a material adverse effect on the Company's business,
financial condition or results of operations. Potential product liability claims
may exceed the amount of the Company's insurance coverage or may be excluded
from coverage under the terms of the policy. There can be no assurance that the
Company's existing insurance can be renewed at a cost and level of coverage
comparable to that presently in effect, if at all. In the event that the Company
is held liable for a claim against which it is not indemnified or for damages
exceeding the limits of its insurance coverage or which results in significant
adverse publicity against the Company, such claim could have a material adverse
effect on the Company's business, financial condition or results of operations.
HAZARDOUS MATERIALS
The Company's products and development programs involve the controlled use
of hazardous and biohazardous materials, including chemicals, infectious disease
agents and various radioactive compounds.
10
<PAGE> 13
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by applicable
local, state and federal regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages or fines that
result and any such liability could exceed the resources of the Company. The
Company may incur substantial costs to comply with environmental regulations as
the Company expands its manufacturing capacity.
LACK OF PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after this offering. The initial public
offering price will be determined through negotiations among the Company, the
Selling Stockholder and the Underwriters and may bear no relationship to the
price at which the Common Stock will trade upon completion of the offering. See
"Underwriting."
POSSIBLE VOLATILITY OF STOCK PRICE
The securities markets have from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of
particular companies. The market prices of the common stock of many
publicly-held biotechnology companies have in the past been, and can in the
future be, especially volatile. Announcements of technological innovations or
new products by the Company or its competitors, release of reports by securities
analysts, developments or disputes concerning patents or proprietary rights,
regulatory developments, changes in regulatory policies, economic and other
external factors, as well as quarterly fluctuations in the Company's financial
results, may have a significant impact on the market price of the Common Stock.
POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following this offering could have an adverse effect on the price of the
Common Stock. The shares offered hereby will be eligible for sale in
the public market immediately following this offering. Upon the commencement of
this offering, approximately 278,000 shares will be eligible for immediate
resale in the public market. Beginning 90 days after the date of this
Prospectus, approximately 377,000 additional shares will be eligible for sale in
the public market pursuant to Rule 144 and Rule 701 under the Securities Act of
1933, as amended (the "Securities Act"). Additionally, approximately 12,000,000
shares of Common Stock, including 1,177,555 shares issuable upon the exercise of
certain options, will be eligible for sale in the public market 180 days after
the date of this Prospectus, upon expiration of lockup agreements, in reliance
on Rule 144 or Rule 701 under the Securities Act. The Company intends to
register a total of approximately shares of Common Stock reserved for
issuance under its 1997 Employee Stock Purchase Plan and 1997 Stock Incentive
Plan as soon as practicable following the date of this Prospectus. Certain
existing stockholders have rights to require the Company to register their
shares for future sale. See "Description of Capital Stock -- Registration
Rights" and "Shares Eligible for Future Sale."
BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS
The Company anticipates that the proceeds of this offering will be used to
fund research and development efforts, to expand sales and marketing
capabilities, to expand and develop manufacturing operations and capabilities,
to fund strategic acquisitions of businesses, technologies or products and to
finance working capital and general corporate requirements. The amounts expended
for each such purpose and the timing of such expenditures may vary depending
upon numerous factors. The Company will have broad discretion in determining the
amount and timing of expenditures and in allocating the new proceeds of this
offering. Such discretion will be particularly broad with respect to that
portion of the proceeds available for use for working capital and general
corporate purposes. See "Use of Proceeds."
11
<PAGE> 14
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, PRINCIPAL STOCKHOLDERS AND AFFILIATED
ENTITIES
The Company's directors, executive officers, principal stockholders and
entities affiliated with them will, in the aggregate, beneficially own
approximately % of the Company's outstanding Common Stock following the
completion of this offering. The Company's three major stockholders, who
together will own % after the offering, have entered into a voting
agreement dated as of April 12, 1996 (the "Voting Agreement") whereby each
agreed to collectively vote its shares in such manner so as to ensure that each
major stockholder was represented by one member on the Company's Board of
Directors. The Voting Agreement terminates on December 31, 2005 unless prior to
such date any of the investors ceases to beneficially hold 2,000,000 shares of
the voting stock of the Company, at which time the Voting Agreement would
terminate. The major stockholders, if acting together, could substantially
control all matters requiring approval by the stockholders of the Company,
including the election of directors and the approval of mergers or other
business combination transactions. See "Principal and Selling Stockholders" and
"Description of Capital Stock -- Voting Agreement."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW
Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors may be
willing to pay in the future for shares of the Company's Common Stock. Certain
of these provisions allow the Company to issue Preferred Stock without any vote
or further action by the stockholders, provide for a classified board of
directors and eliminate the right of stockholders to call special meetings of
stockholders. These provisions may make it more difficult for stockholders to
take certain corporate actions and could have the effect of delaying or
preventing a change in control of the Company. In addition, certain provisions
of Delaware law applicable to the Company could also delay or make more
difficult a merger, tender offer, or proxy contest involving the Company. See
"Management" and "Description of Capital Stock."
DILUTION; ABSENCE OF DIVIDENDS
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in the offering will, therefore, incur immediate and substantial
dilution. At an initial public offering price of $ per share, the immediate
dilution to purchasers of shares of Common Stock in the offering is $ per
share of Common Stock, or %. Additional dilution is likely to occur upon
the exercise of options and warrants granted by the Company. See "Dilution."
12
<PAGE> 15
USE OF PROCEEDS
The proceeds to the Company from the sale of the shares of Common
Stock being offered by the Company are estimated to be $ ($ if
the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and offering expenses. The Company
currently anticipates that it will use the net proceeds of this offering to
continue to fund the Company's research and development efforts, to expand sales
and marketing capabilities and to expand and develop manufacturing operations
and capabilities. The Company also expects to use a portion of the net proceeds
to acquire businesses, technologies or products complementary to the Company's
business, although no specific commitments have been made and no transactions
are currently being negotiated which would have a material effect on the
Company's operating results. The Company anticipates using the remaining net
proceeds for working capital and general corporate purposes. The cost, timing
and amount of funds required by the Company cannot be precisely determined at
this time and will be based upon numerous factors, including the Company's
progress in research and development; the timing and costs of obtaining
regulatory approvals; the costs involved in preparing, filing, prosecuting and
enforcing patent claims; competing technological and market developments;
changes in the Company's existing research and collaborative relationships;
evaluation of the commercial viability of potential products; and the progress
of commercialization activities and arrangements. The Company has broad
discretion in determining how the net proceeds of this offering will be applied.
Pending such uses, the Company intends to invest the net proceeds in short-term,
interest-bearing obligations.
The Company will not receive any proceeds from the sale of the shares of
Common Stock by the Selling Stockholder. See "Principal and Selling
Stockholders."
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock and
does not anticipate paying any dividends in the foreseeable future. The Company
currently intends to retain its earnings, if any, for the development of its
business.
13
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997, after giving effect to the conversion of all shares of Preferred
Stock into Common Stock upon the closing of this offering, and as adjusted to
give effect to the sale of the shares of Common Stock being offered by
the Company at an assumed initial public offering price of $ per share and
the application of the estimated net proceeds therefrom as set forth under "Use
of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations, less current portion(1).............. $ 5,702 $ 5,702
Stockholders' equity:
Preferred Stock, $.001 par value; 25,000,000 shares
authorized; 10,513,999 outstanding (actual); none
outstanding (as adjusted).............................. 63,236 --
Common Stock, $.001 par value; 40,000,000 shares
authorized; 1,114,904 issued and outstanding (actual);
[ ] issued and outstanding (as adjusted)(2).. 239
Additional paid-in capital................................
Cumulative translation adjustment......................... 1 1
Stock subscription receivable............................. (151) (151)
Accumulated deficit....................................... (38,157) (38,157)
-------- --------
Total stockholders' equity........................ $ 25,168 $
======== ========
Total capitalization.............................. $ 30,870 $
======== ========
</TABLE>
- ---------------
(1) See Notes 5 and 6 of Notes to Consolidated Financial Statements.
(2) Does not include (i) 3,817,166 shares of Common Stock reserved for issuance
under the Company's stock option plans, under which there were options
outstanding as of March 31, 1997 to purchase an aggregate of 2,490,198
shares of Common Stock, and (ii) 31,392 shares of Common Stock issuable upon
exercise of warrants outstanding as of March 31, 1997. See
"Management -- Stock Option Plan," "Description of Capital
Stock -- Warrants" and Note 10 of Notes to Consolidated Financial
Statements.
14
<PAGE> 17
DILUTION
The net tangible book value of the Company as of March 31, 1997 was $21.0
million, or $1.80 per share. Pre-offering pro forma net tangible book value per
share represents the amount of total tangible assets less total liabilities of
the Company, divided by the number of shares of Common Stock outstanding (which
includes the conversion of all outstanding Preferred Stock at the closing of the
offering). After giving effect to the sale of the shares of Common
Stock offered by the Company hereby (at an assumed initial public offering price
of $ per share and after deduction of estimated underwriting discounts and
commissions and offering expenses), the post-offering pro forma net tangible
book value of the Company at March 31, 1997 would have been $ , or
$ per share. This represents an immediate increase in such net tangible book
value of $ per share to existing stockholders and an immediate dilution of
$ per share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
------
Net tangible book value per share before offering......... $
----------
Increase per share attributable to new investors..........
----------
Pro forma net tangible book value per share after
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1997,
the differences between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company, and the average consideration paid per share
(based upon an assumed initial public offering price of $ per share and
before deduction of estimated underwriting discounts and commissions and
offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 11,629,000 % $55,755,000 % $4.79
New investors..................
---------- ----- ----------- -----
Total................ 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) Sales by the Selling Stockholder in this offering will reduce the number of
shares held by existing stockholders to , or approximately %
(approximately %, if the Underwriters' over-allotment option is
exercised in full), of the total number of shares of Common Stock
outstanding, and will increase the number of shares held by new investors to
, or approximately % (or approximately %, if the
Underwriters' over-allotment option is exercised in full), of the total
number of shares of Common Stock outstanding after this offering.
The foregoing table assumes no exercise of the Underwriters' over-allotment
option or of any outstanding stock options or warrants. As of March 31, 1997,
there were outstanding options to purchase an aggregate of 2,490,198 shares of
Common Stock at exercise prices ranging from $0.10 to $3.00 per share and
warrants to purchase 31,392 shares of Common Stock exercisable at a weighted
average exercise price of $3.10 per share. To the extent these options or
warrants are exercised, there will be further dilution to new investors. See
"Management -- Stock Option Plan," "Description of Capital Stock -- Warrants"
and Note 10 of the Notes to Consolidated Financial Statements.
15
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's balance sheet data at December 31, 1995 and 1996 and, with respect to
the Company's consolidated statement of operations data, for each of the three
years in the period ended December 31, 1996 have been derived from the Company's
consolidated financial statements, which have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report included
elsewhere herein. The consolidated balance sheet data as of December 31, 1992,
1993 and 1994 and the consolidated statement of operations data for the years
ended December 31, 1992 and 1993 have been derived from audited consolidated
financial statements not included herein. The selected consolidated financial
data at March 31, 1997 and for each of the three month periods ended March 31,
1996 and 1997 have been derived from unaudited consolidated financial statements
prepared on the same basis as the audited consolidated financial statements and
containing, in the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
consolidated financial position at such dates and the operating results and cash
flows for such periods. The results of operations for the three months ended
March 31, 1997 are not necessarily indicative of results to be expected for any
future period. The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996(1) 1996 1997
------- ------- ------ ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Products and services, net............. $-- .... $ -- $ -- $ -- $ 8,013 $ 39 $ 2,626
Research and development............... 283 1,817 3,858 2,230 1,946 117 438
------- ------- ------ ------- -------- ------- -------
Total revenues.................. 283 1,817 3,858 2,230 9,959 156 3,064
------- ------- ------ ------- -------- ------- -------
Costs and operating expenses:
Cost of sales.......................... -- -- -- -- 6,648 20 2,148
Research and development............... 1,188 2,427 3,685 6,031 14,038 2,626 4,519
Selling and marketing.................. -- -- -- -- 2,493 -- 1,573
General and administrative............. 490.... 540 904 864 4,540 375 2,418
Amortization of intangible assets...... -- -- -- -- 1,101 -- 407
------- ------- ------ ------- -------- ------- -------
Total costs and operating
expenses...................... 1,678 2,967 4,589 6,895 28,820 3,021 11,065
------- ------- ------ ------- -------- ------- -------
Loss from operations..................... (1,395) (1,150) (731) (4,665) (18,861) (2,865) (8,001)
Other income (expense)................... (58) (37) (153) 99 886 55 120
------- ------- ------ ------- -------- ------- -------
Net loss................................. $(1,453) $(1,187) $ (884) $(4,566) $(17,975) $(2,810) $(7,881)
======= ======= ====== ======= ======== ======= =======
Pro forma net loss per share(2).......... $ (1.71) $ (0.67)
Number of shares used in computing pro
forma net loss per share(2)............ 10,511 11,733
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
------- ------- ------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities............................ $ 149 $ 695 $ 539 $ 6,827 $ 23,700 $ 15,903
Working capital (deficit)............... (331) (241) 300 6,522 23,955 14,992
Total assets............................ 338 1,031 2,670 8,508 42,169 38,597
Long-term obligations................... 19 132 181 302 4,528 5,702
Accumulated deficit..................... (5,664) (6,851) (7,735) (12,301) (30,276) (38,157)
Total stockholders' equity (deficit).... (203) (86) 1,180 7,249 32,383 25,168
</TABLE>
- ---------------
(1) Includes revenues and related expenses attributable to Diamond, which was
acquired in April 1996.
(2) See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of pro forma net loss per share.
16
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results and the timing of certain events could differ materially from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below, as well as those discussed elsewhere in this Prospectus.
OVERVIEW
Heska discovers, develops, manufactures and markets companion animal health
products, primarily for dogs, cats and horses. From the Company's inception in
1988 until early 1996, the Company's operating activities related primarily to
research and development activities, entering into collaborative agreements,
raising capital and recruiting personnel. Prior to 1996, the Company had not
received any revenues from the sale of products, and it has incurred net losses
since inception. As of March 31, 1997, the Company's accumulated deficit was
$38.2 million.
During 1996, Heska grew from being primarily a research and development
concern to a fully-integrated research, development, manufacturing and marketing
company. The Company accomplished this through the acquisitions of Diamond
Animal Health, Inc. ("Diamond"), a licensed pharmaceutical and biological
manufacturing facility in Des Moines, Iowa, and the canine allergy business of
Bioproducts DVM, Inc. (the "Bioproducts Business"), hiring key employees and
support staff, establishing marketing and sales operations to support the
Bioproducts Business and other Heska products introduced in 1996, and the design
and implementation of more sophisticated operating and information systems. The
Company also expanded the scope and level of scientific and business development
activities, increasing the opportunities for new products. In the first quarter
of 1997, the Company launched additional products and expanded internationally
through the acquisition of Bloxham Laboratories Limited ("Bloxham"), a
veterinary diagnostic laboratory in Teignmouth, England. Each of the
acquisitions of Diamond, the Bioproducts Business and Bloxham was accounted for
under the purchase method of accounting and accordingly, the Company's financial
statements reflect the operations of these businesses only for the periods
subsequent to the acquisitions.
The Company anticipates that it will continue to incur additional operating
losses for the next several years as it introduces new products and continues
its research and development activities for products under development. There
can be no assurance that the Company will attain profitability or, if achieved,
will remain profitable on a quarterly or annual basis in the future. See "Risk
Factors -- Loss History and Accumulated Deficit; Uncertainty of Future
Profitability; Quarterly Fluctuations."
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1996
Product and service revenues were $2.6 million for the three months ended
March 31, 1997 as compared to $39,000 for the corresponding period in 1996.
Revenues for the first quarter of 1997 consisted primarily of revenues from
Diamond, and to a lesser extent of revenues from Heska products introduced in
late 1996 or early 1997, whereas revenues for 1996 included only minor revenues
from the Bioproducts Business which was acquired in March 1996. Revenues for the
first quarter of 1997 also reflect diagnostic laboratory services revenues for
Bloxham subsequent to its acquisition in February 1997.
Revenues from sponsored research and development increased to $438,000 in
the three months ended March 31, 1997 from $117,000 in the corresponding period
in 1996. Fluctuations in revenues from sponsored research and development are
generally the result of changes in the number of funded research projects as
well as the timing and performance of contract milestones. The Company expects
that revenues from sponsored research and development will decline in future
periods, reflecting the expiration of current funding commitments and the
Company's decision to fund its future research activities primarily from
internal sources.
Cost of goods sold was $2.1 million for the three months ended March 31,
1997 as compared to $20,000 for the comparable period in 1996, due primarily to
manufacturing activities at Diamond which were not included in
17
<PAGE> 20
the 1996 period. The gross margin for the three months ended March 31, 1997 was
$478,000. The Company expects that its gross margins will improve as sales
volumes increase and manufacturing capacity at Diamond is more fully utilized.
Research and development expenses increased to $4.5 million for the three
months ended March 31, 1997 from $2.6 million in the comparable period of 1996,
due to a substantial increase in the level and scope of research and development
activities following a $36.0 million equity investment by Novartis in April
1996. Research and development expenses include expenses both for development of
products to be marketed by the Company and development under sponsored research
and development agreements, and consist primarily of salaries and benefits for
scientific, development and regulatory personnel, intellectual property costs,
license fees, contract research, supplies and materials, depreciation and rental
of lab equipment and facility costs. The Company expects that research and
development expenses will continue to increase through 1997, although the rate
of increase is expected to be lower than that experienced between the first
quarter of 1996 and the first quarter of 1997.
Selling and marketing expenses were $1.6 million for the three months ended
March 31, 1997 and consist primarily of salaries and benefits for sales and
marketing personnel, commissions, market research, product promotion, consulting
fees, and trade show costs. The Company added senior sales management and 22
field sales persons in the first quarter of 1997 to support planned product
introductions. The Company expects that these costs will continue to increase
through 1997 as the Company continues to add personnel and launch new products.
General and administrative expenses increased to $2.4 million for the three
months ended March 31, 1997 from $375,000 for the comparable period in 1996 as a
result of significant growth in the Company's accounting and finance, human
resources, legal, administrative, information systems and facilities. The
Company expects that its general and administrative expenses will increase in
future periods.
Amortization of intangible assets totaled $407,000 for the three months
ended March 31, 1997 as a result of these acquisitions. Net intangible assets at
March 31, 1997 totaled $4.2 million as a result of the Diamond, Bioproducts
Business and Bloxham acquisitions.
Interest income increased to $296,000 for the three months ended March 31,
1997 compared to $71,000 for the three months ended March 31, 1996 due to
increased cash balances following the $36.0 million in equity financing received
after the end of the first quarter of 1996. Interest expense increased to
$170,000 for the three months ended March 31, 1997 compared to $16,000 for the
comparable period in 1996 due to the assumption of debt in connection with the
acquisition of Diamond in April 1996 and increases in debt financing for
laboratory and manufacturing equipment acquired during 1996.
The Company reported a net loss of $7.9 million for the three months ended
March 31, 1997 as compared to a net loss of $2.8 million for the three months
ended March 31, 1996. The Company expects to incur additional operating losses
for the next several years.
Years Ended December 31, 1996, 1995 and 1994
Product and service revenues were $8.0 million in 1996, consisting
primarily of revenues from Diamond subsequent to its acquisition and to a lesser
extent from sales of allergy diagnostic services and treatment products by Heska
subsequent to the acquisition of the Bioproducts Business. The Company had no
such revenues prior to 1996.
Revenues from sponsored research and development decreased to $1.9 million
in 1996 from $2.2 million in 1995 and $3.9 million in 1994. Fluctuations in
revenues from sponsored research and development are generally the result of
changes in the number of funded research projects as well as the timing and
performance of contract milestones. See Note 8 of Notes to Consolidated
Financial Statements for more detailed information about the amounts received
under sponsored research and development agreements in each of these periods.
18
<PAGE> 21
Cost of goods sold totaled $6.6 million in 1996 and reflects primarily
manufacturing activities at Diamond and to a lesser extent product costs
associated with Heska's product sales. The Company did not incur cost of goods
sold in 1995 or 1994. The gross margin for 1996 was $1.4 million.
Research and development expenses increased to $14.0 million in 1996 from
$6.0 million in 1995 and $3.7 million in 1994. The increases in 1996 and 1995
are due primarily to substantial increases in the level and scope of research
and development activities for products to be marketed by the Company following
the equity financings in those years and increases in intellectual property
costs. A substantial portion of the expense in 1994 was incurred under sponsored
research and development agreements.
Selling and marketing expenses totaled $2.5 million in 1996, reflecting the
Company's establishment of a sales and marketing organization to support Heska's
launch and sale of products in 1996. Sales and marketing expenses consisted
primarily of salaries and benefits for sales and marketing personnel, market
research, product promotion, consulting and trade show costs. The Company did
not incur selling and marketing expenses in 1995 or 1994.
General and administrative expenses increased to $4.5 million in 1996 from
$864,000 in 1995 and $904,000 in 1994. The increase in 1996 resulted from the
significant growth of accounting and finance, human resources, legal,
administrative, information systems and facilities operations to support the
Company's increased business and financing activities. These expenses declined
slightly in 1995 from 1994 due largely to a severance payment made in 1994 to a
former executive.
Amortization of intangible assets totaled $1.1 million for 1996 and
resulted from the 1996 acquisitions of Diamond and the Bioproducts Business. Net
intangible assets at December 31, 1996 totaled $3.5 million as a result of the
Diamond and Bioproducts Business acquisitions.
Interest income increased to $1.4 million for 1996 from $172,000 in 1995
and $26,000 in 1994, as a result of increased cash available for investment from
the proceeds of equity investments in 1996 and 1995. Interest expense increased
to $325,000 in 1996 from $63,000 in 1995 and $168,000 in 1994, due to the
assumption of debt in connection with the Diamond acquisition and an increase in
debt financing for laboratory and manufacturing equipment. The higher interest
expense in 1994 compared to 1995 reflects interest due on loans to a
stockholder.
The Company reported a net loss in 1996 of $18.0 million as compared to a
1995 net loss of $4.6 million and a 1994 net loss of $884,000. The significant
increase in losses over the period reflects the increases in research and
development in 1996 and 1995 and in sales and marketing activities in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily with the
net proceeds received from private placements of equity securities and from
revenues from sponsored research and development. As of March 31, 1997, the
Company had received aggregate proceeds of $55.8 million from equity
transactions, including $36.0 million received in April 1996 in connection with
an equity investment by Novartis and $10.0 million received in 1995 from equity
investments by Volendam Investeringen N.V. The Company has also received funds
totaling $11.4 million through March 31, 1997 under collaborative agreements, of
which $11.0 million has been recognized as revenue from sponsored research and
development.
In addition, the Company has received proceeds from equipment financing
totaling $4.7 million through March 31, 1997 and assumed $4.3 million in short
and long-term debt in connection with the 1996 acquisition of Diamond. Capital
lease obligations and term debt owed by the Company totaled $7.8 million as of
March 31, 1997, with installments payable through 2001. The Company anticipates
that it will continue to use capital equipment leasing facilities to fund
equipment acquisitions and, if possible, leasehold improvements. The Company
expects to finance accounts receivable and inventory at Diamond through an asset
based borrowing facility, although no agreement has been entered into. The
Company will also seek similar borrowing facilities to fund increases in Heska's
accounts receivable and inventory if acceptable terms can be negotiated.
19
<PAGE> 22
Net cash used for operating activities was $1.3 million, $3.7 million and
$14.1 million for 1994, 1995 and 1996, respectively, and $6.9 million for the
three months ended March 31, 1997. Cash was used for operations primarily to
fund research and development activities along with the establishment of sales
and marketing operations and administrative infrastructure. Expenditures for
property and equipment totaled $424,000, $348,000 and $5.2 million for 1994,
1995 and 1996, respectively, and $2.2 million for the three months ended March
31, 1997. As the Company continues to expand it will require additional
expenditures to improve its leased manufacturing and research facilities.
The Company currently expects to spend approximately $7.0 million over the
next several years to improve Diamond's facility. In addition, Diamond is
negotiating to provide manufacturing services to new customers that would
require the construction of specialized facilities and the purchase of
specialized equipment. Diamond will, to the extent possible, ask such customers
to bear or share these costs.
The Company has financed its acquisition activities primarily through the
issuance of Preferred Stock and in connection therewith issued Preferred Stock
valued at $648,000 in the first three months of 1997 to acquire Bloxham and $7.1
million in 1996 to acquire Diamond. Cash used for acquisition activities,
including funds deposited in a restricted cash account, totaled $418,000 for the
three months ended March 31, 1997 relating to Bloxham, and $478,000 in 1996
relating to the Bioproducts Business.
At March 31, 1997, the Company's principal source of liquidity was $15.9
million in cash, cash equivalents and short-term investments. While the Company
believes that these sources of cash, together with the proceeds of this
offering, will be sufficient to satisfy its funding needs for current operations
for at least the next 12 months, assuming no significant uses of cash in
acquisition activities, the Company has incurred negative cash flow from
operations since inception and does not expect to generate positive cash flow to
fund its operations for the next several years. Thus, the Company may need to
raise additional capital to fund its research and development programs, to scale
up manufacturing activities and to expand its sales and marketing force. The
Company's future liquidity and capital funding requirements will depend on
numerous factors, including the extent to which the Company's products under
development are successfully developed and gain market acceptance, the timing of
regulatory actions regarding the Company's potential products, the costs and the
timing of expansion of sales, marketing and manufacturing activities, the
procurement and enforcement of patents important to the Company's business, and
the results of product trials and competition. There can be no assurance that
such additional capital will be available on terms acceptable to the Company, if
at all. Furthermore, any additional equity financing may be dilutive to
stockholders and debt financing, if available, may include restrictive
covenants. If adequate funds are not available, the Company may be required to
curtail its operations significantly or to obtain funds through entering into
collaborative agreements or other arrangements on unfavorable terms. The failure
by the Company to raise capital on acceptable terms when needed could have a
material adverse effect on the Company's business, financial condition or
results of operations.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1996, the Company had a net operating loss ("NOL")
carryforward of approximately $26.9 million and approximately $731,000 of
research and development ("R&D") tax credits available to offset future federal
income taxes. The NOL and tax credit carryforwards, which are subject to
alternative minimum tax limitations and to examination by the tax authorities,
expire from 2003 to 2010. The Company's acquisition of Diamond resulted in a
"change of ownership" under the provisions of Section 382 of the Internal
Revenue Code of 1986, as amended, and the Company believes that this offering
may constitute an additional "change of ownership" under those rules. As such,
the Company will be limited in the amount of NOLs incurred prior to the merger
or to this offering it may utilize to offset future taxable income. This
limitation will total approximately $4.3 million per year for periods subsequent
to the Diamond acquisition. Similar limitations also apply to utilization of R&D
tax credits to offset taxes payable.
20
<PAGE> 23
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of any standards recently issued
by the Financial Accounting Standards Board to have a material impact on the
Company's financial position or results of operations.
21
<PAGE> 24
BUSINESS
OVERVIEW
Heska discovers, develops, manufactures and markets companion animal health
products, primarily for dogs, cats and horses. The Company's strategy is to
become the companion animal health care company of choice for veterinarians by
enabling them to comprehensively manage diseases using a broad line of
diagnostic, vaccine and therapeutic products and services. Heska has six
products currently on the market and over 25 products in research and
development. The Company also offers diagnostic laboratory services to
veterinarians and operates a full scale USDA and FDA licensed facility which
manufactures products for Heska and other animal health companies. Heska has
corporate partnerships with Novartis, Bayer and Eisai and plans to expand its
products and services through complementary acquisitions, licenses and
collaborations. Heska believes that it has the largest and most sophisticated
scientific effort in the world devoted to applying biotechnology to the large
and growing companion animal health market.
BACKGROUND
Companion animals improve the quality of human life by providing
companionship, affection and acceptance. In addition, numerous studies indicate
that relationships with companion animals have demonstrable therapeutic benefits
for blood pressure, anxiety and loneliness, especially for elderly or depressed
people.
There are approximately 67 million cats, 57 million dogs and seven million
horses in the United States, representing approximately one cat, dog or horse
for every two people. There are also approximately 100 million cats, dogs and
horses in Western Europe, Japan, Canada, Australia and New Zealand. The Company
believes that due to better nutrition and care, the average life expectancy of
dogs and cats in the United States has been increasing. As with humans, as
companion animals age, their medical needs increase.
According to industry estimates the worldwide market for companion animal
health products and diagnostic services exceeds $2.5 billion. In the United
States, the market for companion animal health products is the fastest growing
segment of the animal health industry and has expanded in response to the
introduction of novel products. There are over 35,000 veterinarians in the
United States whose practices are devoted principally to companion animal
medicine. The practice of veterinary medicine in the United States is
significantly different from the practice of human medicine and greatly affects
the market for companion animal health products. In addition to providing
services and prescribing drugs, veterinarians act as the pharmacists of
companion animal medicine by reselling the vaccines and other products which
they use or prescribe in their practice. Veterinarians also sell other
non-prescription products for use at home. Another distinction from human
medicine is that the vast majority of companion animal veterinarians practice as
"general practice" veterinarians without significant specialization. Access to
veterinarians specializing in diseases common to companion animals can be
difficult and expensive. For example, of the approximately 35,000 companion
animal veterinarians in the United States, fewer than 100 are board certified
veterinary dermatologists.
The development of biotechnology products for the companion animal health
market has lagged behind development of products for the larger human health
market. To date, it appears that there have only been modest, isolated efforts
to use biotechnology to develop products specifically for companion animal
health applications. For example, at this time, the Company believes that there
are only two recombinant vaccines on the market for companion animal health and
only a handful of diagnostic products that use recombinant proteins, two of
which are the Company's feline heartworm and flea bite allergy diagnostic
products. Heska believes that it is the first company to undertake a concerted
effort to use biotechnology to develop a broad range of products for companion
animal health.
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<PAGE> 25
HESKA'S STRATEGY
Heska's goal is to become a leader in companion animal health. The
Company's strategy to achieve this goal includes the following elements:
- Promote strong relationships with veterinarians. Heska plans to become
the companion animal health care company of choice for veterinarians, who
are the primary distribution channel for companion animal diagnostics,
vaccines and therapeutics. Heska intends to accomplish this goal by
providing novel products that advance companion animal medicine, by
selling its products exclusively to veterinarians and by supporting the
general practitioner through high quality diagnostic services and through
access to a staff of medical specialists. The Company believes that
support of veterinarians is critical to enhancing Heska brand loyalty.
- Develop a broad line of innovative products for comprehensive case
management. Heska's strategy is to offer and develop a broad line of
products and services for comprehensive management of companion animal
diseases, such as allergy, heartworm infection and flea-associated
conditions. For several companion animal diseases, Heska is developing
products and services for each step of veterinary care, from diagnosis to
treatment and prevention. The Company currently has six products on the
market and over 25 products in research and development, and it also
provides veterinary diagnostic laboratory services. The Company expects
that its business will not be substantially dependent on one product or
technology.
- Commercialize products from its large, sophisticated research
effort. Heska scientists have developed a large body of knowledge, from
the organism to the molecular genetic level, about the physiology of
parasites, such as fleas and heartworms, and the basic immunology of dogs
and cats. The Company believes that this body of knowledge is unmatched
in the industry. The Company's strategy is to use this knowledge and the
skills of its researchers to create innovative, proprietary products.
Heska's current employees hold more than 20 D.V.M.s and over 45 Ph.D.s.
Most of these employees have been affiliated with prestigious academic
research institutions and/or leading biotechnology or animal health
companies.
- Leverage resources through strong strategic relationships. Heska has
entered into agreements with three major pharmaceutical companies,
Novartis, Bayer and Eisai, which provided funding for certain of its
research and development programs. These partners have rights to market
certain resulting Heska products. Heska believes that the size and
experience of these partners will enable the Company to penetrate markets
more quickly and extensively. Additionally, to broaden its portfolio of
products and technologies, the Company is aggressively pursuing licenses
to promising technologies from leading biotechnology companies and
research institutions.
- Pursue complementary acquisitions. The Company intends to build its
business in part through the acquisition of complementary technologies,
products and businesses. In 1996, the Company acquired its present canine
allergy product line and a licensed manufacturing facility, and in 1997
it purchased one of the largest veterinary diagnostic laboratories in the
United Kingdom. The Company believes that significant acquisition
opportunities exist in the companion animal health industry and plans to
actively pursue such opportunities.
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<PAGE> 26
PRODUCTS AND PROGRAMS
The Company is developing a broad line of diagnostic, vaccine and
therapeutic products targeting a broad range of companion animal diseases. The
following table summarizes Heska's currently available products and its products
in various stages of research and development:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKETING
PRODUCT STAGE OF DEVELOPMENT(1) RIGHTS(2)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ALLERGY & DERMATOLOGY
Canine Allergy Diagnostic Currently available; second Heska
generation expected in 1997
Feline Allergy Diagnostic Expected in 1997 Heska
Canine Allergy Currently available Heska
Immunotherapeutic
Feline Allergy Regulatory discussions underway Heska
Immunotherapeutic
Ancillary Dermatology Products Expected in 1997 Heska
- ----------------------------------------------------------------------------------------------
FLEA BITE ALLERGY
Canine Flea Bite Allergy
Diagnostic
Veterinary Diagnostic Currently available Heska
Laboratory
Point-of-Care Diagnostic Research Heska
Feline Flea Bite Allergy
Diagnostic
Veterinary Diagnostic Expected in 1997 Heska
Laboratory
Point-of-Care Diagnostic Research Heska
Flea Bite Allergy Research Heska
Immunotherapeutic
Canine Flea Bite Allergy Research Heska
Vaccine
Feline Flea Bite Allergy Research Heska
Vaccine
- ----------------------------------------------------------------------------------------------
FLEA CONTROL
Flea Control Vaccines
Canine Flea Control Vaccine Research Heska/Novartis/
Eisai
Feline Flea Control Vaccine Research Heska/Novartis/
Eisai
Environmental Flea Control Research Heska
Pharmaceutical Flea Control Research Heska/Novartis
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) See "-- Government Regulation" for a description of the marketing and
approval process for the Company's products.
(2) See "-- Collaborative Agreements" for a description of the marketing
rights for these products.
24
<PAGE> 27
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKETING
PRODUCT STAGE OF DEVELOPMENT(1) RIGHTS(2)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
HEARTWORM INFECTION
Feline Heartworm Diagnostic
Veterinary Diagnostic Currently available Heska
Laboratory
Point-of-Care Diagnostic Expected in 1997 Heska
Canine Heartworm Diagnostic
Veterinary Diagnostic Currently available Heska
Laboratory
Point-of-Care Diagnostic Expected in 1997/1998 Heska
Heartworm Vaccines
Canine Heartworm Vaccine Research Bayer/Eisai
Feline Heartworm Vaccine Research Heska/Novartis/
Eisai
- ----------------------------------------------------------------------------------------------
DENTISTRY
Canine Periodontal Disease Expected in 1997 Heska
Therapeutic
Canine Dental Hygiene Kits Expected in 1997 Heska
- ----------------------------------------------------------------------------------------------
OTHER INFECTIOUS DISEASES
Feline Trivalent Viral Vaccine Currently available; second Heska
generation in research
Feline Immunodeficiency Virus Research Heska
Vaccine
Feline Leukemia Virus Vaccine Research Heska
Bartonellosis (Cat Scratch Product approval trials ongoing Heska
Fever) Vaccine
Feline Toxoplasmosis Vaccine Research Bayer/Eisai
Feline Plague Vaccine Research Heska
Canine Leishmaniosis Diagnostic Expected in Italy in 1997 Heska
Canine Leishmaniosis Vaccine Research Heska
Canine Viral Vaccines Research Heska
Equine Influenza Vaccine Product approval trials ongoing Heska
- ----------------------------------------------------------------------------------------------
ONCOLOGY Research Heska
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) See "-- Government Regulation" for a description of the marketing and
approval process for the Company's products.
(2) See "-- Collaborative Agreements" for a description of the marketing
rights for these products.
25
<PAGE> 28
ALLERGY AND DERMATOLOGY
Overview. Allergy is common in companion animals and affects approximately
10% to 15% of dogs. Clinical symptoms of allergy are variable, but are often
manifested as persistent and serious skin disease in dogs and cats. Clinical
management of allergic disease is problematic as there are a large number of
allergens that may give rise to these conditions. Although skin testing is often
regarded as the most accurate diagnostic procedure, such tests are painful,
subjective and inconvenient for animals and accordingly are used much less often
than in vitro testing. The Company believes that many of the currently available
in vitro diagnostic tests are of questionable accuracy. The effectiveness of the
immunotherapy that is prescribed to treat allergic disease is inherently limited
by inaccuracies in the diagnostic process.
The Company's principal strategy with respect to allergy is to improve the
quality of immunotherapy by improving the quality of diagnosis. Heska has
developed more accurate in vitro technology to detect IgE, the antibody most
involved in allergic reactions. This technology permits the design of tests that
more specifically identify the animal's allergic responses to particular
allergens.
As part of its plan to support the veterinarian, the Company has adopted a
complete disease management approach to allergy. As part of its allergy program,
the Company offers allergy testing services, immunotherapy products, palliative
products and case management services.
Diagnostics. Heska currently markets in vitro canine allergy diagnostic
tests for a wide range of allergens. The allergy testing is conducted in Heska's
veterinary diagnostic laboratories using an enzyme-linked immunoassay ("ELISA")
to screen the serum of dogs against a panel of known allergens. The test format
currently includes 48 different allergens, consisting primarily of various
pollens, grasses, molds and insects.
The binding of IgE antibodies to a cellular receptor is an essential
prerequisite to allergic reaction. Heska has produced a molecular clone of the
cellular receptor for the IgE antibody. The Company has used this molecularly
cloned receptor in a unique diagnostic assay to detect the presence and quantity
of allergen-specific IgE in an animal's blood. The Company believes that this
test, which is the first of its kind, will enable the more accurate diagnosis of
allergy necessary for improved immunotherapy. Heska introduced a diagnostic
laboratory version of this test for the diagnosis of canine flea bite allergy in
January 1997. The Company is working on an adaptation of this test for all
canine allergy testing, which is expected to be available through Heska's
veterinary diagnostic laboratories in 1997. The Company also intends to
introduce a similar diagnostic product for feline allergy testing in 1997. The
Company expects to follow development of the feline allergy diagnostic product
with the development of a similar equine allergy diagnostic product.
Immunotherapeutics. Veterinarians who use Heska's diagnostic laboratories
for in vitro allergy testing services often purchase immunotherapy treatment
sets for those dogs with positive test results. A large percentage of those
canine allergy tests performed by the Company are positive, and veterinarians
order Heska's immunotherapy treatment sets for a majority of these dogs. These
prescription treatment sets are formulated specifically for each allergic animal
and contain only the allergens to which the animal has demonstrated significant
levels of IgE antibodies. The prescription formulations are administered in a
series of injections, with doses increasing over several months, to alter the
allergic status of the animal. Immunotherapy is generally continued for an
extended time. The Company also plans to offer immunotherapy treatment sets for
cats upon receipt of regulatory clearance.
Ancillary Dermatology Products and Services. Heska expects to introduce in
1997 a line of supportive care products such as allergy shampoos and rinses to
be dispensed by veterinarians for use at home, along with client information
brochures explaining allergy and its treatment. The Company has as a full-time
employee a board-certified veterinary dermatologist whose primary job is to
provide free case management consultations to any Heska customer. There are
fewer than 100 board certified veterinary dermatologists in the United States,
and the Company believes that free, on-demand dermatology consultations are of
tremendous assistance to the veterinarian.
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<PAGE> 29
FLEA BITE ALLERGY
Overview. Flea bite allergy is the most common skin disease afflicting dogs
and cats throughout the world. It is estimated that flea related problems
account for more than 50% of skin conditions observed by veterinarians in flea
endemic areas. Treatments currently available for flea bite allergy are limited.
For example, steroids may provide temporary symptomatic relief, and control of
fleas on the animal and in its environment is also helpful. However, prolonged
use of steroids may have harmful side effects, and sustained complete control of
flea populations is extremely difficult. The Company has developed technology
for the accurate diagnosis of flea bite allergy and is researching products to
prevent the development of flea bite allergy in susceptible animals and to
provide efficacious immunotherapy for animals that have already developed an
allergy to flea bites.
Heska scientists have found that flea salivary proteins are principally
responsible for the allergic reactions to flea bites. The Company has developed
proprietary methods for collecting pure saliva from feeding fleas. From this
pure saliva, flea salivary allergens were discovered and characterized by Heska
biochemists, and the Company's molecular biologists have cloned many of the
genes that encode these unique allergens. Certain of these recombinant molecules
have been shown to give rise to reactions in flea bite allergic dogs and cats.
Diagnostics. At present, diagnosis of flea bite allergy is generally based
on the clinical impression of the veterinarian and a positive response to
effective flea control. Intradermal skin testing, performed by injecting small
amounts of an extract of whole fleas into the skin, is used by some veterinary
dermatologists. A characteristic reaction in the skin, occurring within a few
minutes following injection of the extract, is suggestive of allergy to fleas.
However, testing with an extract of whole fleas is of limited value in
diagnosing flea bite allergy, as such extracts contain only minute amounts of
flea saliva in addition to other allergens known not to be involved in flea bite
allergy that may cause the observed reaction.
Using its proprietary flea salivary allergens and its novel receptor-based
assay for detection of IgE antibodies in the serum of allergic animals, the
Company has developed a reliable in vitro ELISA-based test for flea bite allergy
in dogs. Heska introduced this product in January 1997 in its Colorado
veterinary diagnostic laboratory. The Company expects to introduce a similar
test for cats in 1997. The Company is also developing point-of-care diagnostic
products for both dogs and cats to assist the veterinarian in making a prompt
flea bite allergy diagnosis in the veterinary clinic.
Immunotherapeutics. The Company is using its extensive knowledge of flea
biology, its proprietary flea salivary allergens and its broad understanding of
canine and feline immunology to develop novel flea bite allergy
immunotherapeutics. Such treatments are intended to reduce or eliminate the
symptoms of allergy in dogs and cats that are already allergic to flea bites.
Experimental immunotherapy trials are scheduled to begin in 1997.
Vaccines. Heska is also developing vaccines to prevent flea bite allergy
from occurring in cats and dogs that are not yet allergic to flea bites.
Experimental vaccine studies were initiated in October 1996, and additional
studies are scheduled to commence in 1997.
FLEA CONTROL
Overview. The common flea which infests dogs and cats, Ctenocephalides
felis, is prevalent worldwide wherever warm ambient temperatures and adequate
humidity exist. This highly successful parasite produces uncomfortable allergic
responses, transmits other diseases, causes anemia and is a nuisance to pets and
their owners. As a result, flea control products for dogs and cats represent a
worldwide market of approximately $1 billion.
A number of proprietary and non-proprietary products are currently marketed
for flea control. Two of the proprietary products introduced in the last few
years have been particularly successful. The systemic flea control products
recently introduced by Novartis and Bayer, "Program" and "Advantage," each sold
$100 million or more in the United States in the year of their introduction. No
single product, however, is considered to be completely safe and effective in
flea control at all life-cycle stages. In addition, certain topical control
chemicals, such as those included in sprays and collars, can be toxic and
present safety concerns for animals and humans. The use of certain flea control
chemicals may also, over time, result in fleas that are resistant to those
products.
27
<PAGE> 30
Vaccines. Heska's goal is to develop vaccines that will produce an immune
response in the dog or cat that will kill fleas and reduce their reproduction.
For a number of reasons, including the complexity of parasites and their
adaptations for life in or on host animals, the development of vaccines against
parasites is generally more difficult than the development of vaccines against
viral or bacterial infections. Heska has devoted substantial resources to basic
research in flea physiology in its efforts to design products that will safely
and effectively control fleas. A team of Heska scientists, with expertise in
flea biology, biochemistry, molecular biology and immunology, is using the
results of this research to undertake the development of vaccines for the
control of fleas. To facilitate this work, Heska has created a substantial flea
insectary producing more than 25 million fleas every year. The Company has the
capacity to microscopically dissect 10,000 fleas per week. Genomic libraries and
numerous tissue-specific cDNA libraries have been created to discover the
relevant product targets. Heska researchers also study the molecular physiology
of fleas, focusing on molecular targets from virtually every flea life-stage. As
candidate molecules are purified and molecularly cloned, protein and nucleic
acid sequence data provide the basis for composition of matter patent
applications. Experimental studies with the first vaccine candidates were
initiated in 1996, but commercial vaccines are not anticipated for the next
several years.
Environmental Control. As an example of Heska's ability to capitalize on
its understanding of flea biology, the Company has also entered into a
collaboration with a third party to develop a safe, biologically-based flea
control product which can be applied around the home or kennel to control fleas.
Pharmaceutical Control. The Company's research of flea molecular physiology
has led to the identification of molecular targets for small molecule
pharmaceuticals. Heska has created and is developing additional in vitro tests
amenable to high throughput chemical screening. These in vitro tests and
additional in vivo screens are expected to facilitate rapid analysis of early
stage product candidates and subsequent product development. The Company expects
that it will seek collaborative arrangements to further develop these
pharmaceutical products.
HEARTWORM INFECTION
Overview. Heartworm infections of dogs and cats are caused by the parasite
Dirofilaria immitis. This parasite is transmitted in larval form to dogs and
cats through the bite of an infected mosquito. Larvae develop into adult worms
which live in the pulmonary arteries and heart of the host, where they can cause
serious cardiovascular, pulmonary, liver and kidney disease. The adult worms
produce offspring called microfilariae, which are ingested by blood-feeding
mosquitoes. In the mosquito, the worms develop into the infective larval stage
and in a subsequent mosquito bite are transmitted to the dog or cat.
Heartworm infection is common throughout the world, particularly in warm
and humid climates. Dogs are particularly susceptible to heartworm infection and
treatment is difficult, expensive and requires the use of toxic compounds with
serious adverse effects for the animal. Chemoprophylactic products to prevent
heartworm infections in dogs are generally available and widely prescribed, but
require monthly or daily administration during the heartworm transmission
season. As a result, compliance and convenience issues arise. The worldwide
market for canine heartworm diagnostic and chemoprophylactic products is
estimated to be more than $250 million per year.
Heartworm infections of cats represent a growing area of concern for
veterinary practitioners. Although cats are somewhat less susceptible to
heartworm infection than are dogs, infected cats may experience serious disease,
even death, from only a single adult worm. Diagnosis of these infections is very
difficult, as there are generally too few adult worms present to allow for
reliable heartworm antigen detection in the blood, as is done for dogs. A
chemoprophylactic product to prevent heartworm infections of cats, similar to
the products available for dogs, was introduced by Merck & Co., Inc. in January
1997. Because the manufacturer's label of this chemoprophylactic product
recommends that cats be tested for active infection prior to administration of
their product, Heska believes the availability of the feline preventative
treatment will increase demand for its feline diagnostic products.
Diagnostics. Heska's heartworm vaccine research effort has resulted in the
characterization of many unique heartworm antigens, certain of which will be
useful for the development of improved diagnostic tests. In January 1997, Heska
introduced a new test in a diagnostic laboratory format for feline heartworm
infections of cats which allows veterinarians for the first time to definitively
establish the prevalence of heartworm exposure in
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cats. This test is highly specific and identifies antibodies in cat serum that
react with a recombinant heartworm antigen. Regulatory clearance is expected in
1997 for a rapid point-of-care test for feline heartworm infection using this
same technology in the clinic. The Company expects to launch this point-of-care
feline heartworm diagnostic product in Italy later this year. Heska has also
developed a diagnostic test for heartworm infection in dogs. This test uses
monoclonal antibodies reactive with heartworm antigens to detect the presence of
these antigens in the blood of the infected dog. The test is presently offered
through Heska's veterinary diagnostic laboratory. A point-of-care format is
being developed and, assuming regulatory clearance, is expected to be available
in late 1997 or early 1998.
Vaccines. In order to avoid the need for repeated administration of
chemoprophylactic drugs and the resulting compliance and convenience problems,
Heska's goal is to develop vaccines for annual administration that would prevent
cardiopulmonary infection in dogs and cats caused by heartworms. The Company has
identified many candidate vaccine antigens and the genes encoding them have been
cloned. Heska is using these proprietary molecules in vaccination studies of
dogs and cats, including trials which involve delivering vaccine candidates
using nucleic acids and viral vectors. Each vaccination trial requires
approximately one year to complete. Accordingly, commercialization of vaccines
for heartworm infections of dogs and cats is not anticipated for several years.
DENTISTRY
Overview. Dentistry for dogs and cats is one of the fastest growing markets
in companion animal health. Within dentistry, the major problems are general
dental hygiene and periodontal disease. It is estimated that 80% or more of all
dogs exhibit symptoms of periodontal disease by three years of age, which often
manifests as bad breath. Left untreated, periodontal disease can cause loss of
teeth and systemic bacterial infection. The most prevalent treatment is the
cleaning and scaling of the animal's teeth, which requires that the animal be
anesthetized. Although periodic cleaning and scaling is recommended for all
dogs, this procedure alone does not adequately address the underlying infection
in dogs with periodontal disease and systemic antibiotics are widely prescribed
but are generally unable to achieve the sustained concentration in the tooth
pocket necessary to obtain the desired therapeutic effect. Heska's complete
disease management approach to these medical issues is to offer a proprietary
periodontal disease therapeutic, a group of dental hygiene products and case
management services from a board-certified veterinary dental specialist.
Canine Periodontal Disease Therapeutic. The Company has the exclusive,
worldwide rights to market Atrix Laboratories Inc.'s proprietary human
periodontal disease product developed to treat companion animal periodontal
disease. The Atrix technology uses a biodegradable polymer containing the
antibiotic doxycycline. The polymer is injected into the tooth pocket in a
liquid form where it forms a semi-solid implant that releases the antibiotic
gradually over time. Efficacy of this treatment to clear existing infections has
been established for both dogs and humans. Heska's goal is to have this product
administered by veterinarians on a regular basis for dogs with periodontal
disease concurrently with the regular cleaning and scaling of the animal's
teeth. Regulatory approval for marketing of the periodontal disease therapeutic
for dogs is expected in 1997. Atrix will manufacture the product for
distribution by Heska.
Canine Dental Hygiene Kits. Regular dental hygiene has been proven to be of
value in the prevention of periodontal disease in companion animals. As part of
its comprehensive disease management approach, Heska intends to market canine
dental care kits for both routine dental hygiene and for dental hygiene
following the use of its proprietary periodontal disease therapeutic. The kits
will consist of a toothbrush, toothpaste and rinse and will be manufactured for
the Company by third parties. The Company expects to commence its marketing of
these dental hygiene kits concurrently with the launch of its periodontal
therapeutic.
OTHER INFECTIOUS DISEASES
Feline Trivalent Viral Vaccine. Heska currently markets a three-way
modified live vaccine for the three most common viral diseases of cats, namely
calicivirus, rhinotracheitis virus and panleukopenia virus. This vaccine is
administered without needle injection by dropping the liquid preparation into
the eyes and nostrils of cats. While there is one competitive non-injectable
two-way (no panleukopenia protection) vaccine, all other competitive
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products are injectable formulations. The use of injectable vaccines in cats has
become controversial due to the frequency of side effects associated with
injection of certain vaccines. The most serious of these side effects are
injection site sarcomas, tumors which are nearly always fatal. The Company's
trivalent vaccine avoids injection site side effects and is believed by the
Company to be very efficacious. The Company is also researching a second
generation vaccine using recombinant technology.
Feline Immunodeficiency Virus Vaccine. Feline Immunodeficiency Virus
("FIV") produces a viral disease characterized by immunodeficiency which
ultimately results in the death of the cat. Treatment options are quite limited,
and at this time there are no vaccines available to prevent the disease,
although several of the animal health companies with a feline vaccine line are
believed to be attempting to develop one. Heska is developing a recombinant FIV
vaccine, and the first experimental trials of Heska vaccine candidates are
expected to be initiated in 1997.
Feline Leukemia Virus Vaccine. Feline Leukemia Virus ("FeLV") is a viral
disease of cats that is characterized by immunodeficiency and ultimately results
in death. As with FIV, treatment options are quite limited. However, there are
several vaccines presently offered for the prevention of FeLV. There is some
controversy as to the relative efficacy of these vaccines. Heska is developing a
recombinant vaccine for FeLV, and the first experimental trials of the Heska
vaccine candidates are expected to be initiated in 1997.
Bartonellosis (Cat Scratch Fever) Vaccine. Cat Scratch Fever, caused by the
bacterium Bartonella henselae, is transmitted from cats to humans by a cat's
scratch and perhaps by other means. The human disease is characterized by
malaise, fever and swollen lymph nodes, sometimes lasting several weeks and
sometimes requiring hospitalization. The Company believes that there are over
22,000 cases of Cat Scratch Fever in humans annually, of which 2,000 require
hospitalization. Immunocompromised humans may develop very severe disease
following infection, and this organism is a cause of a significant number of
opportunistic infections in HIV-positive individuals. Therefore, doctors
treating at-risk human populations may recommend that cats be eliminated from
the household.
The Company is working with scientists at the United States Centers for
Disease Control and Prevention ("CDC") in Atlanta to develop a vaccine for cats.
The vaccine will prevent cats from harboring the bacteria in their blood and
thus limit transmission of the bacteria from cats to humans. Certain vaccine
formulations prepared at Heska have successfully protected cats from infection
and studies are underway to optimize these vaccine formulations. The Company is
also working with the CDC to develop a second generation vaccine.
Feline Toxoplasmosis Vaccine. Toxoplasma gondii is a protozoan parasite
that infects cats and other mammals including humans, pigs and sheep. This
disease is transmitted to humans through the oocysts (eggs) of the parasite,
which are passed exclusively in the feces of infected cats. In addition,
consumption of undercooked lamb and pork is a common means of transmission to
humans. Toxoplasma infections are generally not a serious concern for cats, as
healthy cats generally tolerate the infection without disease. However,
infections of other animals, including humans, may have serious consequences.
This is particularly true for immunocompromised individuals, such as
HIV-infected persons, and for unborn fetuses. Such infections may be life
threatening in the former case, and lead to birth defects or miscarriage in the
latter. Because of the risk of transmission of this disease from cat feces,
doctors sometimes advise immunocompromised patients and women who are or may
become pregnant to avoid or give away their cats. For this reason, Heska
believes that an appropriate vaccine may encourage such individuals to keep
their family pets and is developing a recombinant vaccine to protect cats from
shedding Toxoplasma oocysts. The Company believes that such a vaccine, if widely
used, could help to reduce the transmission of disease to humans and other
animals. The Company has identified and cloned the genes encoding over 80
vaccine candidate antigens from internally developed gene libraries. Testing of
these antigens for vaccine efficacy is expected to begin in 1997.
Feline Plague Vaccine. The disease commonly known as the "Bubonic Plague"
or "Black Death" reached epidemic proportions in medieval Europe. While no
longer epidemic, this disease, caused by the bacterium Yersinia pestis, still
exists and may be transmitted to humans from cats. The plague-causing bacterium
is endemic in many areas of the western United States where infections are
transmitted among rodents by flea bites. Cats may be exposed to the bacterium
either through direct contact or through bites of fleas from infected rodents.
Moreover, veterinarians and cat owners are at risk of infection by contact with
diseased cats. Each year in the
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western United States several cases of feline plague are reported, and
occasionally, practicing veterinarians are infected. According to the CDC, from
1980 to 1994, there were 229 reported cases of human plague in the United
States, resulting in 33 fatalities. Heska scientists are developing a feline
vaccine for plague. Studies in mice have demonstrated significant immune
responses for this vaccine formulation and efficacy studies in cats are planned
for 1997.
Canine Leishmaniosis Diagnostic and Vaccine. Canine visceral leishmaniosis
is a serious disease of dogs and humans caused by the parasite Leishmania. These
protozoan parasites are transmitted to humans and dogs through the bite of
sandflies. The disease causes profound suffering and, if left untreated,
infected dogs often die. While this disease is generally not a problem in the
United States, it is widespread in Mediterranean and Middle Eastern countries
and in South America. Dogs serve as the primary reservoir of the parasites for
transmission to other dogs and to humans. Diagnosis of canine visceral
Leishmania infections is currently based on clinical symptoms, the finding of
parasitized cells in lymph node aspirates and the use of a laboratory-based
microscopy assay to detect antibodies in the serum of dogs reactive with
Leishmania antigens. At present there are no vaccines that will prevent
Leishmania infection of dogs. The Company believes that significant markets
exist for both a convenient and reliable diagnostic and an effective vaccine.
These products would improve quality of life of dogs living in endemic areas and
may reduce the risk of disease transmission to humans.
Using a proprietary molecule developed by Corixa Corporation, the Company
has developed a sensitive diagnostic laboratory immunoassay for diagnosis of
canine Leishmania infection and is developing a point-of-care device for rapid
diagnosis. Both the laboratory test and the point-of-care test are expected to
be introduced for sale in Italy in 1997, with introduction in other European
countries to follow. These tests provide improved accuracy and are much faster
and easier to perform than the currently available laboratory test.
The Company expects that laboratory testing of vaccine candidates will
commence in 1997. Vaccine trials will be conducted in Italy under conditions of
natural exposure in an area where transmission of Leishmania is endemic. Because
little is yet known of the natural progression of disease in Leishmania-infected
dogs, it is anticipated that this research effort, and subsequent vaccine
trials, will not be completed for several years.
Canine Viral Vaccines. Heska scientists are researching a next generation
line of vaccines which are intended to protect dogs from their most common viral
diseases. This vaccine line will focus on four principal canine viral diseases:
parvovirus, distemper virus, parainfluenza virus and adenovirus. The Company
intends to develop a vaccine to protect dogs from all four viruses and another
vaccine aimed at parvovirus alone. The Company does not expect these next
generation vaccines to be commercially available for several years.
Equine Influenza Vaccine. Equine influenza is a common viral disease of
horses and is similar to human influenza. Horses have diminished performance and
quality of life for an extended period following infection. Currently available
vaccines for equine influenza are of limited efficacy and the duration of
immunity for existing vaccines is measured in weeks or months. Heska is
developing a unique vaccine for equine influenza and believes its vaccine
candidates will have improved efficacy and duration of immunity. The vaccine is
currently being tested in horses for safety and efficacy.
ONCOLOGY
With improving medical care, dogs and cats are living longer lives and,
accordingly, developing more age-associated diseases such as cancer. In fact,
cancer is the leading cause of disease-associated death in dogs and cats.
However, most treatments are less than optimal and employ "off label"
therapeutic products developed for use in humans. The Company believes that it
is critical that a cancer therapeutic product not substantially decrease the
quality of life of the treated dog or cat. Accordingly, Heska is pursuing a
number of product opportunities focusing primarily on quality of life during the
course of cancer therapy. Numerous approaches are being taken, including
pursuing licensing opportunities arising from human oncology research and
collaborating with outside scientists on unique immunization techniques for
companion animal cancers. The Company does not expect to have commercial
products in this area for several years.
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VETERINARY DIAGNOSTIC LABORATORY SERVICES
Heska believes that there is a substantial market need for high quality
veterinary diagnostic laboratory services combined with high quality case
management advice. This is due in part to the fact that most veterinarians
practice as general practitioners, rather than specialists. In order to support
veterinarians in their practices, Heska intends that its veterinary diagnostic
laboratory will address these diagnostic situations as well as provide highly
technical, state-of-the-art case analyses.
In 1996, Heska established a veterinary diagnostic laboratory at its Fort
Collins facility. The diagnostic laboratory currently offers the Company's
allergy diagnostics, canine and feline heartworm diagnostics and flea bite
allergy assays, in addition to other diagnostic and pathology services. The Fort
Collins veterinary diagnostic laboratory is currently staffed by three
diplomates of the American College of Veterinary Pathologists, several medical
technologists experienced in animal disease, and several additional technical
staff. As in all other areas of its business, Heska intends to continue to
provide its customers the highest level of customer support possible.
Heska intends to continue to use the diagnostic laboratory both as a
stand-alone service center and as an adjunct to its product development efforts.
Many of the assays which the Company will develop in a point-of-care format will
initially be validated and made available in the diagnostic laboratory and will
remain available in that format after the introduction of the analogous
point-of-care test. The Company believes that veterinarians will appreciate
being able to have confirmatory testing performed in the laboratory as a back-up
to point-of-care testing, as well as the ability in some circumstances to
conduct quantitative testing. The Company believes that these diagnostic
services also provide opportunities for interaction between its medical and
technical consulting staff and its veterinarian customers.
In addition to the United States veterinary diagnostic laboratory, the
Company recently acquired Bloxham Laboratories Limited, one of the largest
veterinary diagnostic laboratories in the United Kingdom. Bloxham Laboratories
provides a full range of diagnostic and pathology services, including the
proprietary diagnostic laboratory tests marketed by the Company.
NON-COMPANION ANIMAL HEALTH PRODUCTS
Food Animal Products. Diamond is completing the research, development and
testing of a new line of bovine vaccines. Diamond has entered into a strategic
collaboration with a major pharmaceutical company pursuant to which the partner
is providing funding for certain of this bovine vaccine research and development
work in exchange for non-exclusive rights to use the antigens that Diamond
develops.
Heska has also developed a unique diagnostic to detect Trichinella
spiralis, a parasite that is transmitted to humans and other animals in
undercooked meat. Infected pork is implicated in most outbreaks of human
trichinosis. Heska has identified what it believes to be the most important
antigen for the diagnosis of Trichinella infection in pigs and other hosts. This
carbohydrate antigen has been synthesized, can be produced in large quantities,
and has been shown to be a superior reagent for the serological diagnosis of
Trichinella infections of swine. The Company is presently in negotiations to
provide this antigen for distribution as a diagnostic product to the swine
product subsidiary of an international pharmaceutical company.
Potential Human Health Applications. Heska's extensive research in the
molecular and cellular biology of parasites has yielded potential human
applications. Various biotechnology companies are pursuing pharmaceutical
compounds derived from various microscopic organisms, higher invertebrates such
as snails and even amphibians. The Company's research with parasites has
similarly yielded molecules that may also have interesting human pharmaceutical
applications.
In addition, the Company's novel work with the cellular receptor for IgE
has been directed toward improving the diagnosis of allergy in companion
animals. The Company intends to further evaluate this technology for the
diagnosis of human allergic disease. It also appears that certain allergic-type
diseases may be caused by an autoimmune reaction to this same cellular receptor
for IgE. The Company is evaluating whether the detection of these
auto-antibodies can be used in diagnostic testing for these diseases. After it
has completed its initial proof-of-concept work as to these technologies, Heska
intends to explore corporate partnerships with appropriate human health care
companies for the further development of the human applications. With this
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approach, Heska hopes to maximize the benefit of the technologies discovered and
developed at Heska, including extending them into the human health care market
where feasible without distracting the Company from its companion animal health
focus.
PRODUCT CREATION
Heska is committed to creating innovative products to address significant
unmet health needs of companion animals. The Company creates products both
through internal research and development and through external collaborations.
Internal research is managed by multidisciplinary product-associated project
teams consisting of veterinarians, biologists, molecular and cellular
biologists, biochemists and immunologists. Heska believes that it has the
largest and most sophisticated scientific effort in the world devoted
exclusively to applying biotechnology to the creation of companion animal
products. Heska's employees hold more than 20 D.V.M.s and over 45 Ph.D.s; seven
employees hold both D.V.M. and Ph.D. degrees.
The creation of unique and scientifically advanced vaccine and therapeutic
products often requires an investment in basic research. For example,
fundamental knowledge about the immunology of dogs and cats is not well
developed, and the Company has invested significant resources on basic research
to understand immune responses in dogs and cats. Similarly, the Company has
invested significant resources to develop novel viral vector and nucleic acid
vaccines. The Company believes the information provided by these research groups
is essential to an informed and predictable program aimed at creating state of
the art safe and effective vaccines and immunotherapeutics. Through this
commitment, Heska has developed new knowledge of T-cell biology, cytokines,
immune responses to adjuvants and the use of viral vector and nucleic acid
vaccines in companion animals.
For a number of reasons, including the complexity of parasitic organisms
and their adaptations for life in or on host animals, the development of
vaccines against parasites is generally more difficult than the development of
vaccines against viruses or bacteria. The Company has committed substantial
resources to develop a body of knowledge at a molecular genetic level about the
physiology of parasites such as fleas and heartworms and the diseases they cause
that it believes is unmatched in the industry. The Company has created a flea
production laboratory that produces tens of millions of fleas each year for
internal research. Similarly, in order to maximize the likelihood of developing
a successful heartworm vaccine, the Company has created a mosquito insectary
where tens of thousands of infective heartworm larvae are produced every week.
To support its product research programs, the Company has also developed
core technical support areas which perform commonly-used techniques to a
consistent high standard. These in-house core support areas include a hybridoma
laboratory, a protein and nucleic acid sequencing facility, a recombinant
protein purification laboratory, a diagnostics creation laboratory and a process
development laboratory.
Heska is also committed to identifying external product opportunities and
creating business and technical collaborations that could lead to the creation
of other products. The Company is currently funding research at multiple
academic or governmental institutions. In addition, the Company is also involved
in joint research or product development efforts with a number of companies. See
"-- Collaborative Agreements." The Company believes that its active
participation in scientific networks and its reputation for investing in
research enhances its ability to acquire external product opportunities.
SALES, MARKETING AND CUSTOMER SERVICE
The Company presently markets its products in the United States directly to
veterinarians through the use of its field sales force, inside customer
service/tele-sales force and veterinary distributors acting as contract sales
agents. The Company presently has over 20 field sales representatives and field
sales supervisors and eight customer service/tele-sales representatives and
supervisors. The twelve veterinary distributors with whom the Company has
entered into sales agency relationships employ more than 300 field and customer
service/tele-sales representatives.
Internationally, the Company will market its products to veterinarians
through distributors, sales agents, strategic collaborators, or directly. The
choice of distribution channels will depend on factors such as the size of
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the market in the country, the ease of accessing that market using a direct
sales force and the economic efficiency of alternative distribution methods.
There are over 35,000 veterinarians in the United States whose practices
are devoted principally to companion animal medicine. Those veterinarians
practice in approximately 25,000 clinics in the United States. The Company plans
to market its products to these clinics primarily through the use of its field
and telephone sales force, sales agents, trade shows and print advertising. The
Company has sold products and services to over 3,000 such clinics within the
last 12 months.
In addition to creating novel products that improve companion animal
health, Heska is committed to supporting the veterinarian through a complete
case management strategy. The average companion animal veterinarian practices
general medicine. Although there are an increasing number of veterinary
specialists available, the economics of companion animal practice discourage
extensive use of these specialists. The Company's strategy is to help the
general practice veterinarian practice more sophisticated medicine in several
ways. First, the Company currently provides certain specialized diagnostic
services not available in a point-of-care format or in third party laboratories.
The Company intends to increase the range of these services, both at its
Colorado facility and through the establishment or acquisition of additional
diagnostic laboratories. In addition, the Company has established a medical and
technical consulting group on site at the Colorado facility consisting of six
employee veterinarians with specialized expertise in such areas as dermatology,
internal medicine, pathology, dentistry and feline practice. These personnel are
available to all veterinarian customers for interpretation of test results and
qualified and timely advice for continuing management of any given case. The
Company believes that these services enhance the practicing veterinarians'
ability to provide the best possible medical care.
Although most veterinary diagnostic, vaccine and therapeutic products are
ordinarily sold only by veterinarians where a doctor-patient relationship
exists, these products are sometimes sold directly to the public by catalogue
and retail outlets that employ veterinarians. In order to support veterinary
clinics and to foster loyalty to Heska products, the Company intends to sell its
products exclusively to veterinarians for use where a doctor-patient
relationship exists.
Heska scientists present examples of the scientific advances that are being
made in the Company's laboratories at important veterinary and other scientific
meetings and are encouraged to publish their research in peer reviewed journals.
The Company believes that these presentations and publications have helped
establish the Company as a scientific leader in companion animal health.
MANUFACTURING
The Company expects that its products will be manufactured both by Diamond
and/or by contract manufacturers. Diamond's facility consists of a 166,000
square foot USDA and FDA licensed biological and pharmaceutical manufacturing
facility in Des Moines, Iowa. The Company expects that it will manufacture most
or all of its biological products at this facility, as well as most or all of
its recombinant proteins and other proprietary reagents for its diagnostic
products. The Company will manufacture its point-of-care diagnostic products for
feline and canine heartworm infection with Quidel and Diamond. The Company's
periodontal disease therapeutic will be manufactured by Atrix Laboratories, the
company that is developing this product for human use. The Company's
non-proprietary products, such as the canine dental hygiene kits and the
dermatology line, will be manufactured to its specifications by third parties.
As the Company enters into additional strategic collaborations, it is possible
that some of these strategic partners may manufacture products for sale by the
Company. The Company's reliance upon third party manufacturers poses a
significant risk. See "Risk Factors -- Limited Manufacturing Experience and
Capacity; Reliance on Contract Manufacturers."
In addition to manufacturing products for the Company, Diamond manufactures
veterinary biologicals and pharmaceuticals on a contract basis for other major
companies in the animal health industry. Diamond is one of the few contract
biological manufacturers in this market. Bayer, which is a leader in the bovine
vaccine area, currently has most of its bovine products for the United States
market manufactured by Diamond. In 1996, Bayer accounted for a majority of the
Company's revenues on a consolidated basis. Bayer is contractually obligated to
make minimum annual purchases of bovine vaccine products annually through June
1999. In addition to viral
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vaccines, Diamond also manufactures vaccines against bacterial infections, such
as leptospirosis. Diamond currently has the capacity to manufacture more than
50,000,000 doses of vaccines each year. Diamond's customers purchase products in
both bulk and finished format and usually contract with Diamond to perform all
phases of manufacturing, including growth of the active bacterial and viral
agents, sterile filling, lyophilization and packaging. In addition, Diamond
ordinarily will support its customers through research services, regulatory
compliance services, validation support and distribution services. Capacity at
this facility is not fully utilized, and Diamond is in negotiations with several
other companies, including a manufacturer of human vaccines, for the provision
of manufacturing services.
COLLABORATIVE AGREEMENTS
NOVARTIS
In April 1996, the Company and Novartis entered into several agreements in
connection with a $36.0 million equity investment by Novartis in the Company
(see "Certain Transactions"). Novartis received, under the marketing agreements,
certain rights to manufacture and market any flea control vaccine or feline
heartworm control vaccine developed by the Company as to which USDA prelicensing
serials are completed on or before December 31, 2005. The Company and Novartis
have co-exclusive rights to market these products under their own trade names
throughout the world (other than in countries in which Eisai has such rights)
and, if both parties elect to market, the parties will share revenues on their
sales. The marketing agreements remain in force through 2010 or longer, if
Novartis is still actively marketing such products. In addition, the parties
entered into a screening and development agreement under which the parties may
undertake joint research and development activities in certain fields. If the
parties fail to agree to perform joint research activities, then Novartis has
the right to use certain materials of the Company on an exclusive basis to
develop food animal pharmaceutical products or on a co-exclusive basis with the
Company to develop pharmaceutical products for parasite control in companion
animals or food animal vaccines. Novartis would pay royalties on any such
products developed by it. Currently, there are no current joint research
projects being undertaken, although several are in the proposal stage. The
Company and Novartis also entered into a right of first refusal agreement under
which the Company, prior to granting licenses to any third party to any products
or technology developed or acquired by the Company for either companion animal
or food animal applications, must first offer Novartis such rights. If the
parties are unable to come to an agreement within 150 days of the Company's
first notice, Heska may thereafter license such rights to third parties on terms
not materially more favorable than the terms last offered by the Company to
Novartis. The screening and development agreement and right of first refusal
agreement each terminate in 2005.
BAYER
In June 1994, the Company entered into research agreements (the "Research
Agreements") with Bayer providing for funding of research (the "Research
Program") by Bayer on a recombinant feline toxoplasmosis vaccine and a canine
heartworm vaccine (the "Vaccines"). Bayer has the option to obtain an exclusive,
royalty-bearing license to sell the Vaccines in all countries except in those in
which Eisai has rights. If Bayer exercises this option, the parties will
negotiate license and distribution agreements. The Company has the first option
to manufacture any products sold pursuant to any such distribution agreement.
The Research Agreements will terminate upon completion of the Research Program.
Bayer may terminate the Research Agreements prior to completion, but would not
have any rights to market the Vaccines (unless it terminated due to Heska's
breach), although it would have non-exclusive access to technology developed in
the Research Program for use other than in Vaccines. In the event Bayer elects
to terminate the Research Agreements (other than due to Heska's breach), the
Company would recover the right to market the Vaccines, subject to certain
royalties to Bayer intended to repay certain amounts Bayer paid under the
Research Agreements.
EISAI
In January 1993, the Company entered into an agreement with Eisai, a
leading Japanese pharmaceutical company, pursuant to which the Company granted
Eisai the exclusive right to market the Company's feline and canine heartworm
vaccines, flea control vaccine and feline toxoplasmosis vaccine in Japan and
most other countries in East Asia. In exchange, the Company received an up-front
license fee and research funding for the
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development of these products. Heska will have the right to manufacture any such
products pursuant to a supply agreement to be negotiated between the parties.
The agreement will terminate in January 2008, unless extended or earlier
terminated by either party for material breach of the agreement or by Eisai
pursuant to certain early termination rights.
QUIDEL
The Company has entered into a development agreement with Quidel under
which the parties are jointly developing its feline and canine heartworm
point-of-care diagnostic tests using Quidel's rapid in-clinic test technology.
The Company has paid development fees to Quidel. The parties also have
negotiated a supply agreement under which Quidel will perform manufacturing
services with respect to these tests for the Company.
INTELLECTUAL PROPERTY
Heska believes that patents, trademarks, copyrights and other proprietary
rights are important to its business. Heska also relies upon trade secrets,
know-how, continuing technological innovations and licensing opportunities to
develop and maintain its competitive position.
Heska actively seeks patent protection both in the United States and
abroad. As of April 24, 1997, Heska had seven issued United States patents and
56 pending United States patent applications, including four with allowed
claims. Heska's issued United States patents primarily relate to the Company's
proprietary heartworm, flea control, trichinosis diagnostic and vaccine delivery
technologies. The Company's pending United States patent applications primarily
relate to proprietary heartworm, flea control, flea allergy dermatitis,
trichinosis diagnostic, plague, vaccine delivery, and IgE receptor-based allergy
diagnosis technologies. Certain of the issued patents and patent applications
relating to heartworm and trichinosis are assigned or co-assigned to Colorado
State University Research Foundation ("CSURF"). Heska has an exclusive license
to CSURF's rights in these issued patents and patent applications. Applications
corresponding to most of the United States applications have been or will be
filed in other countries. As of April 24, 1997, Heska had three issued foreign
patents and 59 pending foreign filings, including nine pending Patent
Cooperation Treaty ("PCT") filings.
The Company also has obtained exclusive and non-exclusive licenses for
numerous other patents held by academic institutions and human biotechnology
companies. The proprietary technology of Diamond is primarily protected through
trade secret protection of, for example, its manufacturing processes. In
general, the intellectual property of Diamond's customers belongs to such
customers.
As patent applications in the United States are maintained in secrecy until
patents issue and as publication of discoveries in the scientific or patent
literature often lags behind the actual discoveries, the Company cannot be
certain that it was the first to make the inventions covered by each of its
pending patent applications or that it was the first to file patent applications
for such inventions. Furthermore, the patent positions of biotechnology and
pharmaceutical companies are highly uncertain and involve complex legal and
factual questions, and, therefore, the breadth of claims allowed in
biotechnology and pharmaceutical patents or their enforceability cannot be
predicted. There can be no assurance that patents will issue from any of the
Company's patent applications or, should patents issue, that the Company will be
provided with adequate protection against potentially competitive products.
Furthermore, there can be no assurance that should patents issue, they will be
of commercial value to the Company, or that the USPTO or private parties,
including competitors, will not successfully challenge the Company's patents or
circumvent the Company's patent position. In the absence of adequate patent
protection, the Company's business may be adversely affected by competitors who
develop comparable technology or products.
Pursuant to the terms of the Uruguay Round Agreements Act, patents issuing
from applications filed on or after June 8, 1995 have a term of 20 years from
the date of such filing, irrespective of the period of time it may take for such
patent to ultimately issue. This method of patent term calculation can result in
a shorter period of patent protection afforded to the Company's products
compared to the prior method of term calculation (17 years from the date of
issue) as patent applications in the biopharmaceutical sector often take
considerable time to issue. Under the Drug Price Competition and Patent Term
Restoration Act of 1984 and the Generic Animal Drug and Patent Term Restoration
Act, a patent which claims a product, use or method of manufacture covering
drugs
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and certain other products may be extended for up to five years to compensate
the patent holder for a portion of the time required for FDA review of the
product. There can be no assurance that the Company will be able to take
advantage of the patent term extension provisions of this law.
The Company also relies on trade secrets and continuing technological
innovation which it seeks to protect with reasonable business procedures for
maintaining trade secrets, including confidentiality agreements with its
collaborators, employees and consultants. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach or that the Company's trade secrets and proprietary know-how will
not otherwise become known or be independently discovered by competitors. Under
certain of the Company's research and development agreements, inventions
discovered in certain cases become jointly owned by the Company and the
corporate sponsor or partner and in other cases become the property of the
Company or the corporate sponsor or partner. Disputes may arise with respect to
ownership of any such inventions.
The commercial success of the Company also depends in part on the Company
and its collaborators neither infringing patents or proprietary rights of third
parties nor breaching any licenses that may relate to the Company's technologies
and products. The Company is aware of several third party patents and patent
applications that may relate to the practice of the Company's technologies.
There can be no assurance that the Company or its collaborators do not or will
not infringe any patents or proprietary rights of third parties. Furthermore, to
the extent that Heska or its consultants or research collaborators use
intellectual property owned by others in work performed for the Company,
disputes may arise as to the rights in such intellectual property or in related
or resulting know-how and inventions. Any legal action against the Company or
its collaborative partners claiming damages and seeking to enjoin commercial
activities relating to the Company's products and processes affected by third
party rights, in addition to subjecting the Company to potential liability for
damages, may require the Company or its collaborative partner to obtain a
license in order to continue to manufacture or market the affected products and
processes or to stop the manufacture and marketing of the affected products and
processes. There can be no assurance that the Company or its collaborative
partners would prevail in any such action or that any license (including
licenses proposed by third parties) required under any such patent would be made
available on commercially acceptable terms, if at all. There are a significant
number of United States and foreign patents and patent applications in the
practice of the Company's areas of interest and the Company believes that there
may be significant litigation in the industry regarding patent and other
intellectual property rights. If the Company becomes involved in such
litigation, it could consume a substantial portion of the Company's managerial
and financial resources, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Uncertainty of Patent and Proprietary Technology Protection; License
of Technology of Third Parties."
GOVERNMENT REGULATION
Most of the products being developed by Heska will require licensing by a
governmental agency before marketing. In the United States, governmental
oversight of animal health products is primarily split between two agencies the
United States Department of Agriculture ("USDA") and the Food and Drug
Administration ("FDA"). Vaccines and point-of-care diagnostics for animals are
considered veterinary biologics and are regulated by the Center for Veterinary
Biologics ("CVB") of the USDA under the auspices of the Virus-Serum-Toxin Act.
Alternatively, animal drugs, which generally include all synthetic compounds,
are approved and monitored by the Center for Veterinary Medicine ("CVM") of the
FDA under the auspices of the Federal Food, Drug and Cosmetic Act. A third
agency, the Environmental Protection Agency ("EPA"), has jurisdiction over
certain products applied topically to animals or to premises to control external
parasites.
Most of the regulated products presently under development by Heska will be
regulated by the USDA. The purpose of the Virus-Serum-Toxin Act is to ensure
that veterinary biologics sold in the United States are safe and efficacious.
Pre-market testing is performed by the manufacturer and the CVB prior to
approval of the product for sale as well as on each new lot. Although the
procedures for licensing products by the USDA are formalized, the acceptable
standards of performance for any product are agreed upon between the
manufacturer and the CVB. For novel products that are unlike others already
licensed, the agreement on expected performance standards is typically reached
through a dialogue between the CVB and the manufacturer. The formal
demonstration of acceptable efficacy of the product is done in carefully
controlled laboratory trials. This is normally a much quicker process than
demonstration of efficacy in clinical trials using client-owned animals.
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The drug development process for human therapeutics is much more involved
than that for animal drugs. The company sponsor of a human drug must obtain FDA
marketing approval in a multi-phase process which generally is lengthy,
expensive and subject to unanticipated delays. First, extensive preclinical
studies in animal models to assess safety and efficacy as well as laboratory
toxicology and pharmacokinetic studies of the drug must be conducted. The
company must then submit to the FDA an application for an Investigational New
Drug which must become effective before human clinical trials can commence.
Human clinical trials are then conducted in three sequential phases. Phase I,
which is safety testing, generally involves a small group of patients or healthy
volunteers and typically takes approximately one year to complete. Phase II, in
which the drug is tested for efficacy, optimal dosage and safety risks, is
conducted in a larger, but still limited, patient population and typically takes
18 to 36 months to complete. If the drug proves efficacious in Phase II trials,
expanded Phase III trials are conducted to evaluate the overall risks and
benefits of the drug in relation available therapies for the disease. This phase
typically takes two and one-half to five years to complete. Only after these
clinical trials are complete may the company submit a New Drug Application
("NDA") to the FDA for marketing approval of the drug; and the NDA review
process takes more than two years on average to complete. The entire process
from research to market introduction may take as long as 20 years and cost tens
to hundreds of millions of dollars.
By contrast, recent industry data indicate that it takes about 11 years and
$5 million to develop a new drug for animals, from commencement of research to
market introduction. Of this time, approximately three years is spent in the
clinical trial and review process. This time requirement for animal drugs is
significantly shorter than the analogous time requirement for human drugs in
part because clinical trials may be conducted immediately in the animal for
which the drug is intended. In addition, the time and cost for companion animal
drugs may be significantly less than for food producing animals, as food safety
residue levels are not at issue. Also, for animal drugs, unlike human drugs,
advantages over existing therapies do not have to be demonstrated. In addition,
with the enactment of the Animal Drug Availability Act ("ADA") in October 1996,
substantial reductions in the time and cost to license some new animal drugs by
the FDA are anticipated. The ADA was designed to streamline the animal drug
approval process in order to provide more registered drugs for animal use. The
ADA creates a binding pre-submission conference at which the CVM and a company
agree on the types of data the FDA will require. The ADA also removes the
requirement that field investigations be done in every instance and allows the
CVM to accept different types of proof of a drug's safety and efficacy. For
example, as permitted by the ADA, the FDA has agreed that data collected by
Atrix in human preclinical trials using dogs with naturally occurring
periodontal disease constituted adequate evidence of product efficacy for
purposes of regulatory clearance for Heska's canine periodontal disease
therapeutic. This is expected to reduce, by two years, the approval process time
for the Heska periodontal disease therapeutic by eliminating the need to conduct
clinical trials in client-owned dogs. Heska currently expects that this product
will be licensed for use in dogs before the equivalent product is licensed by
the FDA for use in humans, although the human clinical trials were initiated
significantly before Heska's efforts.
Recent industry data indicates that it takes approximately four years and
$4 million to license a conventional vaccine for animals from basic research
through licensing. In contrast to vaccines, point-of-care diagnostics can
typically be licensed by the USDA in about a year with considerably less cost.
However, vaccines or diagnostics that use innovative materials such as those
resulting from recombinant DNA technology usually require additional time to
license.
A number of animal health products are not regulated. For example, assays
for use in a veterinary diagnostic laboratory do not have to be licensed by
either the USDA or the FDA. Additionally, grooming and supportive care products
such as those being developed for the dermatology and dental health care product
lines are exempt from regulation as long as they do not bear a therapeutic claim
that represents the product as a drug.
Recently, regulations governing the export of drugs and biologics have also
been relaxed by the passage of the Export Reform Enhancement Act of 1996. Under
this act, drugs and biologics produced in the United States do not have to be
licensed for sale in the United States before export if they are approved for
sale in the importing country. Accordingly, Heska is moving quickly to introduce
diagnostic products in certain countries, such as Italy and Australia, where the
products would address significant market opportunities or needs.
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The European Union ("EU") is centralizing the regulatory process for
companion animal drugs and biologics for member states. In addition, both the
USDA and the FDA are working with the EU and Japan via the Veterinary
International Cooperation on Harmonization initiative to harmonize the
regulatory requirements for companion animal health products. Thus, in the
future, it is hoped that a single set of requirements will be in place to
streamline the licensing of veterinary products in the major companion animal
markets.
COMPETITION
The market in which the Company competes is intensely competitive. Heska's
competitors include companion animal health companies and major pharmaceutical
companies that have animal health divisions. Companies with a significant
presence in the animal health market, such as American Home Products, Bayer,
Merck & Co., Inc., Novartis, Pfizer Inc and IDEXX Laboratories, Inc., have
developed or are developing products that do or would compete with the Company's
products. Novartis and Bayer are marketing partners of the Company and their
agreements with the Company do not restrict their ability to develop and market
competing products. These competitors have substantially greater financial,
technical, research and other resources and larger, more established marketing,
sales, distribution and service organizations than the Company. Moreover, such
competitors may offer broader product lines and have greater name recognition
than the Company. Additionally, the market for companion animal health care
products is highly fragmented, with discount stores and specialty pet stores
accounting for a substantial percentage of such sales. As Heska intends to
distribute its products only through veterinarians, a substantial segment of the
potential market may not be reached and the Company may not be able to offer its
products at prices which are competitive with those of companies that distribute
their products through retail channels. There can be no assurance that the
Company's competitors will not develop or market technologies or products that
are more effective or commercially attractive than the Company's current or
future products or that would render the Company's technologies and products
obsolete. Moreover, there can be no assurance that the Company will have the
financial resources, technical expertise or marketing, distribution or support
capabilities to compete successfully.
EMPLOYEES
As of April 1, 1997, Heska and its subsidiaries employed 402 full-time
persons, of whom 108 are in manufacturing and quality control, 137 are in
research, development and regulatory, 65 are in finance and administration, 54
are in sales and marketing, 38 are in the diagnostic laboratories. Of this
total, Diamond employed a total of 144 persons and Bloxham employed a total of
38 persons. Heska's employees hold more than 20 D.V.M.s and over 45 Ph.D.s.
There can be no assurance that the Company will continue to be able to attract
and retain qualified technical and management personnel. See "Risk
Factors -- Dependence on Key Personnel." None of the Company's employees is
covered by a collective bargaining agreement and the Company believes its
employee relations are good.
FACILITIES
The Company leases an aggregate of approximately 75,000 square feet of
administrative and laboratory space in six buildings located mostly in one
business park in Fort Collins, Colorado under leases expiring from 1999 through
2004, with options to extend through 2010 for the larger facilities. The Company
believes that its present facilities are adequate for its current and planned
activities and that suitable additional or replacement facilities in the Fort
Collins area are readily available on commercially reasonable terms. Diamond's
principal manufacturing facility in Des Moines, Iowa, consisting of 166,000
square feet of buildings on 34 acres of land, is leased from Bayer under a lease
expiring 1998, with options to extend through 2009. Diamond also owns a 160-acre
farm used principally for research purposes located in Carlisle, Iowa.
Management believes that any new construction required for Diamond's activities
can be accommodated at its present site. The Company's European subsidiary
leases its facilities.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Fred M. Schwarzer............... 45 President, Chief Executive Officer and Director
Robert B. Grieve, Ph.D.......... 45 Chief Scientific Officer and Vice Chairman
Giuseppe Miozzari, Ph.D......... 50 Managing Director, Heska Europe
R. Lee Seward, D.V.M............ 51 Executive Vice President
John A. Shadduck, D.V.M., 57 Executive Vice President, Operations
Ph.D..........................
William G. Skolout.............. 46 Chief Financial Officer
Louis G. Van Daele.............. 53 President, Diamond Animal Health, Inc.
A. Barr Dolan(1)(2)............. 47 Chairman of the Board
Lyle A. Hohnke, Ph.D.(1)........ 54 Director
Denis H. Pomroy(2).............. 47 Director
Lynnor B. Stevenson, Ph.D.(1)... 54 Director
Guy Tebbit, Ph.D.(2)............ 47 Director
KEY EMPLOYEES
David L. Hines, Ph.D............ 50 Vice President, Product Development and Regulatory
Affairs
Elizabeth Hodgkins, D.V.M....... 47 Vice President, Marketing
Paul Hudnut, J.D................ 38 Vice President, Business Development
Deborah E. Robbins, J.D......... 40 Vice President, General Counsel and Secretary
Keith E. Rushlow, Ph.D.......... 43 Vice President, Science and Technology
Dan T. Stinchcomb, Ph.D......... 43 Vice President, Biochemistry and Molecular Biology
Carol Talkington Verser, 44 Vice President, Intellectual Property
Ph.D..........................
Donald L. Wassom, Ph.D.......... 48 Vice President, Allergy and Immunology
Glade Weiser, D.V.M............. 48 Vice President, Diagnostics
Kenneth Williams................ 50 Vice President, Sales
</TABLE>
- ---------------
(1) Member of Compensation Committee of the Board of Directors.
(2) Member of Audit Committee of the Board of Directors.
Fred M. Schwarzer is President, Chief Executive Officer and a director of
the Company. Mr. Schwarzer served as the Executive Vice President responsible
for the Company's strategic planning and corporate partnerships from June 1994
until he was elected to serve as President and Chief Executive Officer of the
Company effective November 1994. He has been a member of the Company's Board of
Directors since June 1994. From June through October 1994, Mr. Schwarzer was an
employee of Charter Venture Capital and continues to hold a small limited
partnership interest in Charter Ventures II, L.P. Mr. Schwarzer was the founder
and a partner in the Mountain View, California law firm of General Counsel
Associates from 1988 to June 1994 and, prior to founding General Counsel
Associates, was a partner in the San Francisco law firm of Pillsbury Madison &
Sutro LLP. He holds a J.D. degree from the University of California, Berkeley
and a B.A. degree from the University of Michigan.
Robert B. Grieve, Ph.D. is Chief Scientific Officer and Vice Chairman of
the Company and is a founder of the Company. Dr. Grieve was named to his current
position in December 1994. He has been a member of the Company's Board of
Directors since 1990. Dr. Grieve was a Professor of Parasitology at Colorado
State University from 1987 until joining the Company in January 1994 as Vice
President, Research and Development. In addition to his duties with the Company,
Dr. Grieve serves as President of the American Society of Parasitologists. In
the past, he has served in a formal editorial capacity for the Journal of
Immunology, the
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Journal of Parasitology and the American Journal of Veterinary Research. His
professional awards and honors include the 1991 Ralston Purina Small Animal
Research Award and the 1990 Henry Baldwin Ward medal for outstanding research in
Parasitology, awarded by the American Society of Parasitologists. He holds a
Ph.D. degree from the University of Florida and M.S. and B.S. degrees from the
University of Wyoming.
Giuseppe Miozzari, Ph.D. joined the Company as Managing Director, Heska
Europe in March 1997. From 1980 to March 1997, Dr. Miozzari served in senior
research positions with Novartis, most recently as the Head of Research of the
Animal Health Sector and prior to that, from 1980 to 1983, as Head of the
Molecular Biology Research Unit in the Pharmaceuticals Division. Dr. Miozzari
also served as Novartis' designate on the Board of Directors of the Company from
April 1996 to March 1997. Dr. Miozzari holds Ph.D. and Dipl. Sc. Nat. degrees
from the Federal Institute of Technology (ETH) in Zurich, Switzerland.
R. Lee Seward, D.V.M. is Executive Vice President of the Company. He joined
the Company in October 1994. Before joining the Company, Dr. Seward held
successive positions with Merck & Co., Inc. from May 1981 until September 1994.
His most recent position with Merck was Executive Director, Animal Science
Research, a position in which he headed worldwide animal health product
development. Dr. Seward was in private veterinary practice from March 1980 until
he joined Merck & Co., Inc. He holds D.V.M. and B.S. degrees from Colorado State
University.
John A. Shadduck, D.V.M., Ph.D. is Executive Vice President, Operations of
the Company. He was named to this position in January 1997. Dr. Shadduck also
served as a director of the Company from January 1990 to January 1997. Before
joining the Company, he held the position of Dean, College of Veterinary
Medicine, Texas A&M University from July 1988 until January 1997. He holds
D.V.M. and M.Sc. and Ph.D degrees from The Ohio State University.
William G. Skolout was appointed Chief Financial Officer of the Company in
March 1997. Before joining Heska, Mr. Skolout was Chief Financial Officer of
Cardinal Technologies, Inc. from March 1996 to February 1997 and was Chief
Financial Officer and Vice President of Cray Computer Corporation from September
1992 to December 1995. He holds an M.B.A., Finance degree from the University of
Massachusetts, Amherst and a B.S., Business Finance degree from University of
Colorado, Boulder.
Louis G. Van Daele has served as President of Diamond since February 1994.
From February 1989 until January 1994, he served as Director of Quality Control
and Quality Assurance at Diamond. He holds an M.B.A. degree from Wayne State
University and a B.S. degree from Michigan State University.
A. Barr Dolan has been a director of the Company since March 1988. Mr.
Dolan has been the President of Charter Venture Capital, a venture capital
management firm, since 1982, a general partner of Charter Ventures since 1982
and a general partner of Charter Ventures II, L.P. since 1994. Mr. Dolan is also
a director of several private companies. He holds M.S. and B.A. degrees from
Cornell University, an M.A. degree from Harvard University and an M.B.A. from
Stanford University.
Lyle A. Hohnke, Ph.D. has been a director of the Company since April 1996.
Dr. Hohnke is a general partner of Javelin Capital Fund, L.P., a venture capital
firm, a position he has held since 1994. Dr. Hohnke was a co-founder of Diamond
and served as Chairman and CEO from 1994 until its acquisition by the Company in
April 1996. From January 1991 to October 1993 he was a general partner of Heart
Land Seed Capital Fund. Dr. Hohnke is also a director of Zynaxis, Inc. and
several private companies. He holds Ph.D. and M.A. degrees from the University
of Oregon, an M.B.A. from the Hartford Graduate Institute and a B.A. degree from
Western Michigan University.
Denis H. Pomroy has been a director of the Company since March 1995. He is
the president of Volendam Capital Advisors, Palo Alto, California, a venture
capital management company, which advises on and manages investments for member
companies of the Volendam investment group, including Volendam Investeringen
N.V. Prior to joining Volendam Capital Advisors, Mr. Pomroy served as chief
financial officer from 1989 through 1996 of Madge Networks N.V., a computer
networking company. Mr. Pomroy serves as a director of several other private
companies, mainly in the emerging growth technology area. He holds a bachelors
degree from The University of Birmingham, England and is a fellow of The
Chartered Institute of Management Accountants, England.
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Lynnor B. Stevenson, Ph.D. was a founder of Heska and has been a director
of the Company since March 1988 and served as President of the Company from
March 1988 to March 1992. Dr. Stevenson is currently the President and Chief
Executive Officer of Cascade Oncogenics, Inc. From July 1992 to April 1997, she
was Director, Technology Transfer at the University of Oregon. She holds a Ph.D.
degree in biochemistry from Monash University, Australia and B.Sc. and M.Ed.
degrees from the University of Melbourne, Australia.
Guy Tebbit, Ph.D. has been a director of the Company since March 1997 when
he became Novartis' designate on the Board of Directors of the Company. Since
January 1997, Dr. Tebbit has served as Vice President, Research and Development,
Regulatory Affairs and Professional Services at Novartis. From January 1995 to
January 1997, he held the position of Director, Manufacturing and Regulatory
Affairs at Novartis and from January 1992 to January 1995 he served as Senior
Product Development Manager at Novartis. Dr. Tebbit holds a Ph.D. from Oregon
State University and a B.S. degree from Northern Illinois University.
David L. Hines, Ph.D. has served as Vice President, Product Development
and Regulatory Affairs since February 1997. Prior to joining the Company, Dr.
Hines was the manager of Virus Vaccine Research and Development for Solvay
Animal Health, Inc., where he was employed from February 1989 to December 1995.
He holds Ph.D. and B.Sc. degrees from The Ohio State University.
Elizabeth Hodgkins, D.V.M. has served as Vice President, Marketing of the
Company since October 1996. From June 1985 until August 1993, Dr. Hodgkins held
a variety of positions in customer relations and marketing with Hill's Pet
Nutrition Inc. Prior to 1985, Dr. Hodgkins was an Instructor in Residence in
Veterinary Microbiology at the University of California at Davis and an
Oncological Specialist and Associate Clinician at Silverado Veterinary Hospital
in Napa, CA. She holds D.V.M. and B.S. degrees from the University of
California, Davis and a J.D. degree from the University of Kansas.
Paul Hudnut, J.D. has served as Vice President of Business Development of
the Company since June 1996. Prior to joining the Company, Mr. Hudnut was a
General Manager at US WEST Media Group. He held positions in management and
business development at subsidiaries of US WEST Inc. from February 1988 until
joining the Company. Prior to joining US WEST Inc., Mr. Hudnut was associated
with the Denver, Colorado law firm of Davis, Graham & Stubbs. He holds a J.D.
degree from the University of Virginia and a B.A. degree from The Colorado
College.
Deborah E. Robbins, J.D. is Vice President, General Counsel and Secretary
of the Company. She has served in that position since April 1996. From February
1990 until joining the Company, Ms. Robbins was a partner with the Mountain
View, California law firm of General Counsel Associates, and prior to that time
was an associate and partner in the Palo Alto, California law firm of Wilson,
Sonsini, Goodrich & Rosati. She holds a J.D. degree from the University of
Chicago and a B.A. degree from Wellesley College.
Keith E. Rushlow, Ph.D. has served as Vice President of Science and
Technology of the Company since December 1995. From April 1993 until December
1993, he was Senior Director, Molecular Biology. From December 1993 to December
1994, he was Director of Research. From December 1994 to December 1995, he was
Vice President, Research. From September 1990 until joining the Company, Dr.
Rushlow was a Research Associate Professor at the University of Pittsburgh
School of Medicine and Associate Faculty at the Pittsburgh Cancer Institute. Dr.
Rushlow has also held various scientific and research management positions with
the National Cancer Institute, Battelle Memorial Institute and
Syngene/TechAmerica. He holds a Ph.D. degree from the University of Colorado and
a B.S. degree from the University of Michigan.
Dan T. Stinchcomb, Ph.D. has served as Vice President of Biochemistry and
Molecular Biology for the Company since May 1996. Prior to joining the Company,
from July 1993 until May 1996 Dr. Stinchcomb was employed at Ribozyme
Pharmaceuticals, Inc., most recently as Director of Biology Research. From 1988
until April 1993, Dr. Stinchcomb held various positions with Synergen, Inc.
Prior to joining Synergen, Dr. Stinchcomb was an Associate Professor in Cellular
and Developmental Biology at Harvard University. He holds a Ph.D. degree from
Stanford University and a B.A. degree from Harvard University.
Carol Talkington Verser, Ph.D. has served as Vice President of Intellectual
Property of the Company since June 1996. From July 1995 until June 1996, Dr.
Verser was the Director of Intellectual Property for the Company. She was a
patent agent for the law firm of Sheridan, Ross & McIntosh in Denver, Colorado
from 1991 until 1995
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and from 1990 through 1992 was a writer and contributing editor for Bioworld
Today. From 1986 until 1989, she was a director at BioGrowth Inc. She holds a
Ph.D. degree from Harvard University and a B.S. degree from the University of
Southern California.
Donald L. Wassom, Ph.D. has served as Vice President of Allergy and
Immunology of the Company since January 1996. From May 1992 until January 1996,
Dr. Wassom was Professor of Parasitology at Colorado State University. Dr.
Wassom has also held faculty positions at the University of Wisconsin and
Cornell University. He holds Ph.D. and B.S. degrees from the University of Utah.
Glade Weiser, D.V.M. has served as Vice President of Diagnostics of the
Company since April 1996. From October 1989 until January 1996, Dr. Weiser was
Professor and Chairperson for the Department of Pathology in the College of
Veterinary Medicine and Biomedical Sciences at Colorado State University. He was
a member of the faculty at the College of Veterinary Medicine of The Ohio State
University from July 1975 until December 1982. Dr. Weiser is a Diplomate of the
American College of Veterinary Pathologists. He holds D.V.M. and B.S. degrees
from the University of California, Davis.
Kenneth Williams has served as Vice President of Sales of the Company since
February 1997. From 1988 until joining the Company, he was Director of Field
Sales for Ciba-Geigy Animal Health. He holds a B.S. degree from Virginia
Polytechnic Institute.
Mr. Schwarzer and Ms. Robbins are husband and wife. There are no other
family relationships among any of the directors or executive officers of the
Company.
BOARD COMPOSITION AND COMMITTEES
Effective upon the closing of this offering, the Company's Board of
Directors will be divided into three classes, with one class of directors
elected each year at the annual meeting of stockholders for a three-year term of
office. All directors of one class hold their positions until the annual meeting
of stockholders at which their respective successors are elected and qualified.
Mr. Schwarzer and Dr. Tebbit serve in the class whose term expires in 1998; Dr.
Grieve and Mr. Dolan serve in the class whose term expires in 1999; and Mr.
Pomroy, Dr. Stevenson and Dr. Hohnke serve in the class whose term expires in
2000. Officers are elected at the first board of directors meeting following the
stockholders' meeting at which the directors are elected and serve at the
discretion of the Board of Directors.
Mr. Dolan was appointed to the Company's Board of Directors in connection
with initial and subsequent equity investments in the Company by Charter
Ventures and Charter Ventures II, L.P. (collectively, "Charter"). Dr. Tebbit was
appointed to the Board of Directors in connection with an equity investment in
the Company by Novartis. Mr. Pomroy was appointed to the Board of Directors of
the Company in connection with an investment in the Company by Volendam
Investeringen N.V. ("Volendam"). Volendam, Charter and Novartis are parties to a
voting agreement with the Company pursuant to which each entity is entitled to
elect one director to the Company's Board of Directors for as long as each
entity owns a specified amount of the Company's voting stock. See "Description
of Capital Stock -- Voting Agreement." Dr. Hohnke was appointed to the Board of
Directors of the Company in connection with the Company's April 1996 acquisition
of Diamond.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, which consists of Messrs. Dolan and
Pomroy and Dr. Tebbit, reviews the results and scope of the annual audit and the
services provided by the Company's independent accountants. The Compensation
Committee, which consists of Mr. Dolan, Dr. Hohnke and Dr. Stevenson, makes
recommendations to the Board of Directors with respect to general and specific
compensation policies and practices of the Company and administers its 1997
Stock Incentive Plan and 1997 Employee Stock Purchase Plan. Mr. Schwarzer also
attends meetings of the Compensation Committee, other than discussions relating
to his own compensation, but does not vote on any matters.
43
<PAGE> 46
COMPENSATION OF OUTSIDE DIRECTORS
Directors do not receive any fees for service on the Board of Directors,
but are reimbursed for their expenses for each meeting attended. Directors are
eligible to participate in the Company's 1997 Stock Incentive Plan described
below. As of the date of this Prospectus, one outside director purchased an
aggregate of 25,000 shares of Common Stock at a price of $1.20 per share
pursuant to an award made under a prior stock plan. In March 1997, each outside
director was granted an option to purchase 2,000 shares of Common Stock at an
exercise price of $3.00 per share under the 1997 Stock Incentive Plan. Dr.
Tebbit has declined this option in accordance with Novartis policies. Mr. Dolan
assigned his option in equal portions to Charter Ventures and Charter Ventures
II, L.P. as required by their partnership agreements. The Company expects that
there will be no further discretionary grants of options to outside directors
after the date of this offering, although outside directors will be entitled to
certain automatic grants under the 1997 Stock Incentive Plan. See "-- Stock
Option Plan."
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's Chief
Executive Officer and to each of the Company's other most highly compensated
executive officers whose total annual salary and bonus exceeded $100,000, for
services rendered in all capacities to the Company during the fiscal year ended
December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION OTHER SECURITIES
NAME AND FISCAL --------------------- ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS COMPENSATION OPTIONS(#)
------------------ ------ ------------ ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Fred M. Schwarzer................... 1996 $200,000 -- -- 150,000
President and Chief Executive
Officer
Robert B. Grieve.................... 1996 190,000 -- -- 150,000
Chief Scientific Officer and Vice
Chairman
R. Lee Seward....................... 1996 180,000 -- -- --
Executive Vice President
Louis G. Van Daele.................. 1996.. 115,098(2) -- -- 14,685
President, Diamond
</TABLE>
- ---------------
(1) Salary includes amounts, if any, deferred pursuant to 401(k) arrangements.
(2) Mr. Van Daele's employment with the Company commenced in April 1996
following the Company's acquisition of Diamond.
44
<PAGE> 47
The following tables set forth certain information as of December 31, 1996
and for the fiscal year then ended with respect to stock options granted to and
exercised by the individuals named in the Summary Compensation Table above who
received option grants in 1996.
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE)(2) DATE(3) 5%($) 10%($)
---- ---------- --------------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fred M. Schwarzer...... 150,000 18.87% $1.20 6/21/06 $113,201 $286,874
Robert B. Grieve....... 150,000 18.87 1.20 6/21/06 113,201 286,874
Louis G. Van Daele..... 13,975 1.75 1.20 5/21/06 10,430 26,365
710(5) .09 1.20 4/19/06 536 1,358
</TABLE>
- ---------------
(1) The right to exercise these stock options vests ratably on a monthly basis
over a four year period. Under the terms of the Company's stock plans, the
committee designated by the Board of Directors to administer such plans
retains the discretion, subject to certain limitations, to modify, extend or
renew outstanding options and to reprice outstanding options. Options may be
repriced by canceling outstanding options and reissuing new options with an
exercise price equal to the fair market value on the date of reissue, which
may be lower than the original exercise price of such canceled options.
(2) The exercise price is equal to 100% of the fair market value on the date of
grant.
(3) The options have a term of 10 years, subject to earlier termination in
certain events related to termination of employment.
(4) The 5% and 10% assumed rates of appreciation are suggested by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. There can be no
assurance that any of the values reflected in the table will be achieved.
(5) These incentive stock options were fully vested as of the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fred M. Schwarzer......... -- -- 76,979 196,021 $ 51,984 $55,066
Robert B. Grieve.......... -- -- 180,416 179,584 156,270 41,230
R. Lee Seward............. 30,000 $25,500 -- 50,000 -- 42,500
Louis G. Van Daele........ -- -- 3,039 11,646 -- --
</TABLE>
- ---------------
(1) These values were calculated on the basis of the fair market value of the
underlying securities at the exercise date minus the applicable per share
exercise price.
(2) There was no public trading market for the Common Stock as of December 31,
1996. These values were calculated on the basis of the fair market value of
the Common Stock at December 31, 1996 ($1.20), as determined by the
Company's Board of Directors, minus the applicable per share exercise price.
45
<PAGE> 48
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Fred M.
Schwarzer, its Chief Executive Officer, Robert B. Grieve Ph.D., its Chief
Scientific Officer and Vice Chairman, and R. Lee Seward D.V.M., an Executive
Vice President. These agreements provide for severance payments if the
employment of the individual is terminated without cause, including terminations
in connection with a change in control of the Company. In the case of Mr.
Schwarzer and Dr. Grieve, the payments would be one year's salary plus an
additional one year of vesting under any stock arrangements if the termination
takes place at any time on or before December 31, 1999, or six months' salary
and an additional six months' vesting under any stock arrangements if the
termination takes place after that date. In the case of Dr. Seward, the
severance payment would be one year's salary if the termination takes place at
any time on or before October 17, 1997 and six months' salary if the termination
takes place after that date. Additionally, Louis G. Van Daele, President of
Diamond, has an employment agreement with Diamond, pursuant to which Mr. Van
Daele is entitled to severance payments equal to one year of salary payable in
twelve monthly installments if he is terminated without cause prior to April
2000.
STOCK OPTION PLAN
In March 1997, the Company's Board of Directors adopted the Company's 1997
Stock Incentive Plan (the "Stock Plan"). The Stock Plan replaces the Company's
1988 Stock Plan and its 1994 Key Executive Plan (the "Prior Plans"). The Prior
Plans were terminated effective upon the adoption of the Stock Plan. No further
grants will be made under the Prior Plans, although they will continue to govern
all outstanding awards made thereunder. All future awards will be made under the
Stock Plan. The number of shares of Common Stock that are reserved for issuance
under the Stock Plan pursuant to the direct award or sale of shares or the
exercise of options is equal to 1,350,000 shares plus the number of shares
remaining available under the Prior Plans on the date of their termination. If
any options granted under the Stock Plan or under the Prior Plans are forfeited
or terminate for any other reason without having been exercised in full, then
the unpurchased shares subject to those options will become available for
additional grants under the Stock Plan. If shares granted or purchased under the
Stock Plan are forfeited, then those shares will also become available for
additional grants under the Stock Plan. The number of shares reserved for
issuance under the Stock Plan will be increased automatically on January 1 of
each year by a number equal to the lesser of (a) 1,500,000 shares or (b) 5% of
the shares of Common Stock outstanding on the immediately preceding December 31.
Under the Stock Plan, all employees (including officers) and directors of
the Company or any subsidiary and any independent contractor or advisor who
performs services for the Company or a subsidiary are eligible to purchase
shares of Common Stock and to receive awards of shares or grants of nonstatutory
options. Employees are also eligible to receive grants of incentive stock
options ("ISOs") intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"). The Stock Plan is administered by the
Compensation Committee of the Board of Directors, which selects the persons to
whom shares will be sold or awarded or options will be granted, determines the
number of shares to be made subject to each sale, award or grant, and prescribes
the other terms and conditions of each sale, award or grant, including the type
of consideration to be paid to the Company upon sale or exercise and the vesting
schedule.
The exercise price under any nonstatutory options generally must be at
least 85% of the fair market value of the Common Stock on the date of grant. The
exercise price under ISOs cannot be lower than 100% of the fair market value of
the Common Stock on the date of grant and, in the case of ISOs granted to
holders of more than 10% of the voting power of the Company, not less than 110%
of such fair market value. The term of an ISO cannot exceed 10 years, and the
term of an ISO granted to a holder of more than 10% of the voting power of the
Company cannot exceed five years.
Beginning after this offering, each new non-employee director who is
elected to the Company's Board of Directors will automatically be granted as of
the date of election an option to purchase 10,000 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on the date of
grant. The shares subject to these options will vest in four equal installments
at annual intervals over the four-year period commencing on the date of grant.
In addition, each non-employee director who will continue to serve following any
annual meeting of stockholders will automatically be granted an option as of the
date of such meeting to
46
<PAGE> 49
purchase 2,000 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock on the date of grant. The shares subject to
these options will vest on the first anniversary of grant. No director will
receive the 10,000-share grant and a 2,000-share grant in the same year.
EMPLOYEE STOCK PURCHASE PLAN
In April 1997, the Board of Directors of the Company adopted the 1997
Employee Stock Purchase Plan (the "ESPP") to provide employees of the Company
with an opportunity to purchase Common Stock through payroll deductions. The
ESPP will be submitted to the stockholders of the Company for approval. Under
the ESPP, 250,000 shares of Common Stock have been reserved for issuance. The
ESPP is expected to become effective at the time of this Offering. All full-time
regular employees who are employed by the Company or Diamond on the date of this
Prospectus, will be eligible to participate in the ESPP.
Eligible employees may participate in the ESPP by authorizing payroll
deductions of a specified percentage of their total cash compensation. Amounts
withheld are applied at the end of every six-month accumulation period to
purchase shares of Common Stock. The value of the Common Stock (determined as of
the beginning of the offering period) that may be purchased by any participant
in a calendar year is limited to $25,000. Participants may withdraw their
contributions at any time before stock is purchased.
The purchase price is equal to 85% of the lower of (a) the market price of
Common Stock immediately before the beginning of the applicable offering period
or (b) the market price of Common Stock at the time of the purchase. In general,
each offering period is 24 months long, but a new offering period begins every
six months. Thus, up to four overlapping offering periods may be in effect at
the same time. An offering period continues to apply to a participant for the
full 24 months, unless the market price of Common Stock is lower when a
subsequent offering period begins. In that event, the subsequent offering period
automatically becomes the applicable period for purposes of determining the
purchase price. The first accumulation and offering periods are expected to
commence on the date of this Prospectus and will end on December 31, 1997 and
, 1999, respectively.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Restated Certificate of
Incorporation that limit the liability of its directors for monetary damages for
breach of their fiduciary duty as directors, except for liability that cannot be
eliminated under the Delaware General Corporation Law ("Delaware Law"). Delaware
Law provides that directors of a company will not be personally liable for
monetary damages for breach of their fiduciary duty as directors, except for
liability (i) for any breach of their duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful payment
of dividends or unlawful stock repurchases or redemptions, as provided Section
174 of the Delaware Law, or (iv) for any transaction from which the director
derived an improper personal benefit. Any amendment or repeal of these
provisions requires the approval of the holders of shares representing at least
66 2/3% of the shares of the Company entitled to vote in the election of
directors, voting as one class.
The Company's Restated Certificate of Incorporation and Bylaws also provide
that the Company may indemnify its directors and officers to the fullest extent
permitted by Delaware Law. The Company has entered into separate indemnification
agreements with its directors and executive officers that could require the
Company, among other things, to indemnify them against certain liabilities that
may arise by reason of their status or service as directors or executive
officers and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified. The Company believes that
the limitation of liability provision in its Restated Certificate of
Incorporation and the indemnification agreements will facilitate the Company's
ability to continue to attract and retain qualified individuals to serve as
directors and officers of the Company.
47
<PAGE> 50
CERTAIN TRANSACTIONS
The Company has historically sold its Preferred Stock in private placements
to venture capital firms. Since January 1994, the Company has sold an aggregate
of 3,928,085 shares of Series E Preferred Stock in a series of private
financings for $3.25 per share and 3,000,000 shares of Series F Preferred Stock
for $12.00 per share (all shares of Preferred Stock will convert into Common
Stock upon the closing of this offering). The purchasers of the Preferred Stock
include the following directors, holders of more than 5% of the Company's
securities, and entities associated with the Company's directors:
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
PURCHASED
--------------------------
SERIES E SERIES F
----------- -----------
<S> <C> <C>
Entities associated with Charter Ventures................... 851,162 --
Volendam Investeringen, N.V. ............................... 3,076,923 --
Denis H. Pomroy(1).......................................... 3,076,923 --
A. Barr Dolan(2)............................................ 851,162 --
Novartis.................................................... -- 3,000,000
Guy Tebbit Ph.D.(3)......................................... 3,000,000
</TABLE>
- ---------------
(1) Represents shares held by Volendam Investeringen N.V. with respect to which
Mr. Pomroy disclaims beneficial ownership except to the extent of his
proportionate share therein. Mr. Pomroy, a director of the Company, is the
president of Volendam Capital Advisors, which advises and manages
investments for Volendam Investeringen, N.V. and may be deemed to be a
beneficial owner of the shares held by Volendam Investeringen N.V. because
of shared voting power with respect to such shares.
(2) Represents shares held by Charter Ventures and Charter Ventures II, L.P.
with respect to which Mr. Dolan disclaims beneficial ownership except to the
extent of his proportionate share therein. Mr. Dolan, a director of the
Company, is a general partner of each of Charter Ventures and Charter
Ventures II, L.P. and may be deemed to be a beneficial owner of the shares
held by such entities because of shared voting power with respect to such
shares.
(3) Represents shares held by Novartis, by whom Dr. Tebbit is employed. Dr.
Tebbit does not share voting or investment power with respect to such shares
and disclaims beneficial ownership thereof.
The purchasers of the above shares of Preferred Stock are entitled to
registration rights. See "Description of Capital Stock -- Preferred Stock."
In connection with its purchase of Series F Preferred Stock, Novartis was
granted marketing rights to certain of the Company's products under development.
In addition, the Company entered into a Screening and Development Agreement and
Right of First Refusal Agreement with Novartis. See "Business -- Collaborative
Agreements" for a description of these agreements. Novartis did not make any
separate payments for these rights.
See "Management -- Employment Agreements" for a description of employment
agreements between the Company and certain executive officers. For information
concerning indemnification of directors and officers, see
"Management -- Limitation of Liability and Indemnification Matters."
In March 1995, the Company converted $638,567 of indebtedness to entities
associated with Charter Ventures, a principal stockholder of the Company, to
shares of Series E Preferred Stock at $3.25 per share. In December 1994, the
Company converted $2,127,708 of indebtedness to Charter Ventures to shares of
Series E Preferred Stock at $4.00 per share. In connection with the sale of
Series E Preferred Stock in March 1995 at $3.25 per share, the Company effected
a 1.23 to one split of the Series E Preferred Stock to bring the effective
purchase price of the shares purchased at $4.00 to $3.25. A total of 122,753
shares was issued to Charter Ventures as a result of this stock split.
Mr. Schwarzer purchased an aggregate of 177,000 shares of Common Stock from
the Company in February 1995 at a purchase price of $.35 per share, paid by a
full recourse promissory note in the initial principal amount of $61,950. The
note bears interest at 7 1/2% per annum, compounded annually, and is due in full
in February 2001. Mr. Schwarzer is a special limited partner of Charter Ventures
II, L.P.
48
<PAGE> 51
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 16, 1997 and as adjusted to
reflect the sale by the Company and the Selling Stockholder of the shares
offered hereby (assuming no exercise of the Underwriters' over-allotment
option), by: (i) each person who is known by the Company to own beneficially
more than 5% of the Company's Common Stock, (ii) each of the Company's
directors, (iii) each of the Company's officers named under "Management --
Summary Compensation Table," and (iv) all directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY
OWNED(1)
SHARES BENEFICIALLY -------------------
OWNED PRIOR NUMBER OF PRIOR TO AFTER
TO OFFERING(1) SHARES OFFERED OFFERING OFFERING
------------------- -------------- -------- --------
<S> <C> <C> <C> <C>
Entities associated with
Charter Ventures(2)........................... 3,646,924 -- 31.3%
525 University Avenue
Suite 1500
Palo Alto, CA 94301
Novartis Produkte AG............................ 3,000,000 -- 25.7
Klybeckstrasse A4A
4002 Basel
Switzerland
Volendam Investeringen, N.V..................... 3,076,923 [] 26.4
14 John B. Gorsiraweg
P.O. Box 3889
Curacao, Netherlands Antilles
A. Barr Dolan(3)................................ 3,646,924 -- 31.3
Robert B. Grieve, Ph.D.(4)(9)................... 315,356 -- 2.7
Lyle A. Hohnke, Ph.D.(9)........................ 93,925 -- *
Denis H. Pomroy(5)(9)........................... 3,103,923 -- 26.6
Fred M. Schwarzer(6)(9)......................... 292,208 -- 2.5
Lynnor B. Stevenson, Ph.D.(9)................... 227,000 -- 1.9
Guy Tebbit, Ph.D.(7)............................ 3,000,000 -- 25.7
R. Lee Seward, D.V.M.(8)(9)..................... 161,250 -- 1.4
Louis G. Van Daele(9)........................... 111,024 -- 1.0
All directors and executive officers as a group
(12 persons)(9)(10)........................... 10,965,362 -- 91.2
</TABLE>
- ---------------
* Less than 1%.
(1) To the Company's knowledge, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes to this table.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to securities. Shares of Common Stock issuable upon exercise
of stock options exercisable within 60 days of April 30, 1997 are deemed
outstanding and to be beneficially owned by the person holding such option
for purposes of computing such person's percentage ownership, but are not
deemed outstanding for the purpose of computing the percentage ownership of
any other person.
49
<PAGE> 52
(2) Includes 3,385,510 shares and options to purchase 1,000 shares of Common
Stock held by Charter Ventures and 259,414 shares and options to purchase
1,000 shares of Common Stock held by Charter Ventures II, L.P.
(3) Represents shares and options held by Charter Ventures and Charter Ventures
II, L.P., with respect to which Mr. Dolan disclaims beneficial ownership
except to the extent of his proportionate share therein. Mr. Dolan, a
director of the Company, is a general partner of each of Charter Ventures
and Charter Ventures II, L.P., and may be deemed a beneficial owner of the
shares held by such entities because of shared voting power with respect to
such shares.
(4) Includes options to purchase 14,731 shares of Common Stock held by Dr.
Grieve's wife, with respect to which Dr. Grieve disclaims beneficial
ownership.
(5) Includes 3,076,923 shares held by Volendam Investeringen, N.V., with
respect to which Mr. Pomroy disclaims beneficial ownership except to the
extent of his proportionate interest therein, and 20,840 shares of Common
Stock subject to repurchase by the Company.
(6) Includes 4,125 shares of Common Stock and options to purchase 1,750 shares
of Common Stock held by Mr. Schwarzer's wife, with respect to which Mr.
Schwarzer disclaims beneficial ownership, and 92,772 shares of Common Stock
subject to repurchase by the Company.
(7) Represents shares held by Novartis, with respect to which Dr. Tebbit
disclaims beneficial ownership.
(8) Includes 40,000 shares of Common Stock subject to repurchase by the
Company.
(9) Includes an aggregate of 367,155 shares of Common Stock issuable upon
exercise of stock options currently exercisable within 60 days of April 30,
1997 as follows: Dr. Grieve, 210,625; Dr. Hohnke, 7,534; Mr. Pomroy, 2,000;
Mr. Schwarzer, 109,333; Dr. Stevenson, 2,000; Dr. Seward, 11,250; Mr. Van
Daele, 4,786; and Dr. Shadduck, 19,627.
(10) Includes shares held by entities referenced in footnotes 2, 5 and 7 which
are affiliated with certain directors.
50
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $.001 par value, and
25,000,000 shares of Preferred Stock, $.001 par value.
COMMON STOCK
As of April 16, 1997 there were 11,654,319 shares of Common Stock
outstanding held by approximately 75 stockholders of record. Such figures assume
the conversion of each outstanding share of Preferred Stock upon the closing of
this offering into one share of Common Stock.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders, including the
election of directors, and do not have cumulative voting rights. Accordingly,
the holders of a majority of the shares of Common Stock entitled to vote in any
election of directors can elect all of the directors standing for election, if
they so choose (subject to the Voting Agreement described below). Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." Upon a liquidation, dissolution or winding up
of the Company, the holders of Common Stock will be entitled to share ratably in
the net assets legally available for distribution to stockholders after the
payment of all debts and other liabilities of the Company, subject to the prior
rights of any Preferred Stock then outstanding. Holders of Common Stock have no
preemptive or conversion rights or other subscription rights and there are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and the Common Stock to be outstanding
upon completion of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred
Stock will be converted into Common Stock. See Note 10 of Notes to Consolidated
Financial Statements for a description of the currently outstanding Preferred
Stock. Following the conversion, the Company's Certificate of Incorporation will
be restated to delete all references to the prior series of Preferred Stock and
25,000,000 shares of undesignated Preferred Stock will be authorized. The Board
of Directors has the authority, without further action by the stockholders, to
issue from time to time the Preferred Stock in one or more series and to fix the
number of shares, designations, preferences, powers, and relative,
participating, optional or other special rights and the qualifications or
restrictions thereof. The preferences, powers, rights and restrictions of
different series of Preferred Stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions, and purchase funds and other matters. The
issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to holders of Common Stock or affect adversely the
rights and powers, including voting rights, of the holders of Common Stock and
may have the effect of delaying, deferring or preventing a change in control of
the Company. The Company has no present plans to issue any shares of Preferred
Stock.
WARRANTS
In connection with certain equipment financing transactions, the Company
issued to the equipment lessor warrants (collectively, the "Warrants") to
purchase 6,400 shares of Series C Preferred Stock with an exercise price of
$2.50 and warrants to purchase 24,992 shares of Series D Preferred Stock with an
exercise price of $3.25. All of such Warrants remain outstanding as of April 16,
1997. Upon the closing of this offering, such Warrants will become exercisable
for Common Stock at the rate of one share of Common Stock for each share of
Preferred Stock underlying such Warrants.
REGISTRATION RIGHTS
After this offering, the holders of shares of Common Stock issued upon
conversion of the Company's Preferred Stock (including shares issuable upon
exercise of Warrants (collectively, the "Registrable Shares")), or their
permitted transferees, are entitled to certain rights with respect to the
registration of such shares under the
51
<PAGE> 54
Securities Act. If the Company proposes to register any of its securities under
the Securities Act for its own account or the account of any of its stockholders
other than the holders of the Registrable Shares, holders of such Registrable
Shares are entitled, subject to certain limitations and conditions, to notice of
such registration and are, subject to certain conditions and limitations,
entitled to include Registrable Shares therein, provided, among other
conditions, that the underwriters of any such offering have the right to limit
the number of shares included in such registration. In addition, commencing 180
days after the effective date of the Registration Statement of which this
Prospectus is a part, the Company may be required to prepare and file a
registration statement under the Securities Act at its expense if requested to
do so by the holders of at least 35% of the Registrable Shares, provided the
reasonably expected aggregate offering price will equal or exceed $5,000,000
including underwriting discounts and commissions. The Company is required to use
its best efforts to effect such registration, subject to certain conditions and
limitations. The Company is not obligated to effect more than two of such
stockholder-initiated registrations. Further, holders of Registrable Shares may
require the Company to file additional registration statements on Form S-3,
subject to certain conditions and limitations.
VOTING AGREEMENT
In connection with certain investments in the Company by each of Novartis,
Volendam and Charter (collectively, the "Investors"), the Investors entered into
a Voting Agreement dated as of April 12, 1996 (the "Voting Agreement"), whereby
each Investor agreed to vote or act with respect to all shares of the Company's
voting securities now owned or subsequently acquired by such Investor such that
one designee of each of Novartis, Volendam and Charter shall be elected to the
Board of Directors of the Company. The Investors further agreed to vote their
shares in such manner to elect as the remaining directors of the Company
individuals unaffiliated with any of the Investors but who are reasonably
acceptable to all of the Investors. By executing the Voting Agreement, the
Company agreed to use its best efforts to cause the nominee of each of Novartis,
Volendam and Charter to be elected to the Company's Board of Directors. The
Voting Agreement terminates on December 31, 2005 unless prior to such date any
of the Investors ceases to beneficially hold 2,000,000 shares (as adjusted for
stock splits, recapitalizations and similar events) of the voting stock of the
Company.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
Law, an anti-takeover law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a business combination with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes a merger, asset sale or other transaction resulting in financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock.
Upon the closing of this offering, the Company's Restated Certificate of
Incorporation will provide for a classified board of directors and will
eliminate the right of stockholders to call special meetings of stockholders.
The provisions described above, together with the ability of the Board of
Directors to issue Preferred Stock as described under "--Preferred Stock," may
have the effect of deterring a hostile takeover or delaying a change in control
or management of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American
Securities Transfer and Trust, Inc.
52
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for the Common Stock
of the Company and no predictions can be made regarding 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. As described below, only a limited
number of shares will be available for sale shortly after this offering due to
certain contractual and legal restrictions on resale. Nevertheless, sales of
substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse could adversely affect the prevailing market price.
Upon completion of this offering, the Company will have outstanding
shares of Common Stock assuming: (i) no exercise of the Underwriter's
over-allotment option; and (ii) no exercise of outstanding options and warrants.
The shares of Common Stock being sold hereby will be freely tradable
(other than by an "affiliate" of the Company as such term is defined in the
Securities Act) without restriction or registration under the Securities Act.
All remaining shares were issued and sold by the Company in private transactions
("Restricted Shares") and are eligible for public sale if registered under the
Securities Act or sold in accordance with Rule 144 or Rule 701 thereunder. The
Company's directors, executive officers and certain stockholders, who
collectively hold an aggregate of approximately 11,000,000 shares of Common
Stock, have agreed pursuant to certain agreements that they will not sell any
Common Stock owned by them without the prior written consent of Credit Suisse
First Boston Corporation for a period of 180 days from the effective date of the
Registration Statement of which this Prospectus is a part (the "Lockup Period").
Approximately 278,000 Restricted Shares will be eligible for immediate sale in
the public market pursuant to Rule 144(k) under the Securities Act as of the
date of this Prospectus. Beginning 90 days after the date of this Prospectus,
approximately 377,000 additional Restricted Shares will be eligible for sale in
the public market pursuant to Rule 144 and Rule 701 under the Securities Act.
Following the expiration of the Lockup Period, approximately 12,000,000 shares
of Common Stock, including 1,177,555 shares issuable upon the exercise of
certain options, will be available for sale in the public market subject to
compliance with Rule 144 or Rule 701. See "Underwriting."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or a holder of
Restricted Shares who owns beneficially shares that were not acquired from the
Company or an affiliate of the Company within the prior year, would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of 1% of the then outstanding shares of Common Stock (approximately
shares immediately after this offering, assuming no exercise of the
Underwriters' over-allotment option) or the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the date on which notice
of the sale is filed with the Securities and Exchange Commission (the
"Commission"). Sales under Rule 144 are subject to certain requirements relating
to manner of sale, notice and availability of current public information about
the Company. However, a person (or persons whose shares are aggregated) who is
not deemed to have been an affiliate of the Company at any time during the 90
days immediately preceding the sale and who owns beneficially Restricted Shares
is entitled to sell such shares under Rule 144(k) without regard to the
limitations described above; provided that at least two years have elapsed since
the later of the date the shares were acquired from the Company or from an
affiliate of the Company. The foregoing is a summary of Rule 144 and is not
intended to be a complete description.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisers prior to the closing of this
offering pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Commission has
indicated that Rule 701 will apply to stock options granted by the Company
before this offering, along with the shares acquired upon exercise of such
options. Securities issued in reliance on Rule 701 are deemed to be Restricted
Shares and, beginning 90 days after the date of this Prospectus (unless subject
to the contractual restrictions described above), may be sold by persons other
than affiliates subject only to the manner of sale provisions of Rule 144 and by
affiliates under Rule 144 without compliance with its one-year minimum holding
period requirements.
The Company intends to file a registration statement under the Securities
Act covering approximately shares of Common Stock reserved for
issuance under the Stock Plan and ESPP. Such registration statement is expected
to be filed soon after the date of this Prospectus and will automatically become
effective
53
<PAGE> 56
upon filing. Accordingly, shares registered under such registration statement
will be available for sale in the open market, unless such shares are subject to
vesting restrictions with the Company or the contractual restrictions described
above.
In addition, after this offering, the holders of approximately
shares of Common Stock will be entitled to certain rights to cause the Company
to register the sale of such shares under the Securities Act. 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 the effectiveness of
such registration. See "Description of Capital Stock -- Registration Rights."
54
<PAGE> 57
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1997 (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), for whom Credit Suisse First
Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated are
acting as representatives (the "Representatives"), have severally but not
jointly agreed to purchase from the Company and the Selling Stockholder the
following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
-------
Total.............................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below), if any are purchased. The Underwriting Agreement provides
that, in the event of a default by an Underwriter, in certain circumstances the
purchase commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option, expiring on the
close of business on the 30th day after the date of this Prospectus, to purchase
up to additional shares from the Company at the initial public
offering price less the underwriting discounts and commissions, all as set forth
on the cover page of this Prospectus. Such option may be exercised only to cover
over-allotments in the sale of the shares of Common Stock. To the extent such
option is exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of the additional
shares of Common Stock as it was obligated to purchase pursuant to the
Underwriting Agreement.
The Company and the Selling Stockholder have been advised by the
Representatives that the Underwriters propose to offer the shares offered hereby
to the public initially at the public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession of
$ per share, and the Underwriters and such dealers may allow a discount
of $ per share on sales to certain other dealers. After the initial
public offering, the public offering price and concession and discount to
dealers may be changed by the Representatives.
Prior to this Offering, there has been no public market for the Common
Stock. The initial price to the public for the shares of Common Stock will be
determined by negotiation among the Company, the Selling Stockholder and the
Representatives and will be based on, among other things, the Company's
financial and operating history and condition, its prospects and the prospects
for its industry in general, the management of the Company and the market prices
for the securities of companies in businesses similar to that of the Company.
The Representatives have informed the Company and the Selling Stockholder
that they do not expect discretionary sales by the Underwriters to exceed 5% of
the Shares being offered hereby.
The Company, its officers and directors and certain other stockholders of
the Company, including the Selling Stockholder, have agreed that they will not
offer, sell, contract to sell, announce their intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Commission a
registration statement under the Securities Act relating to any additional
shares of Common Stock or securities convertible into or exchangeable
55
<PAGE> 58
or exercisable for any shares of Common Stock without the prior written consent
of Credit Suisse First Boston Corporation for a period of 180 days from the date
of this Prospectus, except (i) sales of Common Stock offered in this offering or
(ii) issuances of Common Stock by the Company pursuant to the exercise of
employee stock options outstanding on the date of this Prospectus or (iii)
issuances in specified acquisitions.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or contribute to payments which the Underwriters may be required
to make in respect thereof.
Application has been made to have the Common Stock approved for listing on
the Nasdaq Stock Market's National Market under the symbol "HSKA."
The Representatives, on behalf of the Underwriters, may engage in
overallotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when the Common Stock originally sold by such syndicate member
is purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada will be made only on a
private placement basis exempt from the requirement that the Company and the
Selling Stockholder prepare and file a prospectus with the securities regulatory
authorities in each province where trades of the Common Stock are effected.
Accordingly, any resale of the Common Stock in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling Stockholder
and the dealer from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities laws to purchase
such Common Stock without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
56
<PAGE> 59
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein and the Selling Stockholder may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the Common Stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Common Stock acquired by such purchaser pursuant to this offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from the Company. Only
one such report must be filed in respect of the Common Stock acquired on the
same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of the Common Stock should consult their own legal and
tax advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
Legislation.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Pillsbury Madison & Sutro
LLP, San Francisco, California and for the Underwriters by Cooley Godward LLP,
Palo Alto, California and Boulder, Colorado.
EXPERTS
The consolidated financial statements of Heska Corporation included in this
Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants as indicated in their report
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
The statements of income and cash flows of Diamond Animal Health, Inc. for
the year ended March 31, 1996 included in this Prospectus and elsewhere in the
Registration Statement have been audited by McGladrey & Pullen, LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The statements of income and cash flows of Diamond Animal Health, Inc. for
the year ended March 31, 1995 included in this Prospectus and elsewhere in the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
57
<PAGE> 60
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to such Registration
Statement, exhibits and schedules. Statements contained in this Prospectus
regarding the contents of any contract or other document are not necessarily
complete; with respect to each such contract or document filed as an exhibit to
the Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. A copy of the Registration
Statement, including the 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 copies of such material may be obtained from
such office upon payment of the fees prescribed by the Commission.
In addition, the Commission maintains a World Wide Web site on the Internet
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
58
<PAGE> 61
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HESKA CORPORATION
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1995 and
1996 and March 31, 1997 (unaudited) and on a pro forma
basis as of March 31, 1997 (unaudited)................. F-3
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and for the three
months ended March 31, 1996 and 1997 (unaudited)....... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1994, 1995 and 1996 and the
three months ended March 31, 1997 (unaudited).......... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and for the three
months ended March 31, 1996 and 1997 (unaudited)....... F-6
Notes to Consolidated Financial Statements................ F-7
DIAMOND ANIMAL HEALTH, INC.
Report of Independent Accountants (McGladrey & Pullen
LLP)................................................... F-24
Report of Independent Auditors (Ernst & Young LLP)........ F-25
Statements of Income for the years ended March 31, 1995
and 1996............................................... F-26
Statements of Cash Flows for the years ended March 31,
1995 and 1996.......................................... F-27
Notes to Financial Statements............................. F-28
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION...... F-31
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Heska Corporation:
We have audited the accompanying consolidated balance sheets of Heska
Corporation (a California corporation) and subsidiary as of December 31, 1995
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the three years ended December 31, 1994, 1995 and
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Heska Corporation and
subsidiary as of December 31, 1995 and 1996, and the results of their operations
and their cash flows for the three years ended December 31, 1994, 1995 and 1996,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 28, 1997
F-2
<PAGE> 63
HESKA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
PRO
DECEMBER 31, FORMA
------------------- MARCH 31, MARCH 31,
1995 1996 1997 1997
-------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 6,827 $ 6,609 $ 4,476 $ 4,476
Marketable securities............................. -- 17,091 11,427 11,427
Accounts receivable, net.......................... -- 749 1,047 1,047
Inventories, net.................................. -- 4,430 5,287 5,287
Other current assets.............................. 152 334 482 482
Contract receivable............................... 500 -- -- --
-------- -------- -------- --------
Total current assets...................... 7,479 29,213 22,719 22,719
Property and equipment, net......................... 1,029 8,209 10,548 10,548
Intangible assets, net.............................. -- 3,480 4,158 4,158
Restricted marketable securities and other assets... -- 1,267 1,172 1,172
-------- -------- -------- --------
Total assets.............................. $ 8,508 $ 42,169 $ 38,597 $ 38,597
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 537 $ 1,634 $ 2,446 $ 2,446
Accrued liabilities............................... 169 940 1,182 1,182
Deferred revenue.................................. 20 1,413 1,842 1,842
Current portion of capital lease obligations...... 231 464 549 549
Current portion of long-term debt................. -- 807 1,708 1,708
-------- -------- -------- --------
Total current liabilities................. 957 5,258 7,727 7,727
Capital lease obligations, less current portion..... 302 1,459 1,648 1,648
Long-term debt, less current portion................ -- 2,942 3,912 3,912
Accrued pension liability........................... -- 127 142 142
-------- -------- -------- --------
Total liabilities......................... 1,259 9,786 13,429 13,429
-------- -------- -------- --------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, 10,000,000,
25,000,000, 25,000,000 and 25,000,000 shares
authorized; 6,618,085, 10,459,999, 10,513,999
and no shares issued and outstanding, with an
aggregate liquidation preference of $19,516,
$62,588, $63,236 and none, respectively........ 19,516 62,588 63,236 --
Common stock, no par value, 20,000,000 shares
authorized; 919,363, 1,021,645, 1,114,904 and
11,628,903 shares issued and outstanding,
respectively................................... 144 189 239 63,475
Cumulative translation adjustment................. -- -- 1 1
Stock subscription receivable from officers....... (110) (118) (151) (151)
Accumulated deficit............................... (12,301) (30,276) (38,157) (38,157)
-------- -------- -------- --------
Total stockholders' equity................ 7,249 32,383 25,168 25,168
-------- -------- -------- --------
Total liabilities and stockholders'
equity.................................. $ 8,508 $ 42,169 $ 38,597 $ 38,597
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 64
HESKA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
------ ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Products and services, net.............. $ -- $ -- $ 8,013 $ 39 $ 2,626
Research and development................ 3,858 2,230 1,946 117 438
------ ------- -------- ------- -------
3,858 2,230 9,959 156 3,064
Costs and operating expenses:
Cost of sales........................... -- -- 6,648 20 2,148
Research and development................ 3,685 6,031 14,038 2,626 4,519
Selling and marketing................... -- -- 2,493 -- 1,573
General and administrative.............. 904 864 4,540 375 2,418
Amortization of intangible assets....... -- -- 1,101 -- 407
------ ------- -------- ------- -------
4,589 6,895 28,820 3,021 11,065
------ ------- -------- ------- -------
Loss from operations...................... (731) (4,665) (18,861) (2,865) (8,001)
Other income (expense):
Interest income......................... 26 172 1,356 71 296
Interest expense........................ (168) (63) (325) (16) (170)
Other, net.............................. (11) (10) (145) -- (6)
------ ------- -------- ------- -------
Net loss.................................. $ (884) $(4,566) $(17,975) $(2,810) $(7,881)
====== ======= ======== ======= =======
Pro forma net loss per share
(unaudited)............................. $ (1.71) $ (0.67)
======== =======
Shares used to compute pro forma net loss
per share (unaudited)................... 10,511 11,733
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 65
HESKA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except per share data)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK STOCK CUMULATIVE TOTAL
---------------- --------------- SUBSCRIPTION TRANSLATION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT RECEIVABLE ADJUSTMENT DEFICIT EQUITY
------ ------- ------ ------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993....... 2,690 $ 6,750 496 $ 15 $ -- $ -- $ (6,851) $ (86)
Exercise of options to purchase
Common Stock for cash at
$0.15-$0.35 per share......... -- -- 113 19 -- -- -- 19
Issuance of Series E Preferred
Stock for cancellation of
indebtedness, valued at $3.25
per share..................... 655 2,128 -- -- -- -- -- 2,128
Issuance of Common Stock for
services, valued at $0.35 per
share......................... -- -- 4 1 -- -- -- 1
Compensation expense related to
options....................... -- -- -- 2 -- -- -- 2
Net loss........................ -- -- -- -- -- -- (884) (884)
------ ------- ----- ---- ----- ---- -------- --------
Balances, December 31, 1994....... 3,345 8,878 613 37 -- -- (7,735) 1,180
Exercise of options to purchase
Common Stock for cash at
$0.25-$0.35 per share......... -- -- 9 3 -- -- -- 3
Issuance of Series E Preferred
Stock for cancellation of
indebtedness, valued at $3.25
per share..................... 196 638 -- -- -- -- -- 638
Issuance of Series E Preferred
Stock at $3.25 per share...... 3,077 10,000 -- -- -- -- -- 10,000
Issuance of Common Stock at
$0.35 per share for stock
subscription receivable from
officers...................... -- -- 297 104 (104) -- -- --
Interest on stock subscription
receivable from officers...... -- -- -- -- (6) -- -- (6)
Net loss........................ -- -- -- -- -- -- (4,566) (4,566)
------ ------- ----- ---- ----- ---- -------- --------
Balances, December 31, 1995....... 6,618 19,516 919 144 (110) -- (12,301) 7,249
Issuance of Series E Preferred
Stock in exchange for the
common stock of Diamond Animal
Health, Inc., valued at $8.40
per share..................... 842 7,072 -- -- -- -- -- 7,072
Grant of options to purchase
Common Stock.................. -- -- -- 8 -- -- -- 8
Exercise of options to purchase
Common Stock for cash at
$0.25-$0.35 per share......... -- -- 103 37 -- -- -- 37
Issuance of Series F Preferred
Stock at $12.00 per share..... 3,000 36,000 -- -- -- -- 36,000
Interest on stock subscription
receivable from officers...... -- -- -- -- (8) -- -- (8)
Net loss........................ -- -- -- -- -- -- (17,975) (17,975)
------ ------- ----- ---- ----- ---- -------- --------
Balances, December 31, 1996....... 10,460 62,588 1,022 189 (118) -- (30,276) 32,383
Unaudited:
Issuance of Series E Preferred
Stock in exchange for the
capital stock of Bloxham
Laboratories Limited, valued
at $12.00 per share........... 54 648 -- -- -- -- -- 648
Exercise of options to purchase
Common Stock for cash at
$0.15-$1.20 per share......... -- -- 68 20 -- -- -- 20
Issuance of Common Stock at
$1.20 per share for stock
subscription receivable from a
director...................... -- -- 25 30 (30) -- -- --
Interest on stock subscription
receivable from officers and a
director...................... -- -- -- -- (3) -- -- (3)
Foreign currency translation
adjustments................... -- -- -- -- -- 1 -- 1
Net loss........................ -- -- -- -- -- -- (7,881) (7,881)
------ ------- ----- ---- ----- ---- -------- --------
Balances, March 31, 1997
(unaudited)..................... 10,514 $63,236 1,115 $239 $(151) $ 1 $(38,157) $ 25,168
====== ======= ===== ==== ===== ==== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 66
HESKA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss................................... $ (884) $(4,566) $(17,975) $(2,810) $(7,881)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization........... 148 253 1,072 123 430
Amortization of intangible assets....... -- -- 1,101 -- 407
Amortization of debt discount........... -- -- 121 -- 21
Issuance of common stock for services... 1 -- -- -- --
Compensation expense related to
options............................... 2 -- -- -- --
Loss on disposition of assets........... 13 16 60 -- 48
Interest receivable on stock
subscription.......................... -- -- (8) (2) (3)
Increase in accrued pension liability... -- -- 62 -- 15
Changes in operating assets and
liabilities:..........................
Accounts receivable, net.............. -- -- (508) (75) (10)
Inventories, net...................... -- -- (408) -- (751)
Prepaids and other assets............. (20) (83) (66) (116) (203)
Contract receivable................... (1,500) 1,000 500 -- --
Accounts payable...................... 454 41 744 (101) 519
Accrued liabilities................... 144 -- 265 238 57
Deferred revenue...................... 325 (386) 987 (20) 429
------- ------- -------- ------- -------
Net cash used in operating
activities....................... (1,317) (3,725) (14,053) (2,763) (6,922)
------- ------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash
acquired................................ -- -- (478) (500) (180)
Cash deposited in restricted cash account
related to Bloxham acquisition.......... -- -- -- -- (238)
Purchase of marketable securities.......... -- -- (31,243) -- --
Purchase of restricted marketable
securities.............................. -- -- (1,219) -- --
Proceeds from sale of marketable
securities.............................. -- -- 14,152 -- 6,140
Purchases of property and equipment........ (424) (348) (5,232) (630) (2,229)
------- ------- -------- ------- -------
Net cash provided by (used in)
investing activities............. (424) (348) (24,020) (1,130) 3,493
------- ------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock..... 19 3 37 1 20
Proceeds from borrowings................... 1,644 527 3,318 -- 1,614
Repayments of debt and capital lease
obligations............................. (78) (169) (1,500) (55) (345)
Proceeds from issuance of preferred
stock................................... -- 10,000 36,000 -- --
------- ------- -------- ------- -------
Net cash provided by (used in)
financing activities............. 1,585 10,361 37,855 (54) 1,289
------- ------- -------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH...... -- -- -- -- 7
------- ------- -------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ (156) 6,288 (218) (3,947) (2,133)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR....................................... 695 539 6,827 6,827 6,609
------- ------- -------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR....... $ 539 $ 6,827 $ 6,609 $ 2,880 $ 4,476
======= ======= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 67
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Heska Corporation (the "Company") discovers, develops, manufactures and
markets companion animal health products and services. The Company also
manufactures and sells animal health products and services in the United States,
Canada and Europe through Diamond Animal Health, Inc. ("Diamond") and Bloxham
Laboratories Limited ("Bloxham"), its wholly-owned subsidiaries (see Note 3).
The Company continues to incur substantial operating losses due principally
to its research and development and sales and marketing activities. Cumulative
operating losses from inception of the Company in 1988 through December 31, 1996
and March 31, 1997 have totaled $30,276,000 and $38,157,000 (unaudited),
respectively.
During 1996, the Company progressed from being primarily a research and
development company to a fully-integrated research, development, manufacturing
and marketing company. The Company's products are subject to long development
and regulatory approval cycles and there can be no assurance that the Company
will successfully develop, manufacture or market these products. In the first
quarter of 1997, the Company began to launch products which had been developed
internally. Prior to that time, the Company had not received any revenues from
the sale of internally developed products.
The Company's ability to achieve profitable operations will depend
primarily upon its ability to commercialize products that are currently under
development. There can be no assurance that the Company will successfully
develop, manufacture, or market these products. During the period required to
develop its products, the Company intends to finance operations with additional
equity and debt financing. There can be no assurance that such financing will be
available when required or will be obtained under favorable terms.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries since the dates of their
respective acquisitions. All material intercompany transactions and balances
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates market,
and include short-term highly liquid investments with original maturities of
less than three months. Cash equivalents consist of United States government
obligations.
Marketable Securities and Restricted Investments
The Company has adopted Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities. Pursuant
to this Statement, the Company has classified its marketable securities as
"available-for-sale" and, accordingly, carries such securities at aggregate fair
value. Unrealized gains or losses, if material, are included as a separate
component of stockholders' equity.
At December 31, 1996 and March 31, 1997, these securities had an aggregate
amortized cost of $18,310,000 and $12,170,000 (unaudited), respectively, which
approximated fair market value, a maximum maturity of
F-7
<PAGE> 68
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately nine and six months, respectively, and consisted entirely of U.S.
government obligations. This included $1,219,000 and $743,000 (unaudited) of
restricted investments held as collateral for capital leases (see Note 4) and
$17,091,000 and $11,427,000 (unaudited) of short-term marketable securities,
respectively.
Inventories, net
Inventories are stated at the lower of cost or market using the first-in,
first-out method. If the cost of inventories exceeds fair market value,
provisions are made for the difference between cost and fair market value.
Inventories, net of provisions, consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- MARCH 31,
1995 1996 1997
---- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................................ $-- $ 885 $ 868
Work in process.......................................... -- 3,103 4,121
Finished goods........................................... -- 442 298
--- ------ ------
$-- $4,430 $5,287
=== ====== ======
</TABLE>
Property, Equipment and Intangible Assets
Property and equipment are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the related assets.
Amortization of assets acquired under capital leases is included with
depreciation expense on owned assets.
Leasehold improvements are amortized over the applicable lease period or
their estimated useful lives, whichever is shorter. Maintenance and repairs are
charged to expense when incurred, and major renewals and improvements are
capitalized.
Intangible assets consist of various assets arising from business
combinations and are amortized using the straight-line method over the period of
expected benefit.
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, the Company periodically reviews the appropriateness of the
remaining life of its property, equipment and intangible assets considering
whether any events have occurred or conditions have developed which may indicate
that the remaining life requires adjustment. After reviewing the appropriateness
of the remaining life and the pattern of usage of these assets, the Company then
assesses their overall recoverability by determining if the net book value can
be recovered through undiscounted future operating cash flows. Absent any
unfavorable findings, the Company continues to amortize and depreciate its
property, equipment and intangible assets based on the existing estimated life.
F-8
<PAGE> 69
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ---------------- MARCH 31,
USEFUL LIFE 1995 1996 1997
------------- ------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land...................................... N/A $ -- $ 233 $ 233
Buildings................................. 10 years -- 453 453
Machinery and equipment................... 3 to 15 years 1,382 7,924 10,562
Leasehold improvements.................... 3 to 5 years 222 1,103 1,234
------ ------- -------
1,604 9,713 12,482
Less accumulated depreciation and amortization........... (575) (1,504) (1,934)
------ ------- -------
$1,029 $ 8,209 $10,548
====== ======= =======
</TABLE>
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ---------------- MARCH 31,
USEFUL LIFE 1995 1996 1997
------------- ------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Take-or-pay contract...................... 37 Months $ -- $ 3,873 $ 3,873
Other intangible assets................... 2 to 7 years -- 707 1,792
------ ------- -------
-- 4,580 5,665
Less accumulated amortization............................ -- (1,100) (1,507)
------ ------- -------
$ -- $ 3,480 $ 4,158
====== ======= =======
</TABLE>
The take-or-pay contract resulted from the acquisition of Diamond in April
1996 (see Note 3). The remaining intangible assets resulted from the
acquisitions of Bloxham in February 1997 (see Note 3) and the canine allergy
business from Bioproducts DVM, Inc. in March 1996 (see Note 3).
Revenue Recognition
Revenues from products and services are recognized at the time goods are
shipped or services are provided to the customer, with an appropriate provision
for returns and allowances.
The Company recognizes revenue from sponsored research and development as
research activities are performed or as development milestones are completed
under the terms of the research and development agreements. Costs incurred in
connection with the performance of sponsored research and development are
expensed as incurred. The Company defers revenue recognition related to payments
received during the current year for research activities to be performed in the
following year.
Cost of Sales
Royalties payable in connection with certain research and development
agreements (see Note 8) are reflected in cost of sales as incurred.
Unaudited Pro Forma Net Loss Per Share
The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
convertible preferred stock into common stock concurrent with the closing of the
Company's anticipated initial public offering ("IPO"). Accordingly, historical
net loss per common share is not considered meaningful as it would differ
materially from the pro forma net loss per common share and common stock
equivalent shares given the contemplated changes in the capital structure of the
Company.
F-9
<PAGE> 70
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma net loss per common share is computed using the weighted average
number of common shares outstanding during the period. Common equivalent shares
from stock options and warrants are excluded from the computation as their
effect is anti-dilutive, except as required by the SEC. Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83, common stock and
common stock equivalent shares issued by the Company during the 12 months
immediately preceding the filing of the IPO, plus shares which became issuable
during the same period as a result of the granting of options to purchase common
stock, have been included in the calculation of weighted average number of
shares of common stock as if they were outstanding for all periods presented
(using the treasury stock method). Accordingly, only those common stock and
common stock equivalent shares issued during the 12 months immediately preceding
the filing of the IPO have been included in the computation of pro forma net
loss per common share. In addition, the Company has assumed the conversion of
convertible preferred stock issued into common stock for all periods presented.
Unaudited Pro Forma Information
Upon closing of the Company's IPO, all of the outstanding shares of Series
A, B, C, D, E and F Preferred Stock will be automatically converted into shares
of Common Stock on a share for share basis. The unaudited pro forma consolidated
balance sheet as of March 31, 1997 reflects the conversion of 10,513,999 shares
of Preferred Stock into 10,513,999 shares of Common Stock.
Foreign Currency Translation
The functional currency of Bloxham is the Pound Sterling ("L"). Assets and
liabilities of the Company's foreign subsidiary are translated using the
exchange rate in effect at the balance sheet date. Revenue and expense accounts
are translated using an average of exchange rates in effect during the period.
Cumulative translation gains and losses are shown in the consolidated balance
sheets as a separate component of stockholders' equity. Exchange gains and
losses arising from transactions denominated in foreign currencies (i.e.
transaction gains and losses) are recognized in current operations. To date, the
Company has not entered into any forward contracts or hedging transactions.
Interim Financial Statements
The financial statements as of 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) which are, in the opinion of
management, necessary for a fair presentation 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.
Reclassifications
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
3. BUSINESS MERGERS AND ACQUISITIONS
The following acquisitions have been accounted for under the purchase
method of accounting and, accordingly, the operating results of these
acquisitions are included in the Company's consolidated results of operations
from the date of acquisition.
Diamond Animal Health, Inc. ("Diamond") -- In April 1996, the Company
acquired Diamond in a merger transaction valued at $7,080,000. The merger was
consummated by exchanging 1,593,432 shares of Diamond common stock for 841,914
shares of the Company's Series E Preferred Stock and options to purchase
F-10
<PAGE> 71
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
68,553 shares of the Company's Common Stock, granted to Diamond employees at an
exercise price of $1.20 per share. As a result of the merger, Diamond became a
wholly-owned subsidiary of the Company.
The total purchase price of the acquisition was allocated as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash........................................................ $ 22
Other current assets........................................ 4,623
Property and equipment...................................... 3,101
Take-or-pay contract........................................ 3,873
License rights.............................................. 1,250
-------
12,869
Less liabilities assumed:
Current liabilities....................................... (2,726)
Long-term liabilities..................................... (3,063)
-------
(5,789)
-------
Value of shares issued and options granted.................. $ 7,080
=======
</TABLE>
Under the take-or-pay contract, Bayer Corporation (see Note 11) is
obligated to make minimum annual purchases from Diamond through June 1999.
License rights reflect the value of certain rights granted to a Diamond
customer in return for a reduction of $1,250,000 in payments on a note payable
to the customer (see Note 5). These license rights were classified as intangible
assets held for sale at the time of the Diamond merger, and no gain or loss was
recognized as a result of this transaction.
Bioproducts DVM, Inc. ("Bioproducts") -- In March 1996, the Company
acquired the canine allergy testing and immunotherapy businesses of Bioproducts
(the "Bioproducts Business") in exchange for $500,000 in cash and a $250,000
promissory note. The promissory note is noninterest bearing and is due in four
equal annual installments of $62,500 on each anniversary date of the acquisition
closing date (see Note 5). In connection with this acquisition, the Company
recorded an intangible asset in the amount of $707,000, primarily related to
customer lists and covenants not to compete.
Pro Forma Results of Operations
The following unaudited pro forma summary presents the consolidated results
of operations as if the Bioproducts Business and Diamond acquisitions had been
consummated as of January 1, 1995, based on unaudited financial statements
provided by the respective sellers (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1995 1996
------- --------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $12,027 $ 12,928
Net loss.................................................... $(7,354) $(18,589)
Pro forma net loss per share................................ $ (1.73)
Shares used to compute pro forma net loss per share......... 10,762
</TABLE>
The pro forma results give effect to certain adjustments, including
amortization of intangibles, reduced interest costs associated with conversion
of debt, and additional depreciation and amortization expenses due to increased
book basis of the property and equipment. The pro forma results have been
prepared for comparative
F-11
<PAGE> 72
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purposes only and are not necessarily indicative of the results that would have
been attained had the acquisitions occurred at the beginning of 1995 or of the
results which may occur in the future.
Bloxham Laboratories Limited ("Bloxham") -- In February 1997, the Company
acquired the capital stock of Bloxham, a clinical reference laboratory located
in the United Kingdom, in a transaction valued at approximately $1,150,000. The
acquisition was consummated by exchanging 54,000 shares of the Company's Series
E Preferred Stock, a note payable for L200,000 and $180,000 in cash. The Company
also agreed to grant to Bloxham employees options to purchase the Company's
common stock on a basis consistent with stock options granted to employees of
other Heska subsidiaries. Under the terms of the acquisition agreement, the
Company deposited approximately $238,000 in a restricted cash account as
collateral for the note payable. In connection with this acquisition, the
Company recorded an intangible asset in the amount of $1,085,000.
4. CAPITAL LEASE OBLIGATIONS
The Company has entered into certain capital lease agreements for
laboratory equipment, office equipment, machinery and equipment, and computer
equipment and software. For the years ended December 31, 1995 and 1996 and the
three months ended March 31, 1997, the Company had capitalized machinery and
equipment under capital leases of $741,000, $2,004,000 and $2,259,000
(unaudited), respectively. The capitalized cost of the equipment under capital
leases is included in the accompanying balance sheets under the respective asset
classes. Under the terms of the Company's lease agreements, the Company is
required to make monthly payments of principal and interest through the year
2001, at interest rates ranging from 9.25% to 11.85% per annum. The equipment
under the capital leases serves as security for the leases.
The Company has a capital lease with its commercial bank which requires the
Company to pledge cash or investments as additional collateral for the lease.
The lease agreement, which has a borrowing limit of $2,000,000, calls for a
collateral balance equal to 75% of the outstanding lease balance, dropping to
50% and 25% when the Company's annual revenues reach $18,000,000 and
$28,000,000, respectively. In March 1997, the bank reduced the collateral
requirement to 50% (unaudited). As of December 31, 1996 and March 31, 1997, the
Company was in compliance with all covenants of the master lease and had pledged
U.S. Treasury Bonds of $1,219,000 and $743,000 (unaudited) as additional
collateral under the lease, respectively.
The future annual minimum required payments under capital lease obligations
as of December 31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1997........................................................ $ 1,304
1998........................................................ 1,143
1999........................................................ 1,086
2000........................................................ 1,184
2001........................................................ 713
-------
Total minimum lease payments.............................. 5,430
Less amount representing interest......................... (3,507)
-------
Present value of net minimum lease payments............... 1,923
Less current portion...................................... (464)
-------
Total long-term capital lease obligations......... $ 1,459
=======
</TABLE>
F-12
<PAGE> 73
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT AND NOTES PAYABLE
Long term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1995 1996 1997
----- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Diamond obligations
9.5% real estate mortgage to Hartford-Carlisle Bank
due in monthly installments of $3 and a final
payment of the unpaid principal balance and accrued
interest of $59 in
October 2004....................................... $ -- $ 214 $ 211
Term note to Iowa Business Growth guaranteed by the
Small Business Administration (SBA), due in monthly
installments of approximately $3 through July 2004,
including interest at prime plus 0.7%.............. -- 169 165
Promissory note to the Iowa Department of Economic
Development (IDED), due in annual installments of
$15 through June 2004, with the remaining $125
forgivable in March 1999 based upon levels of
employment at Diamond, with a stated interest rate
of 3.0% and a 9.5% imputed interest rate, net of an
unamortized discount of $39 and $38 (unaudited),
respectively....................................... -- 189 189
Promissory note to the City of Des Moines, due in
monthly installments of $2 through May 2004, with a
stated interest rate of 3.0% and a 9.5% imputed
interest rate, net of an unamortized discount of
$26 and $25 (unaudited),
respectively....................................... -- 128 126
10.0% promissory notes, due in monthly interest
payments until June 1997, then quarterly
installments totaling $50 from June 1997 to March
1999, with the unpaid balance due March 1999....... -- 498 498
Unsecured promissory note to customer, due in monthly
installments of $25 through June 1999, with no
stated interest rate and a 9.5% imputed interest
rate, net of an unamortized discount of $82 and $67
(unaudited), respectively (monthly installments
change to 1/36th of the principal balance and
stated interest becomes prime plus 2.0% if
Diamond's sales increase to $12,000 in any annual
period)............................................ -- 655 597
Heska obligations
Promissory note to Bioproducts (see Note 3) due in
annual installments of $62 through March 2000, with
no stated interest rate and a 9.5% imputed interest
rate, net of an unamortized discount of $43 and $38
(unaudited), respectively.......................... -- 207 149
</TABLE>
F-13
<PAGE> 74
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1995 1996 1997
----- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Promissory note to former Bloxham shareholders (see
Note 3) due in semi-annual interest payments
through February 2007, redeemable on demand in
whole or in part at any time after February 18,
1998 in increments of L1 together with accrued
interest, with stated interest rate of 4.5%,
denominated in pounds sterling..................... -- -- 327
Bloxham obligation
Real estate mortgage due in monthly principal payments
of L1 and quarterly interest payments through June
2006, with stated interest rate of a bank's base
rate (6.0% at March 31, 1997) plus 2.75%,
denominated in Pounds Sterling..................... -- -- 132
Diamond and Heska obligations
Equipment financing due in monthly installments of $49
through June 2000, and final payments totaling $342
due May through July 2000, with stated interest
rates of 18.1%, secured by certain equipment,
furniture and fixtures............................. -- 1,689 1,616
Equipment financing due in monthly installments of $48
through March 2000, with stated interest rate of
14.0%, secured by certain equipment and fixtures... -- -- 1,610
----- ------ -------
-- 3,749 5,620
Less installments due within one year................... -- (807) (1,708)
----- ------ -------
$ -- $2,942 $ 3,912
===== ====== =======
</TABLE>
The Diamond SBA, IDED, City of Des Moines and 10.0% promissory notes are
secured by a first security interest in substantially all of the assets of
Diamond except assets acquired through capital leases, and are included as
cross-collateralized obligations by the respective lenders. These notes, along
with the unsecured note to the customer, were assumed as a result of the Diamond
acquisition.
Maturities of long-term debt and notes payable as of December 31, 1996 were
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1997......................................................... $ 808
1998......................................................... 988
1999......................................................... 849
2000......................................................... 679
2001......................................................... 79
Thereafter................................................... 346
------
$3,749
======
</TABLE>
Notes Payable to a Stockholder
The Company had demand notes payable to a holder of Preferred Stock in the
amount of $129,000 at December 31, 1994. The notes were unsecured and bore
interest at 10% per annum. A representative of the stockholder is a director of
the Company. In December 1994, the Company converted $2,128,000 of notes payable
and accrued interest owing to this stockholder to 654,680 shares of Series E
Preferred Stock. In
F-14
<PAGE> 75
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
March 1995, the Company converted $639,000 of demand notes payable and accrued
interest owing to this stockholder to 196,482 shares of Series E Preferred
Stock.
6. ACCRUED PENSION LIABILITY
Diamond has an inactive noncontributory defined benefit pension plan
covering a limited number of current and former Diamond employees. Effective
October 1992, Diamond froze the plan, restricting new participants and benefits
for future service. The plan provides monthly benefits on years of service which
are subject to certain reductions if the employee retires before reaching age
65. Diamond's funding policy is to make the minimum annual contribution that is
required by applicable regulations.
Net pension cost for Diamond's defined benefit pension plan consisted of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Interest cost on projected benefit obligation............... $ 55
Actual return on plan assets................................ 14
Net amortization and deferral............................... (70)
-----
Net periodic pension cost......................... $ (1)
=====
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the accompanying balance sheets (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $1,089
Accumulated benefit obligation.............................. 1,089
-------
Projected benefit obligation................................ 1,089
Plan assets, consisting primarily of bonds and commercial
mortgage notes............................................ 962
-------
Projected benefit obligation in excess of plan assets....... $ (127)
=======
</TABLE>
Assumptions used by Diamond in the determination of the pension plan
information consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Discount rate............................................... 7.00%
Expected long-term rate of return on plan assets............ 7.75%
</TABLE>
7. INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. As
of December 31, 1996 the Company had approximately $26,900,000 of net operating
loss ("NOL") carryforwards for income tax purposes and approximately $731,000 of
research and development tax credits available to offset future federal income
taxes, subject to limitations for alternative minimum tax. The NOL and credit
carryforwards are subject to examination by the tax authorities and expire in
various years from 2003 through 2010. The Tax Reform Act of 1986 contains
provisions that may limit the NOL and credit carryforwards available for use in
any given year upon the occurrence of certain events, including significant
changes in ownership interest. A change in ownership of a company of greater
than 50% within a three-year period results in an annual limitation on a
company's ability to utilize its NOL carryforwards from tax periods prior to the
ownership change. The acquisition of Diamond
F-15
<PAGE> 76
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
resulted in such a change of ownership and the Company estimates that the
resulting NOL carryforward limitation will be approximately $4,300,000 per year
for periods subsequent to April 1996. The Company does not believe that this
limitation will have a material impact on the utilization of its NOL
carryforwards.
The acquisition of Diamond was completed on a tax free basis. Accordingly,
the difference between the basis of the assets for financial reporting purposes
exceeds the basis of the assets for income tax purposes. The Company has
recorded a deferred tax liability related to this basis difference. As the
Company had previously recorded a valuation allowance against its deferred tax
assets, the Company reduced its valuation allowance in an amount equal to the
deferred tax liability at the date of the acquisition.
The Company's NOLs represent a previously unrecognized tax benefit.
Recognition of these benefits requires future taxable income, the attainment of
which is uncertain, and therefore, a valuation allowance has been established
for the entire tax benefit and no benefit for income taxes has been recognized
in the accompanying consolidated statements of operations.
Deferred tax assets and liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- --------
<S> <C> <C>
Deferred tax assets:
Research and development credits.......................... $ 414 $ 731
Inventory valuation and reserves.......................... -- 71
Deferred revenue.......................................... -- 90
Pension liability......................................... -- 49
Accrued compensation...................................... 39 122
Amortization of intangible assets......................... -- 86
Other..................................................... 7 11
Net operating loss carryforwards.......................... 4,491 10,317
------- --------
4,951 11,477
Less valuation allowance.................................. (4,951) (10,818)
------- --------
-- 659
Deferred tax liability:
Property and equipment.................................... -- (659)
------- --------
-- (659)
------- --------
Net deferred taxes................................ $ -- $ --
======= ========
</TABLE>
8. RESEARCH AND DEVELOPMENT AGREEMENTS
In June 1994, the Company entered into agreements with Bayer AG ("Bayer"),
a pharmaceutical company, pursuant to which Bayer is funding and assisting in
the development of certain technologies. In return, the Company granted Bayer
the option to license the technologies to manufacture certain products for sale,
as well as the right to distribute for all parts of the world, except Japan and
East Asia. To the extent the Company is determined to have manufacturing
responsibility under the agreement, Bayer will be required to purchase its
requirements of such products from the Company.
In exchange for the above, Bayer agreed to provide research funding to the
Company, of which $1,500,000 was received in 1995 and $500,000 in June 1996. The
Company expects to receive periodic research payments until June 1999 as the
related expenses are incurred and specified milestones are reached. In
connection with this contract, the Company recognized research revenue of
$569,000, $1,456,000 and $1,300,000 for the years ended
F-16
<PAGE> 77
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994, 1995 and 1996, respectively, and none (unaudited) for the
three months ended March 31, 1996 and 1997.
Additionally, the Company will receive royalties based on a percentage of
any net sales of products developed under the agreements not manufactured by the
Company.
Bayer may terminate the agreement for convenience at any anniversary,
beginning in June 1996, with 90 days notice, in which case the product rights
revert to the Company. The Company would be required to pay Bayer a royalty on
net sales exceeding a specified threshold. The total amount of this royalty
would not exceed the amount of research funding provided by Bayer.
In January 1993, the Company entered into an agreement with Eisai Co., Ltd.
("Eisai") pursuant to which Eisai obtained the exclusive right to market certain
products in Japan and East Asia. Under the terms of the agreement, the Company
is to receive periodic payments for support of research, one half of which is
only to be received upon completion of certain milestones. The Company
recognized $600,000 and $337,000 as research and development revenue for the
years ended December 31, 1994 and 1995, respectively, related to this agreement.
No revenue was recognized for the year ended December 31, 1996, or the three
months ended March 31, 1997 (unaudited). Although the agreement does not expire
until 2008, Eisai may terminate its research support for any licensed product
with 90 days written notice. Three of the specified projects covered by the
agreement have been mutually abandoned.
In February 1993, the Company entered into an agreement with another
pharmaceutical company pursuant to which the Company granted the pharmaceutical
company an exclusive license for the sale and use of certain technology. The
Company received $187,000 in the year ended December 31, 1994, related to this
agreement, which was terminated in December 1994.
In October 1996, the Company and Diamond entered into three related
agreements with a pharmaceutical company concerning the research, development,
licensing, manufacturing and marketing of certain products. Under the research
and development agreement, Diamond granted a non-exclusive, royalty-free,
paid-up right and license to develop, manufacture and market certain of its
bovine products. In return, the pharmaceutical company agreed to fund certain
research costs associated with the development of these products, subject to the
achievement of certain milestones. In connection with this research funding, the
Company recognized research and development revenue of $210,000 during the
fourth quarter of 1996 and $320,000 (unaudited) for the three months ended March
31, 1997. As additional consideration, the Company received an exclusive,
royalty-free, worldwide license for certain feline biological vaccines. The
Company also has a three-year agreement with the pharmaceutical company for the
manufacture of these feline vaccines.
The Company estimates its future cash flows from its existing research and
development contracts, subject to scheduled completion of specified milestones,
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1997.................................................................. $1,505
1998.................................................................. 1,360
1999.................................................................. 750
2000.................................................................. 600
------
$4,215
======
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Company holds certain rights to market and manufacture products using
technology developed under certain research and development agreements with
various entities. In connection with such agreements, the
F-17
<PAGE> 78
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company has agreed to pay the entities royalties on net product sales. No
royalties have become payable to date under these agreements.
In connection with the acquisition of the Bioproducts Business (see Note
3), the Company entered into a four year product supply agreement in March 1996
with a company affiliated with Bioproducts (the "Seller"). The Company is
obligated to purchase a minimum of $168,000 in products and services from the
Seller on a quarterly basis. If purchases are less than $168,000 in any quarter
the Company may make an advance payment to be credited against future purchases,
or pay 65% of the shortfall. In 1996 the Company incurred shortfalls under this
agreement totaling approximately $72,000, which are expected to be applied
against 1997 purchases. The agreement also contains provisions whereby the
Company may make payments to terminate the contract after March 1997.
In connection with an equity investment by Novartis AG ("Novartis") in
April 1996 (see Note 10), the Company granted Novartis the rights, co-exclusive
with the Company's rights, to market two products under development by the
Company, the flea control vaccine and feline heartworm vaccine. The Company and
Novartis have a revenue sharing arrangement for net sales of these products
through the year 2005.
In addition to the marketing agreements described above, the Company
entered into a pharmaceutical screening cooperation agreement with Novartis,
pursuant to which the two parties may enter into joint development arrangements
to develop pharmaceutical and vaccine products. In addition, to the extent that
the Company decides to grant a license to any third party to any products or
technology for companion or food animal applications, Novartis must be offered
first right to negotiate to acquire such license.
The Company contracts with various parties that conduct research and
development on the Company's behalf. In return, the Company generally receives
the right to commercialize any products resulting from these contracts. The
contracts are generally for one year periods and may be extended or terminated
at the end of the contract period upon mutual agreement. In the event the
Company licenses any technology developed under these contracts, the Company
will generally be obligated to pay royalties at specified percentages of future
sales of products utilizing the licensed technology.
The Company has entered into operating leases for its office and research
facilities and certain equipment with future minimum payments as of December 31,
1996 as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1997.................................................................. $ 622
1998.................................................................. 621
1999.................................................................. 440
2000.................................................................. 370
2001.................................................................. 303
Thereafter............................................................ 837
------
$3,193
======
</TABLE>
The Company had rent expense of $145,000, $208,000 and $564,000 in 1994,
1995 and 1996, respectively.
F-18
<PAGE> 79
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. CAPITAL STOCK
Preferred Stock
Preferred Stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Series A, no par value, 300,000 shares authorized and
outstanding, entitled to a preference in liquidation
of $300,000......................................... $ 300 $ 300 $ 300
Series B, no par value, 250,000 shares authorized and
outstanding, entitled to a preference in liquidation
of $500,000......................................... 500 500 500
Series C, no par value, 1,346,400 shares authorized;
1,340,000 issued and outstanding, entitled to a
preference in liquidation of $3,350................. 3,350 3,350 3,350
Series D, no par value, 824,992 shares authorized;
800,000 issued and outstanding, entitled to a
preference in liquidation of $2,600,000............. 2,600 2,600 2,600
Series E, no par value, 4,100,000 and 5,100,000 and
5,100,000 shares authorized, respectively;
3,928,085, 4,769,999 and 4,823,999 shares issued and
outstanding, respectively, entitled to a preference
in liquidation of $12,766,000, $19,838,000 and
$20,486,000, respectively........................... 12,766 19,838 20,486
Series F, no par value, no shares, 3,000,000 and
3,000,000 authorized and outstanding,
respectively, entitled to a preference in
liquidation of $36,000,000....................... -- 36,000 36,000
------- ------- -------
$19,516 $62,588 $63,236
======= ======= =======
</TABLE>
In 1996, the Company increased the total authorized number of shares of
Preferred Stock to 25,000,000. Preferred Stock may be issued in one or more
series with rights and dividend preferences determined by the board of
directors. Each share of Preferred Stock entitles the holder to one vote and to
receive dividends when and if declared by the board of directors. No
distributions may be paid to the holders of Common Stock unless the holders of
preferred stock have received stated minimum preferential dividends and
participate in such distributions to holders of Common Stock. All accrued
dividends on the Preferred Stock must be paid prior to such distributions. No
dividends have been paid or declared as of March 31, 1997.
In April 1996, the Company issued 3,000,000 shares of its Series F
Preferred Stock to Novartis at $12.00 per share. In connection with this equity
investment, the Company and the Investor signed certain joint marketing,
screening and right of first refusal agreements. See Note 9.
In the event of liquidation, the holders of Series A, B, C, D, E and F
Preferred Stock are entitled to receive, prior to any distribution to the
holders of Common Stock, the liquidation preference of the respective series of
Preferred Stock indicated above, plus all declared and unpaid dividends. After
these distributions have been made, the remaining assets of the Company, if any,
will be distributed to the holders of Common Stock in an amount equal to $1.20
per share. After the above distributions have been made, the remaining assets of
the Company, if any, will be shared by the holders of Preferred and Common Stock
in the same proportion as the number of shares of Common Stock and Preferred
Stock then held by each stockholder. In the event of a
F-19
<PAGE> 80
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consolidation, merger, sale, conveyance or other disposition of all or
substantially all of the Company's property or business, the holders of
Preferred Stock are to receive the amount they would have received in
liquidation.
Each share of Preferred Stock is convertible, at the option of the holder,
on a share for share basis into Common Stock, subject to certain anti-dilutive
provisions. Conversion into Common Stock is automatic in the event of a
qualifying IPO.
Stockholders owning at least 35% of the outstanding Preferred Stock
(including Common Stock issued upon conversion of Preferred Stock) may require
the Company to register their shares with the Securities and Exchange Commission
under certain circumstances. Registration expenses are to be paid by the
Company.
Common Stock
The Company has granted stock purchase rights to acquire 322,000 shares of
Common Stock to key executives pursuant to the 1994 Key Executive Stock Plan.
The executives exercised these rights by executing promissory notes payable to
the Company. The notes mature in six years, bear interest at 7.5% and are
secured by a pledge of the shares of Common Stock purchased. Under the terms of
the Key Executive Stock Plan, if the purchaser's relationship with the Company
ceases for any reason within 48 months of the date of grant the Company may,
within 90 days following termination, repurchase at the original exercise price
all of the stock which has not vested. The stock vests ratably over the 48 month
period.
The following table summarizes information about the stock purchase rights
exercised during the years ended, and the amounts outstanding and vested, at
December 31, 1995 and 1996:
<TABLE>
<CAPTION>
NUMBER DECEMBER 31, 1995 DECEMBER 31, 1996
OF EXERCISE ------------------ -------------------
SHARES PRICE EXERCISED VESTED EXERCISED VESTED
------- -------- --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Stock purchase rights granted
during 1994..................... 297,000 $0.35 297,000 95,066 -- 169,310
Stock purchase rights granted
during 1996..................... 25,000 $1.20 -- -- -- 1,040
</TABLE>
In January 1997, the stock purchase rights granted in 1996 were exercised
by the grantee through a promissory note which is due January 2003.
Stock Option Plans
The Company has a stock option plan (the "1988 Stock Plan") which
authorizes the grant of stock options and stock purchase rights to employees,
officers, directors and consultants of the Company to purchase shares of Common
Stock. In 1996, the board of directors increased the total number of shares of
Common Stock reserved for issuance under the 1988 Stock Plan to 2,683,060. The
stock options granted by the board of directors may be either incentive stock
options ("ISO") or nonstatutory stock options ("NSO") and expire as determined
by the board of directors. The exercise price for options may be no less than
100% of fair market value for ISOs or 85% of fair market value for NSOs. Options
granted will expire no later than the tenth anniversary subsequent to the date
of grant or 90 days following termination of employment, except in cases of
death or disability, in which case the options will remain exercisable for up to
twelve months. Under the terms of the 1988 Stock Plan, in the event the Company
is sold or merged, options granted will either be assumed by the surviving
corporation or vest immediately.
During 1994, the Company approved a Key Executive Stock Plan which
authorizes the grant of options and stock purchase rights to key executives,
including directors, of the Company to purchase up to 500,000 shares of Common
Stock. The board of directors may grant stock purchase rights or stock options,
which may be either ISOs or NSOs and expire as determined by the board of
directors. The exercise price may be no less than 100%
F-20
<PAGE> 81
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of fair market value for ISOs or 85% of fair market value for NSOs or purchase
rights. Options granted will expire no later than the tenth anniversary
subsequent to the date of grant or 90 days following termination of employment,
except in cases of death or disability, in which case the options will remain
exercisable for up to twelve months. Under the terms of the Key Executive Stock
Plan, in the event the Company is sold or merged, options granted will either be
assumed by the surviving corporation or vest immediately.
In March 1997, the Company's board of directors adopted the Company's 1997
Stock Incentive Plan (the "Stock Plan"). The Stock Plan replaces the Company's
1988 Stock Plan and its 1994 Key Executive Plan (the "Prior Plans"). The Prior
Plans were terminated effective upon the adoption of the Stock Plan. No further
grants will be made under the Prior Plans, although the terms of the Prior Plans
will continue to govern all outstanding awards made thereunder. All future
awards will be made under the Stock Plan. The number of shares of Common Stock
that are reserved for issuance under the Stock Plan pursuant to the direct award
or sale of shares or the exercise of options is equal to 1,350,000 shares plus
the number of shares remaining available under the Prior Plans on the date of
their termination. The number of shares reserved for issuance under the Stock
Plan will be increased automatically on January 1 of each year by a number equal
to the lesser of (a) 1,500,000 shares or (b) 5% of the shares of Common Stock
outstanding on the immediately preceding December 31.
Statement Of Financial Accounting Standards No. 123 ("SFAS 123")
SFAS 123, Accounting for Stock-Based Compensation, defines a fair value
based method of accounting for employee stock options or similar equity
instruments. However, SFAS 123 allows the continued measurement of compensation
cost for such plans using the intrinsic value based method prescribed by APB
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), provided
that pro forma disclosures are made of net income or loss, assuming the fair
value based method of SFAS 123 had been applied. The Company has elected to
account for its stock-based compensation plans under APB 25; accordingly, for
purposes of the pro forma disclosures presented below, the Company has computed
the fair values of all options granted during 1995 and 1996, using the
Black-Scholes pricing model and the following weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Risk-free interest rate.............................. 5.93% 6.12%
Expected lives....................................... 3.30 years 3.11 years
Expected volatility.................................. 80% 80%
Expected dividend yield.............................. 0% 0%
</TABLE>
To estimate expected lives of options for this valuation, it was assumed
options will be exercised at varying schedules after becoming fully vested
dependent upon the income level of the option holder. For measurement purposes,
options have been segregated into three income groups, and estimated exercise
behavior of option recipients varies from zero to one year from the date of
vesting, dependent on income group (less highly compensated employees are
expected to have shorter holding periods). All options are initially assumed to
vest. Cumulative compensation cost recognized in pro forma net income or loss
with respect to options that are forfeited prior to vesting is adjusted as a
reduction of pro forma compensation expense in the period of forfeiture. Because
the Company's Common Stock is not yet publicly traded, the expected market
volatility was estimated using the estimated average volatility of four publicly
held companies which the Company believes to be similar with respect to the
markets in which they compete. Actual volatility of the Company's stock may
vary. Fair value computations are highly sensitive to the volatility factor
assumed; the greater the volatility, the higher the computed fair value of the
options granted.
The total fair value of options granted was computed to be approximately
$120,000 and $454,000 for the years ended December 31, 1995 and 1996,
respectively. The amounts are amortized ratably over the vesting periods of the
options. Pro forma stock-based compensation, net of the effect of forfeitures,
was $38,000 and $176,000 for 1995 and 1996, respectively.
F-21
<PAGE> 82
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net loss would have been reported as
follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1995 1996
------- --------
<S> <C> <C>
Net loss:
As reported............................................... $(4,566) $(17,975)
======= ========
Pro forma (unaudited)..................................... $(4,604) $(18,151)
======= ========
Pro forma net loss per share:
As reported (unaudited)................................... $ (1.71)
========
Pro forma (unaudited)..................................... $ (1.73)
========
</TABLE>
A summary of the Company's plans is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------- THREE MONTHS ENDED
1995 1996 MARCH 31, 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period......................... 688,361 $0.2503 1,279,592 $0.2973 1,898,992 $0.6250
Granted........................ 612,850 $0.3500 794,624 $1.1031 682,335 $1.8587
Cancelled...................... (12,496) $0.3117 (72,942) $0.4634 (22,793) $1.1274
Exercised...................... (9,123) $0.2778 (102,282) $0.3559 (68,336) $0.2831
--------- --------- ---------
Outstanding at end of period..... 1,279,592 $0.2973 1,898,992 $0.6250 2,490,198 $0.9679
========= ========= =========
Exercisable at end of period..... 533,814 $0.2433 850,662 $0.4049 890,594 $0.4514
========= ======= ========= ========= =======
</TABLE>
The weighted average exercise prices approximated weighted average
estimated fair values of options granted during the years ended December 31,
1995 and 1996, and the three months ended March 31, 1997.
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------
WEIGHTED OPTIONS EXERCISABLE
NUMBER OF AVERAGE -------------------------
OPTIONS REMAINING WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT CONTRACTUAL AVERAGE EXERCISABLE AT AVERAGE
DECEMBER 31, LIFE IN EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1996 YEARS PRICE 1996 PRICE
------------------------ -------------- ------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$0.1000-$0.2500................ 448,692 5.69 $0.2104 433,574 $0.2090
$0.3500-$0.3500................ 762,323 8.39 $0.3500 290,222 $0.3500
$1.2000-$1.2000................ 687,977 9.49 $1.2000 126,866 $1.2000
--------- -------
$0.1000-$1.2000................ 1,898,992 8.11 $0.5877 850,662 $0.4049
========= ==== ======= ======= =======
</TABLE>
As of March 31, 1997, the Company had options to purchase 2,490,198
(unaudited) shares of Common Stock outstanding with exercise prices ranging from
$0.10 -- $3.00 per share.
F-22
<PAGE> 83
HESKA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Warrants
The Company has issued warrants to purchase 6,400 shares of Series C
Preferred Stock at an exercise price of $2.50 per share and 6,225 shares, 267
shares and 18,500 shares of Series D Preferred Stock at an exercise price of
$3.25 per share in connection with the leases discussed in Note 4. These
warrants expire on November 7, 1998, June 7, 2002, December 30, 2002 and October
20, 2003, respectively. No warrants have been exercised as of December 31, 1996.
11. MAJOR CUSTOMERS
The Company had sales of greater than 10% of total revenue to only one
customer during the year ended December 31, 1996. This customer, which
represented 64% of total revenues, purchases bovine vaccines from Diamond under
the terms of a take-or-pay contract which expires in June 1999.
12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------ ------------
1994 1995 1996 1996 1997
------ ---- ------ ---- ----
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash paid for interest............................. $ 21 $ 55 $ 331 $157 $146
Noncash investing and financing activities:
Purchase of intangible assets through the
issuance of debt.............................. -- -- 207 207 320
Issuance of Preferred Stock and options to
purchase Common Stock in exchange for the
common stock of Diamond, net of cash
received...................................... -- -- 7,058 -- --
Reduction in future payments on debt to customer
in exchange for the granting of certain
rights........................................ -- -- 1,250 -- --
Issuance of Preferred Stock in exchange for
cancellation of indebtedness, including
accrued interest.............................. 2,385 639 -- -- --
Purchase of assets under direct capital lease
financing..................................... 155 416 -- -- 255
Issuance of Preferred Stock in exchange for the
capital stock of Bloxham, net of cash
received...................................... -- -- -- -- 648
</TABLE>
F-23
<PAGE> 84
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Diamond Animal Health, Inc.
Des Moines, Iowa
We have audited the accompanying statements of income and cash flows of
Diamond Animal Health, Inc. for the year ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Diamond
Animal Health, Inc. for the year ended March 31, 1996 in conformity with
generally accepted accounting principles.
MCGLADREY & PULLEN, LLP
Des Moines, Iowa
May 14, 1996
F-24
<PAGE> 85
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Diamond Animal Health, Inc.
We have audited the accompanying statements of income and cash flows of
Diamond Animal Health, Inc. for the year ended March 31, 1995. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Diamond
Animal Health, Inc. for the year ended March 31, 1995 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Des Moines, Iowa
May 30, 1995
F-25
<PAGE> 86
DIAMOND ANIMAL HEALTH, INC.
STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1995 AND 1996
(in thousands)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Net sales (Note 6).......................................... $10,944 $ 8,124
Cost of goods sold.......................................... 7,713 6,467
------- -------
Gross profit.............................................. 3,231 1,657
Selling, general and administrative expenses (Note 5)....... 2,531 2,829
------- -------
Operating income (loss)................................... 700 (1,172)
------- -------
Financial income (expense):
Interest income........................................... 40 12
Interest (expense)........................................ (355) (426)
------- -------
(315) (414)
------- -------
Income (loss) before income tax expense (benefit)......... 385 (1,586)
Income tax expense (benefit) (Note 4)....................... 80 (130)
------- -------
Net income (loss)................................. $ 305 $(1,456)
======= =======
</TABLE>
See Notes to Financial Statements.
F-26
<PAGE> 87
DIAMOND ANIMAL HEALTH, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1995 AND 1996
(in thousands)
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ 305 $ (1,456)
Adjustments to reconcile net income (loss) to net cash
(used in) operating activities:
Depreciation........................................... 105 159
Amortization........................................... 25 23
Noncash pension expense................................ -- 7
Noncash interest expense............................... 202 195
Change in operating assets and liabilities:
(Increase) in trade receivables...................... (370) (37)
(Increase) in income tax refund claim receivable..... -- (160)
(Increase) in inventories............................ (64) (667)
(Increase) decrease in prepaid expenses.............. 14 (70)
(Increase) decrease in other assets.................. (19) 16
Increase in accounts payable......................... 32 421
Increase (decrease) in accrued expenses.............. (34) 152
Increase in customer deposits........................ -- 623
(Decrease) in deferred revenue....................... (373) --
--------- -----------
Net cash (used in) operating activities........... (177) (794)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........................ (428) (218)
Payments of organization costs............................ (37) --
--------- -----------
Net cash (used in) investing activities........... (465) (218)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt........................................ 645 1,505
Principal payments on debt, including capital lease
obligations............................................ (503) (482)
--------- -----------
Net cash provided by financing activities......... 142 1,023
--------- -----------
Net increase (decrease) in cash................... (500) 11
CASH
Beginning................................................. 583 83
--------- -----------
Ending.................................................... $ 83 $ 94
========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest............................................... $ 146 $ 221
Income taxes........................................... 159 5
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Accretion (valuation) of redeemable common stock purchase
warrants (Note 3)...................................... $ 116 $ (116)
Capital lease obligations incurred for the purchase of
equipment.............................................. -- 136
347,028 shares of common stock issued in exchange for
redeemable common stock purchase warrants, net of $100
cash secured (Note 3).................................. -- 135
(Decrease) in minimum pension liability as stockholder's
equity................................................. -- (24)
</TABLE>
See Notes to Financial Statements.
F-27
<PAGE> 88
DIAMOND ANIMAL HEALTH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Diamond Animal Health, Inc. (the "Company")
manufactures and sells animal health products to the agricultural and veterinary
markets in the United States, Canada and Europe.
Significant accounting policies:
Cost of goods sold: Inventories are stated at the lower of cost, determined
by using the first-in, first-out (FIFO) method, or market.
Depreciation: Depreciation is provided on the straight-line method over the
estimated useful lives of the assets, including 10 to 15 years for buildings and
5 to 10 years for machinery and equipment. It is the Company's policy to include
amortization of assets acquired under capital leases with depreciation expense
on owned assets.
Amortization: Costs incurred in connection with the organization of the
Company are amortized on the straight-line basis over five years.
Deferred taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Stock options and awards: Employee stock options and awards are accounted
for in accordance with Accounting Principles Board Opinion No. 25 using the
intrinsic value method. Under that method, the excess of the fair value of the
underlying stock over the exercise price is determined at the measurement date
and recognized as compensation expense over the related service period.
Research and development: Expenditures for research and development are
charged to expense as incurred. Expense for the years ended March 31, 1995 and
1996 was approximately $772,000 and $1,455,000, respectively.
Estimates and assumptions: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2. RENT EXPENSE
The Company leases its primary production and office facility under a
noncancelable operating lease expiring on December 31, 1998. The lease contains
a five-year renewal option exercisable at the option of the Company. In
addition, the Company leases certain office equipment and autos under operating
leases expiring from February 1997 to May 2000. Total rent expense was
approximately $178,000 and $182,000 for the years ended March 31, 1995 and 1996,
respectively.
NOTE 3. REDEEMABLE COMMON STOCK PURCHASE WARRANTS
In connection with the initial capitalization of the Company, warrants were
issued to subordinated lenders to purchase a total of 337,028 shares of common
stock at an exercise price of $.005 per share. Total proceeds received from the
lenders were allocated to long-term debt and warrants based on fair value,
resulting in an initial carrying value of the warrants of $133,000. The carrying
value of the warrants was being accreted to the estimated redemption price on a
pro-rata basis over the period until the initial redemption date, with a
corresponding charge (credit) to retained earnings of $116,000 and $(116,000)
for the years ended March 31,
F-28
<PAGE> 89
DIAMOND ANIMAL HEALTH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1995 and 1996, respectively. All warrants were exercised during the year ended
March 31, 1996. Under a similar agreement, warrants to purchase 20,000 shares of
common stock were issued in March 1996, with 10,000 warrants exercised at $.01
per share and the remaining 10,000 exercised subsequent to year-end at $.01 per
share.
NOTE 4. INCOME TAXES
Components of income tax expense (benefit) for the years ended March 31,
1995 and 1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current expense (benefit)............... $ 196,000 $(130,000)
Research and development tax credits.... (116,000) --
--------- ---------
$ 80,000 $(130,000)
========= =========
</TABLE>
The income tax provision differs from the amount of income tax determined
by applying the U.S. federal income tax rate to pretax income (loss) from
continuing operations for the years ended March 31, 1995 and 1996 due to the
following:
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Computed "expected" (benefit) expense... $131,000 $(544,000)
Increase (decrease) in valuation
allowance............................. (51,000) 414,000
-------- ---------
$ 80,000 $(130,000)
======== =========
</TABLE>
At March 31, 1996, the Company had research and development tax credit
carryforwards of approximately $370,000 which expire in 2000 through 2003. The
Company also had net operating loss carryforwards of $567,000 which expire in
the year 2010.
NOTE 5. EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan covering all
employees who have met the eligibility requirements. The plan provides monthly
benefits on years of service which are subject to certain reductions if the
employee retires before reaching age 65. Substantially all employees were
eligible for the plan prior to the plan being frozen. The Company's funding
policy is to make the minimum annual contribution that is required by applicable
regulations. Effective October 1992, the Company froze the plan restricting new
participants and benefits for future service.
Net pension cost for the Company's defined benefit pension plan consisted
of the following components for the year ended March 31, 1996. Pension cost for
1995 was not material and the components for that period have not been
determined.
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Interest cost on projected benefit obligation............... $ 72,000
Actual return on plan assets................................ (171,000)
Net amortization and deferral............................... 106,000
--------
$ 7,000
========
</TABLE>
Assumptions used by the Company in the determination of the pension plan
information consisted of the following as of March 31, 1996:
<TABLE>
<S> <C>
Discount rate............................................... 7.00%
Expected long-term rate of return on plan assets............ 7.75%
</TABLE>
F-29
<PAGE> 90
DIAMOND ANIMAL HEALTH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a 401(k) plan covering substantially all full-time
employees. Under the terms of the plan, participants may contribute up to 15% of
their salary to the plan. The Company matches certain employee contributions,
depending on length of service with the Company. Expense related to this plan
was approximately $93,000 and $82,000 for the years ended March 31, 1995 and
1996, respectively. The Company also has a defined contribution plan covering
substantially all full-time employees. The Company contributed 4% and 3% of all
eligible employee earnings for the years ended March 31, 1995 and 1996,
respectively. Expense related to this plan was approximately $130,000 and
$108,000 for the years ended March 31, 1995 and 1996, respectively.
The Company has an employee stock option plan providing for the issuance of
up to 337,028 shares of the Company's common stock. The plan provides for
options to be issued to key employees at an exercise price of not less than fair
market value with a term of ten years and a month to exercise from date of
grant. At March 31, 1996 the Company had options outstanding for a total of
129,737 shares at an exercise price of $3.18 per share, all of which were fully
vested and exercisable and expire in the years ending March 31, 2005 and 2006.
NOTE 6. MAJOR CUSTOMER
Approximately 88% and 71% of the Company's revenues were derived from the
Company's major customer representing sales of approximately $9,578,000 and
$5,766,000 for the years ended March 31, 1995 and 1996, respectively. The
Company has a Manufacturing and Supply Agreement with the customer which
obligates the customer to purchase a minimum quantity of defined products from
the Company annually on a calendar year basis starting January 1, 1996. The
agreement is effective through June 1999, renewable annually thereafter.
NOTE 7. INTEREST EXPENSE
The Company had long-term debt, bank and other notes payable totaling
$3,995,000 and $5,347,000 at March 31, 1995 and 1996, respectively, at interest
rates ranging primarily from 8% to 10%.
F-30
<PAGE> 91
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma consolidated condensed statement of
operations for the year ended December 31, 1996 gives effect to the acquisition
of Diamond in April 1996 and the canine allergy business from Bioproducts DVM,
Inc. in March 1996 as if each had occurred on January 1, 1996. The pro forma
adjustments are based upon currently available information and upon certain
assumptions that management believes are reasonable under current circumstances.
The unaudited pro forma consolidated statement of operations and notes thereto
do not purport to represent what the Company's consolidated results of
operations would actually have been if such transactions had in fact occurred on
such date. The unaudited pro forma consolidated statement of operations and
accompanying notes should be read in conjunction with the audited consolidated
financial statements and notes thereto and other financial information
pertaining to the Company included elsewhere in the prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------------------------
HISTORICAL RESULTS UNAUDITED
HESKA ------------------------------- PRO
HISTORICAL BIOPRODUCTS DIAMOND PRO FORMA FORMA
RESULTS (UNAUDITED)(1) (UNAUDITED)(1) ADJUSTMENTS RESULTS
---------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 9,959 $ 149 $ 2,820 $ -- $ 12,928
Costs and operating expenses..... (26,648) (115) (3,086) -- (29,849)
Depreciation and amortization.... (1,072) -- (64) (97)(2) (1,233)
Amortization of intangible
assets......................... (1,100) -- -- (114)(3) (1,214)
-------- ----- ------- ----- --------
Loss from operations............. (18,861) 34 (330) (211) (19,368)
Interest and other expense....... 886 -- (137) 30(4) 779
-------- ----- ------- ----- --------
Net loss......................... $(17,975) $ 34 $ (467) $(181) $(18,589)
======== ===== ======= ===== ========
Unaudited pro forma net loss per
share(5)....................... $ (1.71) (1.73)
Weighted average common shares
outstanding(5)................. 10,511 10,762
</TABLE>
- ---------------
(1) Represents the sales and costs of sales of products sold related to the
period from January through March and April, respectively, of the
Bioproducts Business and Diamond. The results of both operations were
included in the Company's historical operations from their respective
acquisition dates.
(2) Represents additional depreciation and amortization of the tangible assets
acquired.
(3) Represents additional depreciation and amortization of certain intangible
assets acquired from the respective entities. For purposes of this pro forma
statement of operations, the Company has recorded amortization of the
intangible asset related to the Bayer take or pay contract over the period
from January 1996 through June 1999. The Company's historical statement of
operations includes amortization of such asset over the period from April
1996 through June 1999.
(4) Represents a reduction in interest expense relative to certain notes payable
which were converted into equity immediately prior to the acquisition of
Diamond in April 1996.
(5) Assumes conversion of Preferred Stock into Common Stock of the Company. See
Note 2 of the Notes to Consolidated Financial Statements.
F-31
<PAGE> 92
DESCRIPTION OF ART ON INSIDE BACK COVER
Photographs of dogs, cats and horses and drawings of the logos of
Heska's subsidiaries, Bloxham Laboratories, Ltd. and Diamond Animal Health,
Inc.
Caption reads -- Heska -- The Science of Caring for Companion Animals
<PAGE> 93
------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. 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 HEREOF 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........................... 6
Use of Proceeds........................ 13
Dividend Policy........................ 13
Capitalization......................... 14
Dilution............................... 15
Selected Consolidated Financial Data... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 22
Management............................. 40
Certain Transactions................... 48
Principal and Selling Stockholders..... 49
Description of Capital Stock........... 51
Shares Eligible for Future Sale........ 53
Underwriting........................... 55
Notice to Canadian Residents........... 56
Legal Matters.......................... 57
Experts................................ 57
Additional Information................. 58
Index to Consolidated 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 OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
[HESKA CORPORATION LOGO]
Shares
Common Stock
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
------------------------------------------------------
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee and the National Association of Securities Dealers, Inc. filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 24,394
National Association of Securities Dealers, Inc. filing
fee....................................................... 8,550
Blue Sky fees and expenses.................................. 7,500
Accounting fees and expenses................................ 100,000
Legal fees and expenses..................................... 300,000
The Nasdaq Stock Market listing fee......................... 35,000
Printing and engraving expenses............................. 140,000
Registrar and Transfer Agent's fees......................... 10,000
Miscellaneous fees and expenses............................. 24,556
--------
Total............................................. $650,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Article VIII of the Registrant's Restated Certificate of
Incorporation (Exhibit 3.1 hereto) authorizes the Board of Directors of the
Registrant to indemnify the Registrant's directors, officers, employees and
other agents to the fullest extent permitted by the Delaware General Corporation
Law. The Registrant has also entered into agreements with its directors and
officers that will require the Registrant, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors or officers to the fullest extent not prohibited by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the Underwriters of the Registrant, its directors and officers, and by the
Registrant of the Underwriters, for certain liabilities, including liabilities
arising under the Act, and affords certain rights of contribution with respect
thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) On various dates between January 1994 and March 1997, the Registrant
issued an aggregate of 293,232 shares of its Common Stock to 32 employees
pursuant to the exercise of options granted under its stock option plans. The
exercise prices per share ranged from $.35 to $1.20, for an aggregate
consideration of $77,584. The Registrant relied on the exemption provided by
Rule 701 under the Act.
(b) In February 1995 and January 1997, the Registrant issued an aggregate
of 322,000 shares of its Common Stock to two senior executives and a director of
the Company pursuant to restricted stock purchase agreements under a stock
option plan. The purchase prices ranged from $0.35 to $1.20 per share for an
aggregate consideration of $133,950. The Registrant relied on the exemption
provided by Section 4(2) and Rule 701 under the Act.
(c) In 1994 and 1995, the Registrant issued an aggregate of 3,928,085
shares of Series E Preferred Stock to a total of three accredited investors at
an effective price per share of $3.25, for an aggregate cash consideration of
$12,766,276. In April 1996, the Company issued 3,000,000 shares of its Series F
Preferred Stock to a single accredited investor at a purchase price of $12.00
per share for an aggregate cash consideration of $36,000,000. The Registrant
relied on the exemptions provided by Sections 4(2) and 4(6) of the Act.
II-1
<PAGE> 95
(d) On various dates between March 1994 and February 1995, the Registrant
issued an aggregate of 3,525 shares of Common Stock to two consultants of the
Registrant in consideration of consulting services. The Registrant relied upon
the exemptions provided by Section 4(2) and Rule 701 of the Act.
(e) In April 1996, the Registrant issued an aggregate of 841,914 shares of
Series E Preferred Stock to the eight shareholders of Diamond Animal Health,
Inc. in exchange for all of the outstanding shares of Diamond. The Registrant
relied upon the exemption provided by Section 4(2) of the Act.
(f) In February 1997, the Registrant issued an aggregate of 54,000 shares
of Series E Preferred Stock to the three shareholders of Bloxham Laboratories
Limited in exchange for all of the outstanding shares of Bloxham. The Registrant
relied upon the exemption provided by Section 4(2) of the Act.
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1(a) Restated Articles of Incorporation of Heska Corporation, a
California corporation, as filed with the Secretary of State
of California on April 4, 1996.
3.1(b) Form of Restated Certificate of Incorporation of Heska
Merger Corporation, a Delaware corporation (to be filed
prior to the effective date of the Registration Statement).
3.1(c)* Form of Restated Certificate of Incorporation of Heska
Corporation, a Delaware corporation (to be filed after the
closing of the offering).
3.2(a) Bylaws of Heska Corporation, a California corporation, as
amended.
3.2(b) Bylaws of Heska Merger Corporation, a Delaware corporation,
as amended.
3.2(c)* Bylaws of Heska Corporation, a Delaware corporation, as
amended (to be adopted after the closing of the offering).
4.1* Specimen Common Stock Certificate.
4.2 First Amended Investors' Rights Agreement by and among
Registrant and certain stockholders of Registrant dated as
of April 12, 1996.
4.3 Form of warrant to purchase Series C Preferred Stock.
4.4 Form of warrant to purchase Series D Preferred Stock.
5.1* Opinion of Pillsbury Madison & Sutro LLP.
9.1 Voting Agreement by and among Registrant and certain
stockholders of Registrant, dated as of April 12, 1996.
10.1+ Collaborative Agreement between Registrant and Eisai Co.,
Ltd. dated January 25, 1993.
10.2+ Canine Heartworm Cooperation Agreement between Registrant
and Bayer AG dated as of June 10, 1994.
10.3+ Feline Toxoplasmosis Cooperation Agreement between
Registrant and Bayer AG dated as of June 10, 1994.
10.4+ Product Supply and License Agreement between Registrant and
Atrix Laboratories, Inc. dated May 1, 1995, as amended June
23, 1995.
10.5+ Screening and Development Agreement between Ciba-Geigy
Limited and Registrant, dated as of April 12, 1996.
10.6 Right of First Refusal Agreement between Ciba-Geigy Limited
and Registrant, dated as of April 12, 1996.
</TABLE>
II-2
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.7+ Marketing Agreement between Registrant and Ciba-Geigy
Limited dated as of April 12, 1996.
10.8+ Marketing Agreement between Registrant and Ciba-Geigy
Corporation dated as of April 12, 1996.
10.9+ Manufacturing and Supply Agreement between and among Diamond
Animal Health, Inc., Agrion Corporation, Diamond Scientific
Co. and Miles Inc. dated December 31, 1993 and Amendment and
Extension thereto dated September 1, 1995.
10.10 Employment Agreement between Registrant and Robert B. Grieve
dated January 1, 1994, as amended March 4, 1997.
10.11 Employment Agreement between Registrant and Fred M.
Schwarzer dated November 1, 1994, as amended March 4, 1997.
10.12 Employment Agreement between Registrant and R. Lee Seward
dated October 17, 1994.
10.13 Employment Agreement between Registrant and Louis G. Van
Daele dated April 14, 1996.
10.14 Restricted Stock Purchase Agreement dated February 28, 1995
by and between Registrant and Fred M. Schwarzer.
10.15 Restricted Stock Purchase Agreement dated February 28, 1995
by and between Registrant and R. Lee Seward.
10.16 Restricted Stock Purchase Agreement dated January 11, 1997
by and between Registrant and Denis H. Pomroy.
10.17 Form of Indemnification Agreement to be entered into between
Registrant and its directors and certain officers.
10.18 1997 Incentive Stock Plan of Registrant.
10.19 Forms of Option Agreement.
10.20 1997 Employee Stock Purchase Plan of Registrant.
10.21 Lease Agreement dated March 8, 1994 between Sharp Point
Properties, LLC and Registrant.
10.22 Lease Agreement dated as of June 27, 1996 between GB
Ventures and Registrant.
10.23 Lease Agreement dated as of July 11, 1996 between GB
Ventures and Registrant.
10.24 Lease Agreement dated as of December 31, 1993 between Miles,
Inc. and Diamond Animal Health, Inc., as amended September
1, 1995.
11.1 Statement of computation of earnings per share.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of McGladrey & Pullen, LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Pillsbury Madison & Sutro LLP (included in its
opinion filed as Exhibit 5.1 to this Registration
Statement).
24.1 Power of Attorney (see page II-5).
27. Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
these agreements.
II-3
<PAGE> 97
(B) FINANCIAL STATEMENT SCHEDULES
None.
Schedules have been omitted because they are not applicable or not required
or because the information is included elsewhere in the Financial Statements or
the notes thereto.
ITEM 17. UNDERTAKINGS
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 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, 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 Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 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 Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the 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.
(3) It will provide to the underwriters at the closing(s) 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.
II-4
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Collins, State of
Colorado, on the 24th day of April, 1997.
HESKA CORPORATION
By /s/ FRED M. SCHWARZER
-----------------------------------
Fred M. Schwarzer
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Fred M. Schwarzer, Robert B. Grieve, William G.
Skolout and Deborah E. Robbins, and each of them, his or her true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments, including post-effective
amendments, to this Registration Statement, and any registration statement
relating to the offering covered by this Registration Statement and filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with 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 and necessary to be done, as fully to all intents
and purposes as he or she might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents or their
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 below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ FRED M. SCHWARZER President and Chief Executive Officer
- ------------------------------------------------ (Principal Executive Officer) and
Fred M. Schwarzer Director April 24, 1997
/s/ WILLIAM G. SKOLOUT Chief Financial Officer (Principal
- ------------------------------------------------ Financial and Accounting Officer)
William G. Skolout April 24, 1997
/s/ A. BARR DOLAN Chairman of the Board
- ------------------------------------------------
A. Barr Dolan April 24, 1997
/s/ ROBERT B. GRIEVE, PH.D. Chief Scientific Officer and Vice
- ------------------------------------------------ Chairman
Robert B. Grieve, Ph.D. April 24, 1997
/s/ LYLE A. HOHNKE, PH.D. Director
- ------------------------------------------------
Lyle A. Hohnke, Ph.D. April 24, 1997
/s/ DENIS H. POMROY Director
- ------------------------------------------------
Denis H. Pomroy April 24, 1997
/s/ LYNNOR B. STEVENSON, PH.D. Director
- ------------------------------------------------
Lynnor B. Stevenson, Ph.D. April 24, 1997
/s/ GUY TEBBIT, PH.D. Director
- ------------------------------------------------
Guy Tebbit, Ph.D. April 24, 1997
</TABLE>
II-5
<PAGE> 99
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1(a) Restated Articles of Incorporation of Heska Corporation, a
California corporation, as filed with the Secretary of State
of California on April 4, 1996.
3.1(b) Form of Restated Certificate of Incorporation of Heska
Merger Corporation, a Delaware corporation (to be filed
prior to the effective date of the Registration Statement).
3.1(c)* Form of Restated Certificate of Incorporation of Heska
Merger Corporation, a Delaware corporation (to be filed
after the closing of the offering).
3.2(a) Bylaws of Heska Corporation, a California corporation, as
amended.
3.2(b) Bylaws of Heska Merger Corporation, a Delaware corporation,
as amended.
3.2(c)* Bylaws of Heska Merger Corporation, a Delaware corporation,
as amended (to be adopted after the closing of the
offering).
4.1* Specimen Common Stock Certificate.
4.2 First Amended Investors' Rights Agreement by and among
Registrant and certain stockholders of Registrant dated as
of April 12, 1996.
4.3 Form of warrant to purchase Series C Preferred Stock.
4.4 Form of warrant to purchase Series D Preferred Stock.
5.1* Opinion of Pillsbury Madison & Sutro LLP.
9.1 Voting Agreement by and among Registrant and certain
stockholders of Registrant, dated as of April 12, 1996.
10.1+ Collaborative Agreement between Registrant and Eisai (Japan)
dated January 25, 1993.
10.2+ Canine Heartworm Cooperation Agreement between Registrant
and Bayer AG dated as of June 10, 1994.
10.3+ Feline Toxoplasmosis Cooperation Agreement between
Registrant and Bayer AG dated as of June 10, 1994.
10.4+ Product Supply and License Agreement between Registrant and
Atrix Laboratories, Inc. dated May 1, 1995, as amended June
23, 1995.
10.5+ Screening and Development Agreement between Ciba-Geigy
Limited and Registrant, dated as of April 12, 1996.
10.6 Right of First Refusal Agreement between Ciba-Geigy Limited
and Registrant, dated as of April 12, 1996.
10.7+ Marketing Agreement between Registrant and Ciba-Geigy
Limited dated as of April 12, 1996.
10.8+ Marketing Agreement between Registrant and Ciba-Geigy
Corporation dated as of April 12, 1996.
10.9+ Manufacturing and Supply Agreement between and among Diamond
Animal Health, Inc., Agrion Corporation, Diamond Scientific
Co. and Miles Inc. dated December 31, 1993 and Amendment and
Extension thereto dated September 1, 1995.
10.10 Employment Agreement between Registrant and Robert B. Grieve
dated January 1, 1994, as amended March 4, 1997.
10.11 Employment Agreement between Registrant and Fred M.
Schwarzer dated November 1, 1994, as amended March 4, 1997.
10.12 Employment Agreement between Registrant and R. Lee Seward
dated October 17, 1994.
10.13 Employment Agreement between Registrant and Louis G. Van
Daele dated April 14, 1996.
10.14 Restricted Stock Purchase Agreement dated February 28, 1995
by and between Registrant and Fred M. Schwarzer.
</TABLE>
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.15 Restricted Stock Purchase Agreement dated February 28, 1995
by and between Registrant and R. Lee Seward.
10.16 Restricted Stock Purchase Agreement dated January 11, 1997
by and between Registrant and Denis H. Pomroy.
10.17 Form of Indemnity Agreement to be entered into between
Registrant and its directors and certain officers.
10.18 1997 Incentive Stock Plan of Registrant.
10.19 Forms of Option Agreement.
10.20 1997 Employee Stock Purchase Plan of Registrant.
10.21 Lease Agreement dated March 8, 1994 between Sharp Point
Properties, LLC and Registrant.
10.22 Lease Agreement dated as of June 27, 1996 between GB
Ventures and Registrant.
10.23 Lease Agreement dated as of July 11, 1996 between GB
Ventures and Registrant.
10.24 Lease Agreement dated as of December 31, 1993 between Miles,
Inc. and Diamond Animal Health, Inc., as amended September
1, 1995.
11.1 Statement of computation of earnings per share.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of McGladrey & Pullen, LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Pillsbury Madison & Sutro LLP (included in its
opinion filed as Exhibit 5.1 to this Registration
Statement).
24.1 Power of Attorney (see page II-5).
27. Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
these agreements.
<PAGE> 1
EXHIBIT 3.1(a)
[SECRETARY OF STATE - CALIFORNIA STAMP]
RESTATED ARTICLES OF INCORPORATION
OF
HESKA CORPORATION
Fred M. Schwarzer hereby certifies that:
1. He is the President and Secretary of Heska Corporation, a
California corporation.
2. The Articles of Incorporation of this corporation are amended
and restated to read in full as follows:
"One: The name of this corporation is Heska Corporation.
Two: The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.
Three: This corporation is authorized to issue two classes of shares,
to be designated Common Stock and Preferred Stock, respectively. This
corporation is authorized to issue 40,000,000 shares of Common Stock and
25,000,000 shares of Preferred Stock. The Preferred Stock may be issued in any
number of series, as determined by the Board of Directors. The Board of
Directors may by resolution fix the designation and number of shares of any
such series, and may determine, alter, or revoke the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series. The Board of Directors may thereafter in the same manner, within the
limits and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series,
increase or decrease the number of shares of any such series (but not below the
number of shares of that series then outstanding). In case the number of
shares of any series shall be decreased, the shares constituting such decrease
shall resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
Four: The designation of and the number of shares constituting the
initial five series of, and the rights, preferences, privileges and
restrictions relating to, the Preferred Stock are as follows:
<PAGE> 2
1. Designation of Series. There is hereby provided a series of
Preferred Stock designated Series A Preferred Stock (the "Series A Preferred
Stock"), a series of Preferred Stock designated Series B Preferred Stock (the
"Series B Preferred Stock"), a series of Preferred Stock designated Series C
Preferred Stock (the "Series C Preferred Stock"), a series of Preferred Stock
designated Series D Preferred Stock (the "Series D Preferred Stock"), a series
of Preferred Stock designated Series E Preferred Stock (the "Series E Preferred
Stock") and a series of Preferred Stock designated Series F Preferred Stock
(the "Series F Preferred Stock").
2. Number of Shares. The number of shares constituting the
Series A Preferred Stock is fixed at three hundred thousand (300,000) shares.
The number of shares constituting the Series B Preferred Stock is fixed at two
hundred fifty thousand (250,000) shares. The number of shares constituting the
Series C Preferred Stock is fixed at one million three hundred forty six
thousand four hundred (1,346,400) shares. The number of shares constituting
the Series D Preferred Stock is fixed at eight hundred twenty-four thousand
nine hundred ninety-two (824,992) shares. The number of shares constituting
the Series E Preferred Stock is fixed at five million one hundred thousand
(5,100,000) shares. The number of shares constituting the Series F Preferred
Stock is fixed at three million (3,000,000) shares.
3. Dividend Provisions. The holders of the Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors, out
of funds legally available therefor, dividends at an annual rate of $.08 per
share of Series A Preferred Stock (the "Series A Dividend Rate"), $.16 per
share of Series B Preferred Stock (the "Series B Dividend Rate"), $.20 per
share of Series C Preferred Stock (the "Series C Dividend Rate"), $.26 per
share of Series D Preferred Stock (the "Series D Dividend Rate"), $.26 per
share of Series E Preferred Stock (the "Series E Dividend Rate"), $.96 per
share of Series F Preferred Stock (the "Series F Dividend Rate") payable in
preference and priority to any payment of any dividend on Common Stock of the
Corporation. Such dividends shall not be cumulative and no right to such
dividends shall accrue to holders of Preferred Stock unless declared by the
Board of Directors.
Each share of Preferred Stock shall rank on a parity with every other
share of Preferred Stock, irrespective of series, with regard to dividends, and
no dividends shall be declared or paid or set apart for payment on the shares
of any series of Preferred Stock unless at the same time a dividend for the
same percentage of the respective dividend rates shall also be declared or paid
or set apart for payment, as the case may be, on the shares of Preferred Stock
of each other series then outstanding.
-2-
<PAGE> 3
No dividends or other distributions shall be made with respect to the
Common Stock in any fiscal year (other than dividends payable in Common Stock
on shares of Common Stock) until a dividend in the amount of at least the
respective Dividend Rates per share of each of the Series A, Series B, Series
C, Series D, Series E and Series F Preferred has been declared and paid or set
apart during that fiscal year. The holders of Preferred Stock shall
participate with holders of Common Stock in the payment of dividends and other
distributions in excess of the dividends to be first paid on Preferred Stock
ratably on an as-if-converted to Common Stock basis.
For purposes of this Section 3, unless the context otherwise requires,
distribution shall mean the transfer of cash or property without consideration,
whether by way of dividend or otherwise, payable other than in Common Stock, or
the purchase or redemption of shares of this corporation (other than
repurchases of Common Stock held by employees or consultants of this
corporation upon termination of their employment or services pursuant to
agreements providing for such repurchase) for cash or property, including any
such transfer, purchase or redemption by a subsidiary of this corporation.
Each holder of shares of Series A, Series B, Series C, Series D,
Series E and Series F Preferred Stock shall be deemed to have consented, for
purposes of sections 502, 503 and 506 of the General Corporation Law of the
State of California, to distributions made by this corporation in connection
with the repurchase of shares of Common Stock issued to or held by employees or
consultants upon termination of their employment or services pursuant to
agreements providing for such repurchase.
4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding
up of this corporation, whether voluntary or involuntary, holders of shares of
each series of Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of the Common Stock by reason of their ownership thereof, an amount per
share as may be fixed for such series (the "Preferential Amount"). The
Preferential Amount shall be: (i) for each share of Series A Preferred Stock,
$1.00 plus all declared and unpaid dividends to the date of liquidation,
distribution or winding up ("Liquidation Date"); (ii) for each share of Series
B Preferred Stock, $2.00 plus all declared and unpaid dividends to the
Liquidation Date; (iii) for each share of Series C Preferred Stock, $2.50 plus
all declared and unpaid dividends to the Liquidation Date; (iv) for each share
of Series D Preferred Stock, $3.25 plus all declared and unpaid dividends to
the Liquidation Date; (v) for each share of Series E Preferred Stock, $3.25
plus all declared and unpaid dividends to the
-3-
<PAGE> 4
Liquidation Date; and (vi) for each share of Series F Preferred Stock, $12.00
plus all declared and unpaid dividends to the Liquidation Date.
(b) (i) If upon the occurrence of such event the assets thus
distributed among the holders of the Series A, Series B, Series C, Series D,
Series E and Series F Preferred Stock shall be insufficient to permit the
payment to such holders of the full Preferential Amount, then the entire assets
of this corporation legally available for distribution shall be distributed
among the holders of the Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock in proportion to the respective Preferential Amounts
fixed for each then outstanding series of Preferred Stock.
(ii) If assets remain in this corporation after the
distributions provided for in subparagraph (a) have been fully made, the
holders of Common Stock shall be entitled to receive, prior and in preference
to any further distribution of any other of the surplus funds or assets of the
corporation to holders of Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock by reason of their ownership thereof, an amount equal
to $1.20 per share (subject to adjustment for stock dividends, stock splits,
stock combinations or the like).
(iii) After the distributions have been made as
required by subparagraphs (a) and (b)(ii) of this Section, if assets remain in
this corporation, the holders of Series A, Series B, Series C, Series D, Series
E and Series F Preferred Stock and Common Stock will share in all such
remaining assets in the same proportion as the number of shares of Common Stock
and Series A, Series B, Series C, Series D, Series E and Series F Preferred
Stock (or, if greater, that number of shares of Common Stock as would be
outstanding assuming conversion of the Series A, Series B, Series C, Series D,
Series E and Series F Preferred Stock into Common Stock as provided in Section
5 hereof) then held by each of them bears to the total number of shares of
Common Stock and Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock (or, if greater, the total number of shares of Common Stock as
would be outstanding assuming conversion of the Series A, Series B, Series C,
Series D, Series E and Series F Preferred Stock into Common Stock) of the
corporation then issued and outstanding.
(c) (i) A consolidation or merger of this corporation with or
into any other corporation or corporations, in which consolidation or merger
the shareholders of the Corporation receive distributions in cash or securities
of another corporation or corporations as a result of such consolidation or
merger (unless the shareholders of the Corporation will hold at least fifty
percent (50%) of the voting equity securities of the surviving corporation and
in substantially
-4-
<PAGE> 5
the same pro rata portions as each held of the voting equity securities of the
Corporation immediately prior to the consolidation or merger) or a sale,
conveyance or other disposition of all or substantially all of this
corporation's property or business, shall be deemed to be a liquidation,
dissolution or winding up within the meaning of this Section 4.
(ii) In any of such events, if the consideration
received by this corporation is other than cash or indebtedness, its value will
be deemed to be its fair market value. In the case of publicly traded
securities, fair market value shall mean the closing market price for such
securities on the date such consolidation, merger or sale is consummated. If
the consideration is in a form other than publicly traded securities, its value
shall be determined by the Board of Directors of this corporation.
5. Conversion. Holders of outstanding shares of Series A, Series
B, Series C, Series D, Series E and Series F Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"). As used herein, the
"Original Issue Date" shall be for the Series A, Series B, Series C, Series D,
Series E and Series F Preferred Stock, respectively, the date the first share
of such respective series was issued by this corporation.
(a) Right To Convert.
(i) Subject to subparagraph (c) of this Section
5, each share of Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share at the office of this
corporation or any transfer agent for the Series A, Series B, Series C, Series
D, Series E and Series F Preferred Stock, as the case may be, into such number
of fully paid and nonassessable shares of Common Stock equal to the ratio (the
"Conversion Ratio") determined by dividing the Initial Conversion Price for
each respective series by the then effective Conversion Price. As used herein,
the term "Initial Conversion Price" shall be: $1.00 per share for the Series A
Preferred Stock; $2.00 per share for the Series B Preferred Stock; $2.50 per
share for the Series C Preferred Stock; $3.25 per share for the Series D
Preferred Stock; $3.25 per share for the Series E Preferred Stock; and $12.00
per share for the Series F Preferred Stock. As used herein, the term
"Conversion Price" shall mean, for any share of Series A, Series B, Series C,
Series D, Series E or Series F Preferred Stock at any time, the Initial
Conversion Price for such share as adjusted from time to time pursuant to the
provisions of this Section 5.
(iii) Each share of Series A, Series B, Series C,
Series D, Series E and Series F Preferred Stock shall automatically be
converted into such
-5-
<PAGE> 6
number of fully paid and nonassessable shares of Common Stock at the then
effective Conversion Ratio for the Series A, Series B, Series C, Series D,
Series E and Series F Preferred Stock, respectively, immediately upon the
closing of the issuance of shares following the effectiveness of a registration
statement (other than a registration statement with respect to any securities
offered pursuant to any employee purchase, savings, option, bonus,
appreciation, profit sharing, thrift, incentive or similar plan of the
corporation) under the Securities Act of 1933, as amended, covering a firm
commitment, underwritten public offering of any of this corporation's Common
Stock at an aggregate price to the public exceeding $10,000,000 in cash,
provided that the price per share at which the Common Stock is offered is at
least $8.00.
(b) Mechanics of Conversion. Before any holder of Series
A, Series B, Series C, Series D, Series E and Series F Preferred Stock shall be
entitled to convert the same into shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the
office of this corporation or of any transfer agent for the Series A, Series B,
Series C, Series D, Series E or Series F Preferred Stock, as the case may be,
and shall give written notice by mail, postage prepaid, to this corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. This corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A, Series B, Series C, Series D, Series E or Series F Preferred Stock,
as the case may be, or to the nominee or nominees thereof, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender
of the shares of Series A, Series B, Series C, Series D, Series E or Series F
Preferred Stock, as the case may be, to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of shares of
Common Stock on such date.
(c) Conversion Price Adjustments of Series A, Series B,
Series C, Series D, Series E and Series F Preferred Stock. The Conversion
Price of the Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock shall be subject to adjustment from time to time as follows:
(i) (A) If this corporation shall issue any
Additional Stock (as defined in subsection (ii) of this subsection (c) of this
Section 5) without consideration or for a consideration per share less than the
Conversion Price for the Series A, Series B, Series C, Series D, Series E or
Series F Preferred Stock, as
-6-
<PAGE> 7
the case may be, in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for the Series A, Series B, Series C, Series D,
Series E or Series F Preferred Stock, as the case may be, in effect immediately
prior to each such issuance shall forthwith (except as otherwise provided in
this clause (i)) be reduced, as of the opening of business on the date of such
issue or sale, to a new Conversion Price which:
(1) in the case of Series A Preferred
Stock, shall be a price equal to the quotient obtained by dividing the total
computed under clause (X) below by the total computed under clause (Y) below as
follows:
(X) an amount equal to the sum of
(i) the aggregate purchase price
of all shares of Series A Preferred Stock sold to date, plus
(ii) the aggregate consideration,
if any, received by this corporation for all Additional Stock issued since the
Original Issue Date of the Series A Preferred Stock;
(Y) an amount equal to the sum of
(i) the aggregate purchase price of
all shares of the Series A Preferred Stock, divided by the Initial Conversion
Price for the Series A Preferred Stock on the Original Issue Date thereof (or
such higher or lower Initial Conversion Price as results from the application
of subparagraphs (c)(iii) and (iv) of this Section 5), plus
(ii) the number of shares of
Additional Stock issued since such Original Issue Date (increased or decreased
to the extent that the number of such shares of Additional Stock shall have
been increased or decreased as the result of the application of subparagraphs
(c)(iii) and (iv) of this Section 5);
(2) in the case of the Series B
Preferred Stock, shall be a price equal to the quotient obtained by dividing
the total computed under clause (X) below by the total computed under clause
(Y) below as follows:
(X) an amount equal to the sum of
-7-
<PAGE> 8
(i) the aggregate purchase price
of all shares of Series B Preferred Stock sold to date, plus
(ii) the aggregate consideration,
if any, received by this corporation for all Additional Stock issued since the
Original Issue Date of the Series B Preferred Stock;
(Y) an amount equal to the sum of
(i) the aggregate purchase price
of all shares of the Series B Preferred Stock, divided by the Initial
Conversion Price for the Series B Preferred Stock on the Original Issue Date
thereof (or such higher or lower Initial Conversion Price as results from the
application of subparagraphs (c)(iii) and (iv) of this Section 5), plus
(ii) the number of shares of
Additional Stock issued since such Original Issue Date (increased or decreased
to the extent that the number of such shares of Additional Stock shall have
been increased or decreased as the result of the application of subparagraphs
(c)(iii) and (iv) of this Section 5);
(3) in the case of Series C Preferred
Stock, shall be a price equal to the quotient obtained by dividing the total
computed under clause (X) below by the total computed under clause (Y) below as
follows:
(X) an amount equal to the sum of
(i) the aggregate purchase price
of all shares of Series C Preferred Stock sold to date, plus
(ii) the aggregate consideration,
if any, received by this corporation for all Additional Stock issued since the
Original Issue Date of the Series C Preferred Stock;
(Y) an amount equal to the sum of
(i) the aggregate purchase price
of all shares of the Series C Preferred Stock, divided by the Initial
Conversion Price for the Series C Preferred Stock on the Original Issue Date
thereof (or such higher or lower Initial Conversion Price as results from the
application of subparagraphs (c)(iii) and (iv) of this Section 5), plus
-8-
<PAGE> 9
(ii) the number of shares of
Additional Stock issued since such Original Issue Date (increased or decreased
to the extent that the number of such shares of Additional Stock shall have
been increased or decreased as the result of the application of subparagraphs
(c)(iii) and (iv) of this Section 5);
(4) in the case of Series D Preferred
Stock, shall be a price equal to the quotient obtained by dividing the total
computed under clause (X) below by the total computed under clause (Y) below as
follows:
(X) an amount equal to the sum of
(i) the aggregate purchase price
of all shares of Series D Preferred Stock sold to date, plus
(ii) the aggregate consideration,
if any, received by this corporation for all Additional Stock issued since the
Original Issue Date of the Series D Preferred Stock;
(Y) an amount equal to the sum of
(i) the aggregate purchase price
of all shares of the Series D Preferred Stock, divided by the Initial
Conversion Price for the Series D Preferred Stock on the Original Issue Date
thereof (or such higher or lower Initial Conversion Price as results from the
application of subparagraphs (c)(iii) and (iv) of this Section 5), plus
(ii) the number of shares of
Additional Stock issued since such Original Issue Date (increased or decreased
to the extent that the number of such shares of Additional Stock shall have
been increased or decreased as the result of the application of subparagraphs
(c)(iii) and (iv) of this Section 5);
(5) in the case of Series E Preferred
Stock, shall be a price equal to the quotient obtained by dividing the total
computed under clause (X) below by the total computed under clause (Y) below as
follows:
-9-
<PAGE> 10
(X) an amount equal to the sum of
(i) the aggregate purchase price
of all shares of Series E Preferred Stock sold to date, plus
(ii) the aggregate consideration,
if any, received by this corporation for all Additional Stock issued since the
Original Issue Date of the Series E Preferred Stock;
(Y) an amount equal to the sum of
(i) the aggregate purchase price
of all shares of the Series E Preferred Stock, divided by the Initial
Conversion Price for the Series E Preferred Stock on the Original Issue Date
thereof (or such higher or lower Initial Conversion Price as results from the
application of subparagraphs (c)(iii) and (iv) of this Section 5), plus
(ii) the number of shares of
Additional Stock issued since such Original Issue Date (increased or decreased
to the extent that the number of such shares of Additional Stock shall have
been increased or decreased as the result of the application of subparagraphs
(c)(iii) and (iv) of this Section 5); and
(6) in the case of Series F Preferred
Stock, shall be a price equal to the quotient obtained by dividing the total
computed under clause (X) below by the total computed under clause (Y) below as
follows:
(X) an amount equal to the sum of
(i) the aggregate purchase price
of all shares of Series F Preferred Stock sold to date, plus
(ii) the aggregate consideration,
if any, received by this corporation for all Additional Stock issued since the
Original Issue Date of the Series F Preferred Stock;
(Y) an amount equal to the sum of
(i) the aggregate purchase price
of all shares of the Series F Preferred Stock, divided by the Initial
Conversion Price for the Series F Preferred Stock on the Original Issue Date
thereof (or such
-10-
<PAGE> 11
higher or lower Initial Conversion Price as results from the application of
subparagraphs (c)(iii) and (iv) of this Section 5), plus
(ii) the number of shares of
Additional Stock issued since such Original Issue Date (increased or decreased
to the extent that the number of such shares of Additional Stock shall have
been increased or decreased as the result of the application of subparagraphs
(c)(iii) and (iv) of this Section 5).
(B) No adjustment of the Conversion
Price for the Series A, Series B, Series C, Series D, Series E or Series F
Preferred Stock, as the case may be, shall be made in an amount less than one
cent per share, and (except to the limited extent provided for in subparagraphs
(c)(i)(E)(y), (c)(i)(E)(z) and (c)(iv) of this Section 5) no adjustment of such
Conversion Price shall have the effect of increasing the Conversion Price above
the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by this corporation for any
underwriting or otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of the
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance of
options to purchase or rights to subscribe for Common Stock, securities by
their terms convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or exchangeable securities
(which are not excluded in the definition of Additional Stock):
(w) the aggregate maximum number of
shares of Common Stock deliverable upon exercise of such options to purchase or
rights to subscribe for Common Stock shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subparagraphs (c)(i)(C) and
(c)(i)(D) of this Section 5), if any, received by this corporation upon the
issuance of such options or rights plus the minimum purchase price provided in
such options or rights for the Common Stock covered thereby;
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(x) the aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration, if any, received by
the corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be received by the
corporation upon the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each case to be
determined in the manner provided in subparagraphs (c)(i)(C) and (c)(i)(D) of
this Section 5);
(y) on any change in the number of
shares of Common Stock deliverable upon exercise of such options or rights or
conversion of or exchange for such convertible or exchangeable securities,
(excluding a change resulting from any antidilution provisions thereof), the
Conversion Price as then in effect shall forthwith be readjusted to such
Conversion Price as would have obtained had the adjustment made upon the
issuance of such options, rights or securities not converted prior to such
change or options or rights related to such securities not converted prior to
such change been made upon the basis of such change, but no further adjustment
shall be made for the actual issuance of Common Stock upon the exercise of any
such options or rights or the conversion or exchange of such securities;
(z) on the expiration of any such
options or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price shall forthwith be readjusted to
such Conversion Price as would have obtained had the adjustment made upon the
issuance of such options, rights or securities or options or rights related to
such securities been made upon the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(ii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to subparagraph
(c)(i)(E) of this Section 5) by this corporation after the Original Issue Date
of the Series A, Series B, Series C, Series D, Series E or Series F Preferred
Stock, as the case may be, other than:
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(A) Common Stock issued pursuant to a
transaction described in Section 5(c)(iii) hereof;
(B) an additional 122,753 shares of
Series E Preferred Stock issued pursuant to a stock split effected by the
Amended and Restated Articles of Incorporation filed March 29, 1995;
(C) Common Stock first issued after
March 31, 1996, or options outstanding on or first issued after March 31, 1996,
to officers, directors, employees or consultants of this corporation, whether
directly or pursuant to the exercise of options, on terms which shall have been
approved by the Company's Board of Directors, up to an aggregate of 2,674,073
shares;
(D) Series C Preferred Stock issuable
upon exercise of an outstanding warrant to purchase 6,400 shares of Series C
Preferred Stock and Series D Preferred Stock issuable upon exercise of
outstanding warrants to purchase an aggregate of 24,992 shares of Series D
Preferred Stock;
(E) Shares of Series E Preferred Stock
and shares of Common Stock issuable upon exercise of options to purchase Common
Stock issued to shareholders and holders of options of Diamond Animal Health,
Inc., up to an aggregate of 1,020,000 shares;
(F) With respect to the Series A, Series
B, Series C, Series D, Series E or Series F Preferred Stock, Common Stock
issued or issuable upon conversion of the Series A, Series B, Series C, Series
D, Series E and Series F Preferred Stock, respectively; and
(G) any shares of capital stock issued
as a dividend or distribution on Series A, Series B, Series C, Series D, Series
E or Series F Preferred Stock;
(H) any shares of Common Stock issued,
issuable or, pursuant to Section 5(c)(i)(E), deemed to be issued, if the
holders of a majority of the outstanding Preferred Stock, voting together on an
as-converted basis, agree in writing that such shares shall not constitute
Additional Stock; or
(I) by way of dividend or distribution
on shares of Common Stock excluded from the definition of Additional Stock by
the foregoing clauses (A) through (H) or this clause (I).
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(iii) If the number of shares of Common Stock
outstanding at any time after the Original Issue Date of the Series A, Series
B, Series C, Series D, Series E or Series F Preferred Stock, as the case may
be, is increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then, following the record
date fixed for the determination of holders of Common Stock entitled to receive
such stock dividend, subdivision or split-up, the Conversion Price for the
Series A, Series B, Series C, Series D, Series E or Series F Preferred Stock,
as the case may be, shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each such share of Series A,
Series B, Series C, Series D, Series E or Series F Preferred Stock, as the case
may be, shall be increased in proportion to such increase of outstanding shares
of Common Stock.
(iv) If the number of shares of Common Stock
outstanding at any time after the Original Issue Date of the Series A, Series
B, Series C, Series D, Series E or Series F Preferred Stock, as the case may
be, is decreased by a combination of the outstanding shares of Common Stock,
then, following the record date of such combination, the Conversion Price for
the Series A, Series B, Series C, Series D, Series E or Series F Preferred
Stock, as the case may be, shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of each such share of Series
A, Series B, Series C, Series D, Series E or Series F Preferred Stock, as the
case may be, shall be decreased in proportion to such decrease in outstanding
shares of Common Stock.
(d) Other Distributions. In the event this corporation
shall at any time after the Original Issue Date of the Series A, Series B,
Series C, Series D, Series E or Series F Preferred Stock, as the case may be,
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets or options or
rights not referred to in Section 5(c)(iii) hereof, then, in each such case,
the holders of the Series A, Series B, Series C, Series D, Series E or Series F
Preferred Stock, as the case may be, shall be entitled to the distributions
provided for in Section 3 hereof, and no adjustment to the Conversion Price
provided for in this Section 5 shall be applicable.
(e) No Impairment. This corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by
this corporation, but will at all times in good faith assist in the carrying
out of all the provisions of this
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<PAGE> 15
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock
against impairment.
(f) No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issuable upon
conversion, and the number of shares of Common Stock to be issued shall be
rounded to the nearest whole share.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 5, this
corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and cause independent public
accountants selected by this corporation to verify such computation and prepare
and furnish to each holder of Series A, Series B, Series C, Series D, Series E
and Series F Preferred Stock affected thereby a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the written
request at any time of any holder of Series A, Series B, Series C, Series D,
Series E or Series F Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth such adjustment or readjustment, the
Conversion Price at the time in effect, and the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of his shares.
(g) Notices of Record Date. In the event of any taking
by this corporation of a record of the holders of any class or series of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, this corporation shall
mail to each holder of Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock, at least 20 days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character
of such dividend, distribution or right.
(h) Reservation of Common Stock Issuable Upon Conversion.
This corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A, Series B, Series C,
Series D, Series E and Series F Preferred Stock, such number of its shares of
Common
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<PAGE> 16
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series A, Series B, Series C,
Series D, Series E and Series F Preferred Stock, this corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(i) Notices. Any notice required by the provisions of
this Section 5 to be given to the holders of shares of Series A, Series B,
Series C, Series D, Series E or Series F Preferred Stock shall be deemed given
if deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of this corporation.
6. Voting Rights. (a) Except as otherwise required by law or by
Sections 6(b) or 7 hereof, the holders of Preferred Stock and the holders of
Common Stock shall be entitled to notice of any shareholders' meeting and to
vote together as a class upon any matter submitted to shareholders for a vote.
In any matter submitted to shareholders for a vote, each share of Common Stock
issued and outstanding shall have one vote and each holder of shares of
Preferred Stock shall be entitled to the number of votes equal to the number of
shares of Common Stock into which such holder's Preferred Stock is convertible,
as adjusted from time to time pursuant to Section 5 hereof, at the record date
for determination of the shareholders entitled to vote on such matters, or, if
no such record date is established, at the date such vote is taken or any
written consent of shareholders is solicited.
(b) So long as not fewer than 2,000,000 shares of Series
A, Series B, Series C and Series D Preferred Stock (as adjusted for stock
dividends, stock splits, stock combinations or the like) are outstanding, if,
in any election for directors of the corporation, the holders of the Series A,
Series B, Series C and Series D Preferred Stock shall together not have
sufficient votes, voting together, to elect a director through exercise of
cumulative voting, then the holders of the Series A, Series B, Series C and
Series D Preferred Stock, voting as a separate class, shall be entitled to
elect one director of the corporation.
(c) So long as not fewer than 2,000,000 shares of Series
E Preferred Stock (as adjusted for stock dividends, stock splits, stock
combinations or the like) are outstanding, if, in any election for directors of
the corporation, the holders of the Series E Preferred Stock shall together not
have
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<PAGE> 17
sufficient votes to elect a director through exercise of cumulative voting,
then the holders of the Series E Preferred Stock, voting as a separate class,
shall be entitled to elect one director of the corporation.
(d) So long as not fewer than 2,000,000 shares of Series
F Preferred Stock (as adjusted for stock dividends, stock splits, stock
combinations or the like) are outstanding, if, in any election for directors of
the corporation, the holders of the Series F Preferred Stock shall together not
have sufficient votes to elect a director through exercise of cumulative
voting, then the holders of the Series F Preferred Stock, voting as a separate
class, shall be entitled to elect one director of the corporation.
7. Protective Provisions. This corporation shall not, without
first obtaining the approval (by vote or written consent, as provided by law) of
(a) the holders of at least a majority of the Series A, Series B, Series C and
Series D Preferred Stock voting together as a separate class, (b) the holders of
at least a majority of the outstanding Series E Preferred Stock voting as a
separate class, and (c) the holders of at least a majority of the outstanding
Series F Preferred Stock voting as a separate class:
(i) sell, convey or otherwise dispose of all or
substantially all of its property or business;
(ii) merge into or consolidate with any other corporation
(other than a wholly owned subsidiary corporation);
(iii) amend or repeal any provision of, or add any
provision to, these Articles of Incorporation if such action would alter or
change the rights, preferences and privileges of the Preferred Stock in a
material and adverse manner;
(iv) increase the authorized number of shares of Preferred
Stock or any series of Preferred Stock; or
(v) create any new class or series of stock having a
preference over the Series A, Series B, Series C, Series D, Series E or Series
F Preferred Stock with respect to voting, dividends or upon liquidation.
8. Status of Converted or Redeemed Stock. In case any shares of
Series A, Series B, Series C, Series D, Series E or Series F Preferred Stock
shall be converted pursuant to Section 5 hereof, the shares so converted shall
resume the status of authorized but unissued shares of Preferred Stock.
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<PAGE> 18
Five:
1. Limitation of Directors' Liability. The liability of the
directors of this Corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
2. Indemnification of Corporate Agents. This Corporation is
authorized to indemnify the directors and officers of this Corporation to the
fullest extent permissible under California law.
3. Repeal or Modification. Any repeal or modification of this
Article Five or any provision hereof shall not adversely affect any right of
indemnification or limitation of liability of any agent of this Corporation
relating to acts or omissions occurring prior to such repeal or modification."
* * * * *
3. The foregoing amendment and restatement of this
corporation's Articles of Incorporation has been duly approved by the Board of
Directors.
4. The foregoing amended and restated articles of
incorporation have been duly approved by the required vote of shareholders in
accordance with sections 902 and 903 of the California Corporations Code. The
total number of outstanding shares entitled to vote on this amendment is
925,684 shares of Common Stock, 300,000 shares of Series A Preferred Stock,
250,000 shares of Series B Preferred Stock, 1,340,000 shares of Series C
Preferred Stock, 800,000 shares of Series D Preferred Stock and 3,928,085
shares of Series E Preferred Stock. The percentage vote required was more than
fifty percent (50%) of the Common Stock and the Preferred Stock, voting
together, more than fifty percent (50%) of the Preferred Stock, voting
separately as a class, more than fifty percent (50%) of the Common Stock,
voting separately as a class and more than fifty percent (50%) of the Series E
Preferred Stock, voting separately as a class. The number of shares voting in
favor of the amendment equaled or exceeded the vote required.
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<PAGE> 19
The undersigned further declares under penalty of perjury under the
laws of the State of California that the matters set forth in this certificate
are true and correct of his own knowledge.
Date: April 4, 1996
--------------------
/s/ FRED M. SCHWARZER
---------------------------------
Fred M. Schwarzer
President and Secretary
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<PAGE> 1
EXHIBIT 3.1(b)
RESTATED CERTIFICATE OF INCORPORATION
OF
HESKA MERGER CORPORATION
HESKA MERGER CORPORATION, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of this corporation is Heska Merger Corporation.
SECOND: The original Certificate of Incorporation of the
corporation was filed with the Secretary of State of the State of
Delaware on March 27, 1997 and the original name of the corporation was
Heska Merger Corporation.
THIRD: The Certificate of Incorporation of said corporation
shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is HESKA MERGER CORPORATION.
ARTICLE II
The registered office of the corporation within the State of Delaware is
located at 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
A. Authorized Stock. This corporation is authorized to issue two
classes of shares, to be designated Common Stock and Preferred Stock,
respectively. This corporation is authorized to issue forty million
(40,000,000) shares of Common Stock, $.001 par value per share, and twenty-five
million (25,000,000) shares of Preferred Stock, $.001 par value per share. The
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<PAGE> 2
Preferred Stock may be issued in any number of series, as determined by the
Board of Directors. The Board of Directors may by resolution fix the
designation and number of shares of any such series, and may determine, alter,
or revoke the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series. The Board of Directors may thereafter
in the same manner, within the limits and restrictions stated in any resolution
or resolutions of the Board of Directors originally fixing the number of shares
constituting any series, increase or decrease the number of shares of any such
series (but not below the number of shares of that series then outstanding).
In case the number of shares of any series shall be decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
B. Common Stock.
1. Relative Rights of Preferred Stock and Common Stock. All
preferences, voting powers, relative, participating, optional or other
special rights and privileges, and qualifications, limitations or
restrictions of the Common Stock are expressly made subject and
subordinate to those that may be fixed with respect to any shares of the
Preferred Stock.
2. Voting Rights. Except as otherwise required by law or
this Restated Certificate of Incorporation, each holder of Common Stock
shall have one vote in respect of each share of stock held by such
holder of record on the books of the corporation for the election of
directors and on all matters submitted to a vote of stockholders of the
corporation.
3. Dividends. Subject to the preferential rights of the
Preferred Stock, the holders of shares of Common Stock shall be entitled
to receive, when and if declared by the Board of Directors, out of the
assets of the corporation which are by law available therefor, dividends
payable either in cash, in property or in shares of capital stock.
4. Liquidation, Dissolution or Winding Up. In the event of
any liquidation, dissolution or winding up of this corporation, whether
voluntary or involuntary, holders of the corporation's Common Stock and
Preferred Stock shall receive distributions according to the priorities
set forth in Section C hereof.
C. Preferred Stock. The designation of and the number of shares
constituting the initial five series of, and the rights, preferences,
privileges and restrictions relating to, the Preferred Stock are as follows:
1. Designation of Series. There is hereby provided a series
of Preferred Stock designated Series A Preferred Stock, $.001 par value
per share (the "Series A Preferred Stock"), a series of Preferred Stock
designated Series B Preferred Stock, $.001 par value per share (the
"Series B Preferred Stock"), a series of Preferred Stock designated
Series C Preferred Stock, $.001 par value per share (the "Series C
Preferred Stock"), a series of Preferred Stock designated Series D
Preferred Stock, $.001 par value per share (the "Series D Preferred
Stock"), a series of
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<PAGE> 3
Preferred Stock designated Series E Preferred Stock, $.001 par value per
share (the "Series E Preferred Stock") and a series of Preferred Stock
designated Series F Preferred Stock, $.001 par value per share (the
"Series F Preferred Stock").
2. Number of Shares. The number of shares constituting the
Series A Preferred Stock is fixed at three hundred thousand (300,000)
shares. The number of shares constituting the Series B Preferred Stock
is fixed at two hundred fifty thousand (250,000) shares. The number of
shares constituting the Series C Preferred Stock is fixed at one million
three hundred forty-six thousand four hundred (1,346,400) shares. The
number of shares constituting the Series D Preferred Stock is fixed at
eight hundred twenty-four thousand nine hundred ninety-two (824,992)
shares. The number of shares constituting the Series E Preferred Stock
is fixed at five million one hundred thousand (5,100,000) shares. The
number of shares constituting the Series F Preferred Stock is fixed at
three million (3,000,000) shares.
3. Dividend Provisions. The holders of the Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor, dividends at an
annual rate of $.08 per share of Series A Preferred Stock (the "Series A
Dividend Rate"), $.16 per share of Series B Preferred Stock (the "Series
B Dividend Rate"), $.20 per share of Series C Preferred Stock (the
"Series C Dividend Rate"), $.26 per share of Series D Preferred Stock
(the "Series D Dividend Rate"), $.26 per share of Series E Preferred
Stock (the "Series E Dividend Rate"), $.96 per share of Series F
Preferred Stock (the "Series F Dividend Rate") payable in preference and
priority to any payment of any dividend on Common Stock of the
corporation. Such dividends shall not be cumulative and no right to
such dividends shall accrue to holders of Preferred Stock unless
declared by the Board of Directors.
Each share of Preferred Stock shall rank on a parity with every other
share of Preferred Stock, irrespective of series, with regard to dividends, and
no dividends shall be declared or paid or set apart for payment on the shares
of any series of Preferred Stock unless at the same time a dividend for the
same percentage of the respective dividend rates shall also be declared or paid
or set apart for payment, as the case may be, on the shares of Preferred Stock
of each other series then outstanding.
No dividends or other distributions shall be made with respect to the
Common Stock in any fiscal year (other than dividends payable in Common Stock
on shares of Common Stock) until a dividend in the amount of at least the
respective Dividend Rates per share of each of the Series A, Series B, Series
C, Series D, Series E and Series F Preferred has been declared and paid or set
apart during that fiscal year. The holders of Preferred Stock shall
participate with holders of Common Stock in the payment of dividends and other
distributions in excess of the dividends to be first paid on Preferred Stock
ratably on an as-if-converted to Common Stock basis.
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For purposes of this Section 3, unless the context otherwise requires,
distribution shall mean the transfer of cash or property without consideration,
whether by way of dividend or otherwise, payable other than in Common Stock, or
the purchase or redemption of shares of this corporation (other than
repurchases of Common Stock held by employees or consultants of this
corporation upon termination of their employment or services pursuant to
agreements providing for such repurchase) for cash or property, including any
such transfer, purchase or redemption by a subsidiary of this corporation.
4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of this corporation, whether voluntary or involuntary, holders of shares
of each series of Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of this
corporation to the holders of the Common Stock by reason of their
ownership thereof, an amount per share as may be fixed for such series
(the "Preferential Amount"). The Preferential Amount shall be: (i) for
each share of Series A Preferred Stock, $1.00 plus all declared and
unpaid dividends to the date of liquidation, distribution or winding up
("Liquidation Date"); (ii) for each share of Series B Preferred Stock,
$2.00 plus all declared and unpaid dividends to the Liquidation Date;
(iii) for each share of Series C Preferred Stock, $2.50 plus all
declared and unpaid dividends to the Liquidation Date; (iv) for each
share of Series D Preferred Stock, $3.25 plus all declared and unpaid
dividends to the Liquidation Date; (v) for each share of Series E
Preferred Stock, $3.25 plus all declared and unpaid dividends to the
Liquidation Date; and (vi) for each share of Series F Preferred Stock,
$12.00 plus all declared and unpaid dividends to the Liquidation Date.
(b)(i) If upon the occurrence of such event the assets thus
distributed among the holders of the Series A, Series B, Series C,
Series D, Series E and Series F Preferred Stock shall be insufficient to
permit the payment to such holders of the full Preferential Amount, then
the entire assets of this corporation legally available for distribution
shall be distributed among the holders of the Series A, Series B, Series
C, Series D, Series E and Series F Preferred Stock in proportion to the
respective Preferential Amounts fixed for each then outstanding series
of Preferred Stock.
(ii) If assets remain in this corporation after the
distributions provided for in subparagraph (a) have been fully
made, the holders of Common Stock shall be entitled to receive,
prior and in preference to any further distribution of any other
of the surplus funds or assets of the corporation to holders of
Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock by reason of their ownership thereof, an amount
equal to $1.20 per share (subject to adjustment for stock
dividends, stock splits, stock combinations or the like).
(iii) After the distributions have been made as required
by subparagraphs (a) and (b)(ii) of this Section, if assets
remain in this corporation, the holders of Series A, Series B,
Series C, Series D, Series E and Series F
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Preferred Stock and Common Stock will share in all such remaining
assets in the same proportion as the number of shares of Common
Stock and Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock (or, if greater, that number of shares
of Common Stock as would be outstanding assuming conversion of
the Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock into Common Stock as provided in Section 5
hereof) then held by each of them bears to the total number of
shares of Common Stock and Series A, Series B, Series C, Series
D, Series E and Series F Preferred Stock (or, if greater, the
total number of shares of Common Stock as would be outstanding
assuming conversion of the Series A, Series B, Series C, Series
D, Series E and Series F Preferred Stock into Common Stock) of
the corporation then issued and outstanding.
(c)(i) A consolidation or merger of this corporation with or
into any other corporation or corporations, in which consolidation or
merger the stockholders of the corporation receive distributions in cash
or securities of another corporation or corporations as a result of such
consolidation or merger (unless the stockholders of the corporation will
hold at least fifty percent (50%) of the voting equity securities of the
surviving corporation and in substantially the same pro rata portions as
each held of the voting equity securities of the corporation immediately
prior to the consolidation or merger) or a sale, conveyance or other
disposition of all or substantially all of this corporation's property
or business, shall be deemed to be a liquidation, dissolution or winding
up within the meaning of this Section 4.
(ii) In any of such events, if the consideration received
by this corporation is other than cash or indebtedness, its value
will be deemed to be its fair market value. In the case of
publicly traded securities, fair market value shall mean the
closing market price for such securities on the date such
consolidation, merger or sale is consummated. If the
consideration is in a form other than publicly traded securities,
its value shall be determined by the Board of Directors of this
corporation.
5. Conversion. Holders of outstanding shares of Series A,
Series B, Series C, Series D, Series E and Series F Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"). As
used herein, the "Original Issue Date" shall be for the Series A, Series
B, Series C, Series D, Series E and Series F Preferred Stock,
respectively, the date the first share of such respective series was
issued by this corporation.
(a) Right To Convert.
(i) Subject to subparagraph (c) of this Section 5, each
share of Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock shall be convertible, at the option of
the holder thereof, at any time after the date of issuance of
such share at the office of this corporation or any transfer
agent for
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the Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock, as the case may be, into such number of fully
paid and nonassessable shares of Common Stock equal to the ratio
(the "Conversion Price") determined by dividing the Initial
Conversion Price for each respective series by the then effective
Conversion Price. As used herein, the term "Initial Conversion
Price" shall be: $1.00 per share for the Series A Preferred
Stock; $2.00 per share for the Series B Preferred Stock; $2.50
per share for the Series C Preferred Stock; $3.25 per share for
the Series D Preferred Stock; $3.25 per share for the Series E
Preferred Stock; and $12.00 per share for the Series F Preferred
Stock. As used herein, the term "Conversion Price" shall mean,
for any share of Series A, Series B, Series C, Series D, Series E
or Series F Preferred Stock at any time, the Initial Conversion
Price for such share as adjusted from time to time pursuant to
the provisions of this Section 5.
(ii) Each share of Series A, Series B, Series C, Series
D, Series E and Series F Preferred Stock shall automatically be
converted into such number of fully paid and nonassessable shares
of Common Stock at the then effective Conversion Price for the
Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock, respectively, immediately upon the closing of
the issuance of shares following the effectiveness of a
registration statement (other than a registration statement with
respect to any securities offered pursuant to any employee
purchase, savings, option, bonus, appreciation, profit sharing,
thrift, incentive or similar plan of the corporation) under the
Securities Act of 1933, as amended, covering a firm commitment,
underwritten public offering of any of this corporation's Common
Stock at an aggregate price to the public exceeding $10,000,000
in cash, provided that the price per share at which the Common
Stock is offered is at least $8.00.
(b) Mechanics of Conversion. Before any holder of Series A,
Series B, Series C, Series D, Series E and Series F Preferred Stock
shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent for
the Series A, Series B, Series C, Series D, Series E or Series F
Preferred Stock, as the case may be, and shall give written notice by
mail, postage prepaid, to this corporation at its principal corporate
office, of the election to convert the same and shall state therein the
name or names in which the certificate or certificates for shares of
Common Stock are to be issued. This corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder
of Series A, Series B, Series C, Series D, Series E or Series F
Preferred Stock, as the case may be, or to the nominee or nominees
thereof, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares of Series
A, Series B, Series C, Series D, Series E or Series F Preferred Stock,
as the case may be, to be converted, and the person or persons entitled
to receive the shares of
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<PAGE> 7
Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of shares of Common Stock on
such date.
(c) Conversion Price Adjustments of Series A, Series B, Series
C, Series D, Series E and Series F Preferred Stock. The Conversion
Price of the Series A, Series B, Series C, Series D, Series E and Series
F Preferred Stock shall be subject to adjustment from time to time as
follows:
(i)(A) If this corporation shall issue any Additional
Stock (as defined in subsection (ii) of this subsection (c) of
this Section 5) without consideration or for a consideration per
share less than the Conversion Price for the Series A, Series B,
Series C, Series D, Series E or Series F Preferred Stock, as the
case may be, in effect immediately prior to the issuance of such
Additional Stock, the Conversion Price for the Series A, Series
B, Series C, Series D, Series E or Series F Preferred Stock, as
the case may be, in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this
clause (i)) be reduced, as of the opening of business on the date
of such issue or sale, to a new Conversion Price which:
(1) in the case of Series A Preferred Stock, shall be a
price equal to the quotient obtained by dividing the total
computed under clause (X) below by the total computed
under clause (Y) below as follows:
(X) an amount equal to the sum of
(i) the aggregate purchase price of all
shares of Series A Preferred Stock sold to
date, plus
(ii) the aggregate consideration, if any,
received by this corporation for all
Additional Stock issued since the Original
Issue Date of the Series A Preferred Stock;
(Y) an amount equal to the sum of
(i) the aggregate purchase price of all
shares of the Series A Preferred Stock,
divided by the Initial Conversion Price for
the Series A Preferred Stock on the Original
Issue Date thereof (or such higher or lower
Initial Conversion Price as results from the
application of subparagraphs (c)(iii) and
(iv) of this Section 5), plus
(ii) the number of shares of Additional
Stock issued since such Original Issue Date
(increased or decreased to the extent that
the number of such shares of Additional
Stock shall have been increased or decreased
as the result of the
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<PAGE> 8
application of subparagraphs (c)(iii) and
(iv) of this Section 5);
(2) in the case of the Series B Preferred Stock, shall
be a price equal to the quotient obtained by dividing the
total computed under clause (X) below by the total
computed under clause (Y) below as follows:
(X) an amount equal to the sum of
(i) the aggregate purchase price of all
shares of Series B Preferred Stock sold to
date, plus
(ii) the aggregate consideration, if any,
received by this corporation for all
Additional Stock issued since the Original
Issue Date of the Series B Preferred Stock;
(Y) an amount equal to the sum of
(i) the aggregate purchase price of all
shares of the Series B Preferred Stock,
divided by the Initial Conversion Price for
the Series B Preferred Stock on the Original
Issue Date thereof (or such higher or lower
Initial Conversion Price as results from the
application of subparagraphs (c)(iii) and
(iv) of this Section 5), plus
(ii) the number of shares of Additional
Stock issued since such Original Issue Date
(increased or decreased to the extent that
the number of such shares of Additional
Stock shall have been increased or decreased
as the result of the application of
subparagraphs (c)(iii) and (iv) of this
Section 5);
(3) in the case of Series C Preferred Stock, shall be a
price equal to the quotient obtained by dividing the total
computed under clause (X) below by the total computed
under clause (Y) below as follows:
(X) an amount equal to the sum of
(i) the aggregate purchase price of all
shares of Series C Preferred Stock sold to
date, plus
(ii) the aggregate consideration, if any,
received by this corporation for all
Additional Stock issued since the Original
Issue Date of the Series C Preferred Stock;
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<PAGE> 9
(Y) an amount equal to the sum of
(i) the aggregate purchase price of all
shares of the Series C Preferred Stock,
divided by the Initial Conversion Price for
the Series C Preferred Stock on the Original
Issue Date thereof (or such higher or lower
Initial Conversion Price as results from the
application of subparagraphs (c)(iii) and
(iv) of this Section 5), plus
(ii) the number of shares of Additional
Stock issued since such Original Issue Date
(increased or decreased to the extent that
the number of such shares of Additional
Stock shall have been increased or decreased
as the result of the application of
subparagraphs (c)(iii) and (iv) of this
Section 5);
(4) in the case of Series D Preferred Stock, shall be a
price equal to the quotient obtained by dividing the total
computed under clause (X) below by the total computed
under clause (Y) below as follows:
(X) an amount equal to the sum of
(i) the aggregate purchase price of all
shares of Series D Preferred Stock sold to
date, plus
(ii) the aggregate consideration, if any,
received by this corporation for all
Additional Stock issued since the Original
Issue Date of the Series D Preferred Stock;
(Y) an amount equal to the sum of
(i) the aggregate purchase price of all
shares of the Series D Preferred Stock,
divided by the Initial Conversion Price for
the Series D Preferred Stock on the Original
Issue Date thereof (or such higher or lower
Initial Conversion Price as results from the
application of subparagraphs (c)(iii) and
(iv) of this Section 5), plus
(ii) the number of shares of Additional
Stock issued since such Original Issue Date
(increased or decreased to the extent that
the number of such shares of Additional
Stock shall have been increased or decreased
as the result of the application of
subparagraphs (c)(iii) and (iv) of this
Section 5);
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<PAGE> 10
(5) in the case of Series E Preferred Stock, shall be a
price equal to the quotient obtained by dividing the total
computed under clause (X) below by the total computed
under clause (Y) below as follows:
(X) an amount equal to the sum of
(i) the aggregate purchase price of all
shares of Series E Preferred Stock sold to
date, plus
(ii) the aggregate consideration, if any,
received by this corporation for all
Additional Stock issued since the Original
Issue Date of the Series E Preferred Stock;
(Y) an amount equal to the sum of
(i) the aggregate purchase price of all
shares of the Series E Preferred Stock,
divided by the Initial Conversion Price for
the Series E Preferred Stock on the Original
Issue Date thereof (or such higher or lower
Initial Conversion Price as results from the
application of subparagraphs (c)(iii) and
(iv) of this Section 5), plus
(ii) the number of shares of Additional
Stock issued since such Original Issue Date
(increased or decreased to the extent that
the number of such shares of Additional
Stock shall have been increased or decreased
as the result of the application of
subparagraphs (c)(iii) and (iv) of this
Section 5); and
(6) in the case of Series F Preferred Stock, shall be a
price equal to the quotient obtained by dividing the total
computed under clause (X) below by the total computed
under clause (Y) below as follows:
(X) an amount equal to the sum of
(i) the aggregate purchase price of all
shares of Series F Preferred Stock sold to
date, plus
(ii) the aggregate consideration, if any,
received by this corporation for all
Additional Stock issued since the Original
Issue Date of the Series F Preferred Stock;
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<PAGE> 11
(Y) an amount equal to the sum of
(i) the aggregate purchase price of all
shares of the Series F Preferred Stock,
divided by the Initial Conversion Price for
the Series F Preferred Stock on the Original
Issue Date thereof (or such higher or lower
Initial Conversion Price as results from the
application of subparagraphs (c)(iii) and
(iv) of this Section 5), plus
(ii) the number of shares of Additional
Stock issued since such Original Issue Date
(increased or decreased to the extent that
the number of such shares of Additional
Stock shall have been increased or decreased
as the result of the application of
subparagraphs (c)(iii) and (iv) of this
Section 5).
(B) No adjustment of the Conversion Price for the Series
A, Series B, Series C, Series D, Series E or Series F
Preferred Stock, as the case may be, shall be made in an
amount less than one cent per share, and (except to the
limited extent provided for in subparagraphs (c)(i)(E)(y),
(c)(i)(E)(z) and (c)(iv) of this Section 5) no adjustment
of such Conversion Price shall have the effect of
increasing the Conversion Price above the Conversion Price
in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash
paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by
this corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the
fair value thereof as determined by the Board of Directors
irrespective of any accounting treatment.
(E) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such
convertible or exchangeable securities (which are not
excluded in the definition of Additional Stock):
(w) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such
options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at
the time such options or rights were issued and for
a
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<PAGE> 12
consideration equal to the consideration
(determined in the manner provided in subparagraphs
(c)(i)(C) and (c)(i)(D) of this Section 5), if any,
received by this corporation upon the issuance of
such options or rights plus the minimum purchase
price provided in such options or rights for the
Common Stock covered thereby;
(x) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable
securities or upon the exercise of options to
purchase or rights to subscribe for such
convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such
securities were issued or such options or rights
were issued and for a consideration equal to the
consideration, if any, received by the corporation
for any such securities and related options or
rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by
the corporation upon the conversion or exchange of
such securities or the exercise of any related
options or rights (the consideration in each case
to be determined in the manner provided in
subparagraphs (c)(i)(C) and (c)(i)(D) of this
Section 5);
(y) on any change in the number of shares of
Common Stock deliverable upon exercise of such
options or rights or conversion of or exchange for
such convertible or exchangeable securities
(excluding a change resulting from any antidilution
provisions thereof), the Conversion Price as then
in effect shall forthwith be readjusted to such
Conversion Price as would have obtained had the
adjustment made upon the issuance of such options,
rights or securities not converted prior to such
change or options or rights related to such
securities not converted prior to such change been
made upon the basis of such change, but no further
adjustment shall be made for the actual issuance of
Common Stock upon the exercise of any such options
or rights or the conversion or exchange of such
securities;
(z) on the expiration of any such options or
rights, the termination of any such rights to
convert or exchange or the expiration of any
options or rights related to such convertible or
exchangeable securities, the Conversion Price shall
forthwith be readjusted to such Conversion Price as
would have obtained had the adjustment made upon
the issuance of such options, rights or securities
or options or rights related to such securities
been made upon the basis of the issuance of only
the number of shares of Common Stock actually
issued upon the exercise of such options or rights,
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<PAGE> 13
upon the conversion or exchange of such securities
or upon the exercise of the options or rights
related to such securities.
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to
subparagraph (c)(i)(E) of this Section 5) by this corporation
after the Original Issue Date of the Series A, Series B, Series
C, Series D, Series E or Series F Preferred Stock, as the case
may be, other than:
(A) Common Stock issued pursuant to a transaction
described in Section 5 (c)(iii) hereof;
(B) An additional 122,753 shares of Series E Preferred
Stock issued pursuant to a stock split effected on March
29, 1995;
(C) Common Stock first issued after March 31, 1996, or
options outstanding on or first issued after March 31,
1996, to officers, directors, employees or consultants of
this corporation, whether directly or pursuant to the
exercise of options, on terms which shall have been
approved by the Company's Board of Directors;
(D) Series C Preferred Stock issuable upon exercise of an
outstanding warrant to purchase 6,400 shares of Series C
Preferred Stock and Series D Preferred Stock issuable upon
exercise of outstanding warrants to purchase an aggregate
of 24,992 shares of Series D Preferred Stock;
(E) Shares of Series E Preferred Stock and shares of
Common Stock issuable upon exercise of options to purchase
Common Stock issued to stockholders and holders of options
of Diamond Animal Health, Inc., up to an aggregate of
1,020,000 shares;
(F) With respect to the Series A, Series B, Series C,
Series D, Series E or Series F Preferred Stock, Common
Stock issued or issuable upon conversion of the Series A,
Series B, Series C, Series D, Series E and Series F
Preferred Stock, respectively; and
(G) Any shares of capital stock issued as a dividend or
distribution on Series A, Series B, Series C, Series D,
Series E or Series F Preferred Stock;
(H) Any shares of Common Stock issued, issuable or,
pursuant to Section 5 (c)(i)(E), deemed to be issued, if
the holders of a majority of the outstanding Preferred
Stock, voting together on an as-converted basis, agree in
writing that such shares shall not constitute Additional
Stock; or
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<PAGE> 14
(I) By way of dividend or distribution on shares of
Common Stock excluded from the definition of Additional
Stock by the foregoing clauses (A) through (H) or this
clause (I).
(J) Shares of Series E Preferred Stock and shares of
Common Stock issuable upon the conversion of such Series E
Preferred Stock issued in connection with the acquisition
of Bloxham Laboratories Limited, up to an aggregate of
54,000 shares.
(iii) If the number of shares of Common Stock outstanding
at any time after the Original Issue Date of the Series A, Series
B, Series C, Series D, Series E or Series F Preferred Stock, as
the case may be, is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares
of Common Stock, then, following the record date fixed for the
determination of holders of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Conversion Price for
the Series A, Series B, Series C, Series D, Series E or Series F
Preferred Stock, as the case may be, shall be appropriately
decreased so that the number of shares of Common Stock issuable
on conversion of each such share of Series A, Series B, Series C,
Series D, Series E or Series F Preferred Stock, as the case may
be, shall be increased in proportion to such increase of
outstanding shares of Common Stock.
(iv) If the number of shares of Common Stock outstanding
at any time after the Original Issue Date of the Series A, Series
B, Series C, Series D, Series E or Series F Preferred Stock, as
the case may be, is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A, Series B,
Series C, Series D, Series E or Series F Preferred Stock, as the
case may be, shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of each such
share of Series A, Series B, Series C, Series D, Series E or
Series F Preferred Stock, as the case may be, shall be decreased
in proportion to such decrease in outstanding shares of Common
Stock.
(d) Other Distributions. In the event this corporation shall at
any time after the Original Issue Date of the Series A, Series B, Series
C, Series D, Series E or Series F Preferred Stock, as the case may be,
declare a distribution payable in securities of other persons, evidences
of indebtedness issued by this corporation or other persons, assets or
options or rights not referred to in Section 5 (c)(iii) hereof, then, in
each such case, the holders of the Series A, Series B, Series C, Series
D, Series E or Series F Preferred Stock, as the case may be, shall be
entitled to the distributions provided for in Section 3 hereof, and no
adjustment to the Conversion Price provided for in this Section 5 shall
be applicable.
(e) No Impairment. This corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer
of assets, consolidation, merger,
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<PAGE> 15
dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by this corporation, but will at
all times in good faith assist in the carrying out of all the provisions
of this Section 5 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of
the holders of the Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock against impairment.
(f) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issuable upon
conversion, and the number of shares of Common Stock to be issued
shall be rounded to the nearest whole share.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 5,
this corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof
and cause independent public accountants selected by this
corporation to verify such computation and prepare and furnish to
each holder of Series A, Series B, Series C, Series D, Series E
and Series F Preferred Stock affected thereby a certificate
setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is
based. This corporation shall, upon the written request at any
time of any holder of Series A, Series B, Series C, Series D,
Series E or Series F Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (A)
such adjustment or readjustment, (B) the Conversion Price at the
time in effect, and (C) the number of shares of Common Stock and
the amount, if any, of other property which at the time would be
received upon the conversion of his shares.
(g) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class or series of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other
right, this corporation shall mail to each holder of Series A, Series B,
Series C, Series D, Series E and Series F Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date
on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(h) Reservation of Common Stock issuable Upon Conversion. This
corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the shares of the Series A, Series B,
Series C, Series D,
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<PAGE> 16
Series E and Series F Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A, Series B, Series
C, Series D, Series E and Series F Preferred Stock; and if at any time
the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of
the Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock, this corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares
as shall be sufficient for such purpose.
(i) Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Series A, Series B,
Series C, Series D, Series E or Series F Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books
of this corporation.
6. Voting Rights.
(a) Except as otherwise required by law or by Sections 6(b) or 7
hereof, the holders of Preferred Stock and the holders of Common Stock
shall be entitled to notice of any stockholders' meeting and to vote
together as a class upon any matter submitted to stockholders for a
vote. In any matter submitted to stockholders for a vote, each share of
Common Stock issued and outstanding shall have one vote and each holder
of shares of Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such holder's
Preferred Stock is convertible, as adjusted from time to time pursuant
to Section 5 hereof, at the record date for determination of the
stockholders entitled to vote on such matters, or, if no such record
date is established, at the date such vote is taken or any written
consent of stockholders is solicited.
(b) So long as not fewer than 2,000,000 shares of Series A,
Series B, Series C and Series D Preferred Stock (as adjusted for stock
dividends, stock splits, stock combinations or the like, but excluding,
for purposes of this calculation, any shares of Common Stock issued upon
conversion of the outstanding Series A, Series B, Series C and Series D
Preferred Stock) are outstanding, the holders of the Series A, Series B,
Series C and Series D Preferred Stock, voting as a separate class, shall
be entitled to elect one director of the corporation.
(c) So long as not fewer than 2,000,000 shares of Series E
Preferred Stock (as adjusted for stock dividends, stock splits, stock
combinations or the like, but excluding, for purposes of this
calculation, any shares of Common Stock issued upon conversion of the
outstanding Series E Preferred Stock) are outstanding, the holders of
the Series E Preferred Stock, voting as a separate class, shall be
entitled to elect one director of the corporation.
(d) So long as not fewer than 2,000,000 shares of Series F
Preferred Stock (as adjusted for stock dividends, stock splits, stock
combinations or the like, but excluding, for purposes of this
calculation, any shares of Common Stock issued upon conversion of the
outstanding Series F
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<PAGE> 17
Preferred Stock) are outstanding, the holders of the Series F Preferred
Stock, voting as a separate class, shall be entitled to elect one
director of the corporation.
7. Protective Provisions. This corporation shall not, without
first obtaining the approval (by vote or written consent, as provided by
law) of (a) the holders of at least a majority of the Series A, Series
B, Series C and Series D Preferred Stock voting together as a separate
class, (b) the holders of at least a majority of the outstanding Series
E Preferred Stock voting as a separate class, and (c) the holders of at
least a majority of the outstanding Series F Preferred Stock voting as a
separate class:
(i) sell, convey or otherwise dispose of all or
substantially all of its property or business;
(ii) merge into or consolidate with any other corporation
(other than a wholly owned subsidiary corporation);
(iii) amend or repeal any provision of, or add any
provision to, this Certificate of Incorporation if such action
would alter or change the rights, preferences and privileges of
the Preferred Stock in a material and adverse manner;
(iv) increase the authorized number of shares of
Preferred Stock or any series of Preferred Stock; or
(v) create any new class or series of stock having a
preference over the Series A, Series B, Series C, Series D,
Series E or Series F Preferred Stock with respect to voting,
dividends or upon liquidation.
8. Status of Converted or Redeemed Stock. In case any shares
of Series A, Series B, Series C, Series D, Series E or Series F
Preferred Stock shall be converted pursuant to Section 5 hereof, the
shares so converted shall resume the status of authorized but unissued
shares of Preferred Stock.
ARTICLE V
The corporation is to have perpetual existence.
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<PAGE> 18
ARTICLE VI
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware:
A. Amendment. The board of directors of the corporation is
expressly authorized, without the assent or vote of the stockholders, to make,
alter, amend, change, add to or repeal the Bylaws of the corporation.
B. Elections. Elections of directors need not be by written ballot
unless the Bylaws of the corporation shall so provide.
C. Corporate Records. The books of the corporation may be kept at
such place within or without the State of Delaware as the bylaws of the
corporation may provide or as may be designated from time to time by the board
of directors of the corporation.
ARTICLE VII
Whenever a compromise or arrangement is proposed between the corporation
and its creditors or any class of them and/or between the corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
corporation or of any creditor or stockholder thereof or on the application of
any receivers appointed for the corporation under the provisions of section 291
of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the corporation under
the provisions of section 279 of Title 8 of the Delaware Code order a meeting
of the creditors or class of creditors, and/or the stockholders or class of
stockholders of the corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority, in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of 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 the corporation, as the case may be, and also on the
corporation.
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<PAGE> 19
ARTICLE VIII
A. Limitation on Liability. A director of the corporation shall not
be personally liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (1)
for any breach of the director's duty of loyalty to the corporation and its
stockholders; (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law; (3) under Section 174 of
the Delaware General Corporation Law; or (4) for any transaction from which the
director derived an improper personal benefit.
B. Indemnification. The corporation is authorized to indemnify the
directors and officers of this corporation to the fullest extent permissible
under Delaware law.
C. Insurance. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such 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.
D. Repeal and Modification. Any repeal or modification of the
foregoing provisions of this Article VIII shall not adversely affect any right
or protection of any director, officer, employee or agent of the corporation
existing at the time of such repeal or modification.
E. Vote Required to Amend or Repeal. The amendment or repeal of
this Article VIII shall require the approval of the holders of shares
representing at least sixty six and two-thirds percent (66-2/3%) of the shares
of the corporation entitled to vote in the election of directors, voting as one
class.
ARTICLE IX
The corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon a stockholder herein are
granted subject to this reservation.
* * * * *
-19-
<PAGE> 20
Four: This Restated Certificate of Incorporation was duly
adopted by the Board of Directors of this corporation.
Five: This Restated Certificate of Incorporation was duly
adopted by written consent of the sole stockholder of the corporation in
accordance with Sections 245 and 242 of the General Corporation Law of
the State of Delaware and written notice of such action has been given
as provided in Section 228.
IN WITNESS WHEREOF, Heska Merger Corporation has caused this certificate
to be signed by its President and Chief Executive Officer and Secretary this
__th day of April, 1997.
------------------------------
Fred M.Schwarzer
President and Chief Executive
Officer
------------------------------
Deborah E. Robbins
Secretary
-20-
<PAGE> 1
EXHIBIT 3.2(a)
CERTIFICATE OF ACTION BY BOARD OF DIRECTORS OF
HESKA CORPORATION
FIXING THE NUMBER OF MEMBERS ON THE BOARD
The following resolution was duly adopted by the Board of Directors of
Heska Corporation at a special meeting held on March 15, 1997 in Fort Collins,
Colorado:
RESOLVED, that the number of directors of the Corporation
shall be fixed at seven (7) until changed as provided in
Section 2 of the Article III of the By-Laws of the
Corporation.
<PAGE> 2
CERTIFICATE OF
AMENDMENT OF BYLAWS OF
HESKA CORPORATION
The following resolutions were duly adopted by the Board of Directors
of Heska Corporation by written consent effective November 12, 1996:
RESOLVED, that Article IV, Section 3 of the Bylaws of the
Corporation is hereby amended by deleting said Article IV,
Section 3 in its entirety and substituting the following
therefor:
"Section 3. Special meetings of the board of directors for
any purpose or purposes may be called at any time by the
chairman of the board or president or, if both the chairman of
the board and the president are absent or are unable or
refuse to act, by any vice president or by any two directors.
Special meetings of the board of directors shall be held upon
four (4) days' notice by mail or forty-eight (48) hours
notice delivered personally or by telephone (including a voice
messaging system or other system or technology designed to
record and communicate messages), telegraph, facsimile,
electronic mail or other electronic means. Notices are deemed
given or sent (i) at the time a written notice by mail is
deposited in the United States mails, postage prepaid, (ii)
the time any other written notice, including facsimile,
telegram or electronic mail message, is personally delivered
to the director or is delivered to a common carrier for
transmission or actually transmitted by the person giving the
notice by electronic means, to the director, (iii) the time
any oral notice is communicated, in person or by telephone,
including a voice messaging system or other system or
technology designed to record and communicate messages, or
wireless, to the director, including the director's designated
voice mailbox or address on such a system, or to a person at
the office of the director who the person giving the notice
has reason to believe will promptly communicate it to the
director. The notice need not specify the place of the
meeting if the meeting is to be held at the principal
executive office of the corporation, and need not specify the
purpose of the meeting."
<PAGE> 3
CERTIFICATE OF BOARD OF DIRECTORS OF
HESKA CORPORATION
FIXING THE NUMBER OF MEMBERS ON THE BOARD
The following resolution was duly adopted by the Board of Directors of
Heska Corporation by written consent effective as of April 5, 1996:
RESOLVED, that conditioned upon and effective upon the closing the
acquisition of all of the outstanding capital stock of Diamond Animal
Health, Inc. by the Corporation or its subsidiaries (the "Diamond
Closing"), the authorized number of directors of the Corporation shall
be fixed at eight (8) until changed as provided in Section 2a of
Article III of the By-Laws of the Corporation.
<PAGE> 4
CERTIFICATE OF
AMENDMENT OF BYLAWS OF
HESKA CORPORATION
The following resolutions were duly adopted by the shareholders of
Heska Corporation by written consent effective as of April 3, 1996:
RESOLVED, that Article III, Section 2a of the Bylaws of the
Corporation is hereby amended to read as follows:
"Section 2a. The authorized number of directors shall be not less
than five (5) nor more than nine (9). The exact authorized number of
directors shall be fixed from time to time, within the limits
specified in this Section 2a or in the articles of incorporation, by
resolution of the board of directors, or by a by-law or amendment
thereof duly adopted by the vote of a majority of the shares
represented and voting at a duly held meeting at which a quorum is
present (which shares voting affirmatively also constitute at least a
majority of the required quorum), or by the written consent of the
holders of a majority of the outstanding shares entitled to vote."
; and be it further
RESOLVED, that the authorized number of directors of the Corporation
shall be fixed at seven (7) until changed as provided in Section 2 of
Article III of the By-Laws.
<PAGE> 5
CERTIFICATE OF
AMENDMENT OF BYLAWS OF
PARAVAX, INC.
The following resolution was duly adopted by the Board of
Directors of Paravax, Inc. at a meeting held on June 20, 1994:
RESOLVED that subject to the approval of the shareholders of
the Company, that Section 2 of Article III of the By-Laws of
the Corporation is hereby amended to read in its entirety as
set forth on Exhibit A hereto and the Secretary of the
Corporation is hereby directed to insert a copy of the By-Laws
as so amended in the minute book of the Corporation; and be it
further
RESOLVED that the authorized number of directors of the
Corporation shall be fixed at six (6) until changed as
provided in Section 2 of Article III of the By-Laws; and be it
further
<PAGE> 6
EXHIBIT A
Section 2a. The authorized number of directors shall be not
less than four (4) nor more than seven (7). The exact authorized number of
directors shall be fixed from time to time, with in the limits specified in
this Section 2a or in the articles of incorporation, by resolution of the board
of directors, or by a by-law or amendment thereof duly adopted by the vote of a
majority of the shares represented and voting at a duly held meeting at which a
quorum is present (which shares voting affirmatively also constitute at least a
majority of the required quorum), or by the written consent of the holders of a
majority of the outstanding shares entitled to vote.
<PAGE> 7
CERTIFICATE OF
AMENDMENT OF BYLAWS OF
PARAVAX INC.
The following was approved by the Shareholders of Paravax,
Inc. at an annual meeting held on July 20, 1992:
Pursuant to Article III, Section 2a, of the By-laws of the
Corporation, the Board of Directors of the Corporation hereby provides for a
variable number of authorized directors of the Company between four and seven,
initially to be fixed at five and thereafter to be fixed within such limits
from time to time by the Board of Directors.
<PAGE> 8
CERTIFICATE OF
AMENDMENT OF BYLAWS OF
PARAVAX, INC.
The following resolution was duly adopted by the Board of
Directors of Paravax, Inc. at a meeting held on April 13, 1992:
RESOLVED that in accordance with Section 2a of Article III of
the By-Laws of the Corporation, the number of authorized
directors of the Corporation shall be increased to and fixed
at five until further action of the Board of Directors or
shareholders of the Corporation; and be it further
<PAGE> 9
CERTIFICATE OF
AMENDMENT OF BYLAWS OF
PARAVAX, INC.
The following resolution was duly adopted by Unanimous Written
Consent by the Board of Directors of Paravax, Inc. on November 30, 1989:
"RESOLVED that, Section 2b of Article III of the By-Laws of
the Corporation, shall be amended and restated in its entirety
(the "Amendment") to read as follows:
"Section 2b. Subject to the foregoing provisions for
changing the authorized number of directors, the
authorized number of directors of the corporation
shall be (4)";
<PAGE> 10
BY-LAWS
OF
PARAVAX, INC.
<PAGE> 11
B Y - L A W S
of
PARAVAX, INC.
ARTICLE I
Principal Office
Section 1. The principal executive office for the transaction
of the business of the corporation is hereby fixed and located at 525
University Avenue, Suite 1500, Palo Alto, California. The board of directors
may change such principal executive office from one location to another.
Section 2. The board of directors may at any time establish
other business offices within or without the State of California.
ARTICLE II
Meetings of Shareholders
Section 1. All meetings of the shareholders shall be held at
any place within or without the State of California which may be designated
either by the board of directors or by the written consent of all shareholders
entitled to vote thereat and not present at the meeting given either before or
after the meeting and filed with the secretary of the corporation. In the
absence of any such designation, shareholders' meetings shall be held at the
principal executive office of the corporation.
Section 2. The annual meeting of the shareholders of the
corporation shall be held on such date and at such time as shall be determined
by the board of directors, not more than fifteen (15) months after the date of
the preceding annual meeting or, in the case of the first annual meeting, not
more than fifteen (15) months after the organization of the corporation. At
such meeting, directors shall be elected and any other proper business may be
transacted which is within the powers of the shareholders. Written notice of
each annual meeting shall be given to each shareholder entitled to vote either
personally or by first-class mail or other means of written communications
(which includes, without limitation and wherever used in these by-laws,
telegraphic and facsimile communication), charges prepaid, addressed to each
shareholder at the address appearing on the books of the corporation, or given
by the shareholder to the corporation for the purpose of notice. If any notice
or report addressed to the shareholder at the address of such shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice or report to the shareholder at such
address, all future notices or reports shall be deemed to have been duly given
without further mailing if the same shall be available for the shareholder upon
written demand of the shareholder at the principal executive office of the
corporation for a period of one year from the date of the giving of the notice
or report to all other shareholders. If no address of a shareholder appears on
the books of the corporation or is given by the shareholder to the corporation,
notice is duly given to him if sent by mail or other means of written
communication addressed to the place where the principal executive office of
the corporation is located or if published at least once in a newspaper of
general circulation in the county in which said principal executive office is
located.
<PAGE> 12
All such notices shall be given to each shareholder entitled
thereto not less than ten (10) days nor more than sixty (60) days before each
annual meeting. Any such notice shall be deemed to have been given at the time
when delivered personally or deposited in the United States mail or delivered
to a common carrier for transmission to the recipient or actually transmitted
by the person giving the notice by electronic means to the recipient or sent by
other means of written communication. An affidavit of mailing of any such
notice in accordance with the foregoing provisions, executed by the secretary,
assistant secretary or transfer agent of the corporation shall be prima facie
evidence of the giving of the notice.
Such notices shall state:
(a) The place, date and hour of the meeting;
(b) Those matters which the board, at the time of
the mailing of the notice, intends to present for action by
the shareholders;
(c) If directors are to be elected, the names of
nominees intended at the time of the notice to be presented by
management. for election;
(d) The general nature of a proposal, if any, to
take action with respect to the approval of (i) a contract or
other transaction with an interested director, (ii) an
amendment of the articles of incorporation, (iii) a
reorganization of the corporation as defined in Section 181 of
the California General Corporation Law (the "General
Corporation Law"), (iv) a voluntary dissolution of the
corporation, or (v) a distribution in dissolution other than
in accordance with the rights of outstanding preferred shares,
if any; and
(e) Such other matters, if any, as may be expressly
required by statute.
Section 3. Special meetings of the shareholders for the
purpose of taking any action permitted to be taken by the shareholders under
the General Corporation Law and the articles of incorporation of this
corporation, may be called by the chairman of the board or the president, or by
any vice president, or by the board of directors, or by the holders of shares
entitled to cast not less than ten percent (10%) of the votes at the meeting.
Upon request in writing that a special meeting of shareholders be called for
any proper purpose, directed to the chairman of the board, president or
secretary by any person (other than the board of directors) entitled to call a
special meeting of shareholders, the officer forthwith shall cause notice to be
given to the shareholders entitled to vote that a meeting will be held at a
time requested by the person or persons calling the meeting, not less than
thirty-five (35) nor more than sixty (60) days after receipt of the request.
Except in special cases where other express provision is made by statute,
notice of such special meetings shall be given in the same manner and contain
the same statements as required for annual meetings of shareholders; provided
that notice of any special meeting shall also specify the general nature of the
business to be transacted, and no other business may be transacted at such
meeting.
Section 4. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote at any meeting shall constitute a
quorum for the transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 5. Any shareholders' meeting, annual or special,
whether or not a quorum is present, may be adjourned from time to time by the
vote of a majority of the shares, the holders
<PAGE> 13
of which are either present in person or represented by proxy thereat, but in
the absence of a quorum no other business may be transacted at such meeting,
except as provided in Section 4 above.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at a meeting at which the
adjournment is taken, except that notice of the adjourned meeting shall be
given to each shareholder of record entitled to vote at an adjourned meeting in
accordance with Section 2 of this Article II if a new record date for the
adjourned meeting is fixed by the board of directors, or if the adjournment is
for more than forty-five (45) days from the date set for the original meeting.
At any adjourned meeting the corporation may transact any business which might
have been transacted at the original meeting.
Section 6. Unless a record date for.voting purposes be fixed
as provided in Section 1 of Article VI of these by-laws then, subject to the
provisions of Sections 702 and 704 of the General Corporation Law, only persons
in whose names shares entitled to vote stand on the stock records of the
corporation at the close of business on the business day next preceding the day
on which notice of the meeting is given or if such notice is waived, at the
close of business on the business day next preceding the day on which the
meeting of shareholders is held (except that the record date for shareholders
entitled to give consent to corporate action without a meeting shall be
determined in accordance with Section 8 of this Article II) shall be entitled
to receive notice of and to vote at such meeting, and such day shall be the
record date for such meeting. Any shareholder entitled to vote on any matter
may vote part of the shares in favor of the proposal and refrain from voting
the remaining shares or vote them against the proposal (other than elections of
directors), but if the shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares such shareholder is
entitled to vote. Such vote may be by voice or by ballot; provided, however,
that all elections for directors must be by ballot upon demand made by a
shareholder at any election and before the voting begins. The affirmative vote
of a majority of the shares represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmatively shall constitute
at least a majority of the required quorum) shall be the act of the
shareholders except as may otherwise be provided by (i) Section 4 of this
Article II, (ii) the cumulative voting provisions for the election of directors
as stated in this section below, and (iii) the General Corporation Law or the
articles of incorporation of this corporation. Subject to the requirements of
the next sentence, every shareholder entitled to vote at any election for
directors may cumulate his votes and give one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of votes to
which his shares are normally entitled, or distribute his votes on the same
principle among as many candidates as he shall think fit. No shareholder shall
be entitled to cumulate votes for a candidate or candidates unless the names of
such candidate or candidates have been placed in nomination prior to the voting
and the shareholder has given notice at the meeting prior to the voting of the
shareholder's intention to cumulate his votes. If any one shareholder has
given such notice, all shareholders may cumulate their votes for candidates in
nomination. The candidates receiving the highest number of affirmative votes
of shares entitled to be voted for them, up to the number of directors to be
elected, shall be elected.
Section 7. The transactions of any meeting of shareholders,
either annual or special, however called and noticed, and wherever held, shall
be as valid as though had at a meeting duly held after regular call and notice,
if a quorum is present either in person or by proxy, and if, either before or
after the meeting, each of the persons entitled to vote, not present in person
or by proxy, signs a written waiver of notice or a consent to a holding of the
meeting, or an approval of the minutes thereof. The waiver of notice, consent
or approval need not specify either the business to be transacted or the
purpose of any regular or special meeting of shareholders, except that if
action is taken or proposed to be taken for approval of any of those
<PAGE> 14
matters specified in subparagraph (d) of the third paragraph of Section 2 of
this Article II, the waiver of notice, consent or approval shall state the
general nature of such proposal. All such waivers, consents or approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Attendance of a person at a meeting shall also constitute a
waiver of notice of and presence at such meeting, except when the person
objects, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened, and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required to be included in the notice but not so
included, if such objection is expressly made at the meeting.
Section 8. Directors may be elected without a meeting by a
consent in writing, setting forth the action so taken, signed by all of the
persons who would be entitled to vote for the election of directors; in
addition a director may be elected at any time to fill a vacancy (other than a
vacancy created by removal) not filled by the directors by the written consent
of persons holding a majority of the outstanding shares entitled to vote for
the election of directors. Notice of such election shall be given to
nonconsenting shareholders if required by this Section 8.
Any other action which, under any provision of the General
Corporation Law, may be taken at a meeting of the shareholders, may be taken
without a meeting, and without notice except as hereinafter set forth, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. All such consents
shall be filed with the secretary of the corporation and shall be maintained in
the corporate records.
Unless the consents of all shareholders entitled to vote have
been solicited in writing:
(a) Notice of any proposed shareholder approval of
(i) a contract or other transaction with an interested
director; (ii) indemnification of an agent of the corporation
as authorized by Section 9 of Article IV of these by-laws;
(iii) a reorganization of the corporation as defined in
Section 181 of the General Corporation Law; or (iv) a
distribution in dissolution other than in accordance with the
rights of outstanding preferred shares, if any, without a
meeting by less than unanimous written consent, shall be given
at least ten (10) days before the consummation of the action
authorized by such approval; and
(b) Prompt notice shall be given of the taking of
any other corporate action approved by shareholders without a
meeting by less than unanimous written consent, to those
shareholders entitled to vote who have not consented in
writing. Such notices shall be given in the manner provided
in Section 2 of Article II of these by-laws.
Unless, as provided in Section 1 of Article VI of these
by-laws, the board of directors has fixed a record date for the determination
of shareholders entitled to notice of and to give such written consent, the
record date for such determination shall be (a) the day on which the first
written consent is given, when no prior action by the board of directors has
been taken, or (b) the close of business on the day the board of directors
adopts the resolution relating to such action.
<PAGE> 15
Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the secretary of the corporation.
Section 9. Every person entitled to vote shares or execute
consents shall have the right to do so either in person or by one or more
agents authorized by a written proxy executed by such person or his duly
authorized agent and delivered to the secretary of the corporation. A proxy
shall be deemed executed if the shareholder's name is placed on the proxy
(whether by manual signature, typewriting, telegraphic transmission or
otherwise) by the shareholder or the shareholder's attorney in fact. Any proxy
duly executed which does not state that it is irrevocable shall continue in
full force and effect until (a) a writing stating that the proxy is revoked is
delivered to the secretary of the corporation, (b) a proxy bearing a later date
is executed by the person who executed the prior proxy and is presented to the
meeting, (c) as to any meeting, by attendance at such meeting and voting in
person by the person executing the proxy or (d) written notice of the death or
incapacity of the maker of such proxy is received by the corporation before the
vote pursuant thereto is counted; provided that no such proxy shall be valid
after the expiration of eleven (11) months from the date of its execution,
unless otherwise provided in the proxy. The revocability of a proxy which
states on its face that it is irrevocable shall be governed by the provisions
of Sections 705(e) and (f) of the General Corporation Law.
Section 10. In advance of any meeting of shareholders, the
board of directors may appoint any persons other than nominees for office as
inspectors of election to act at such meeting and any adjournment thereof. If
inspectors of election be not so appointed, the chairman of any such meeting
may, and on the request of any shareholder or his proxy shall, make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more shareholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed. In case any
person appointed as inspector fails to appear or fails or refuses to act, the
vacancy may, and on the request of any shareholder or a shareholder's proxy
shall, be filled by appointment by the board of directors in advance of the
meeting, or at the meeting by the chairman of the meeting.
The duties of such inspectors shall be as prescribed by
Section 707 of the General Corporation Law and shall include: determining the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes or consents;
determining when the polls shall close; determining the result; and such acts
as may be proper to conduct the election or vote with fairness to all
shareholders. In the determination of the validity and effect of proxies the
dates contained on the forms of proxy shall presumptively determine the order
of execution of the proxies, regardless of the postmark dates on the envelopes
in which they are mailed.
The inspectors of election shall perform their duties
impartially, in good faith, to the best of their ability and as expeditiously
as is practical. If there are three inspectors of election, the decision, act
or certificate of a majority is effective in all respects as the decision, act
or certificate of all. Any report or certificate made by the inspectors of
election is prima facie evidence of the facts stated therein.
<PAGE> 16
ARTICLE III
Board of Directors
Section 1. Subject to the provisions of the General
Corporation Law and any limitations in the articles of incorporation and these
by-laws as to action to be authorized or approved by the shareholders, the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
Without prejudice to such general powers, but subject to the same limitations,
it is hereby expressly declared that the board of directors shall have the
following powers:
First: To conduct, manage and control the affairs
and business of the corporation and to make such rules and
regulations therefor, not inconsistent with law or with the
articles of incorporation or with the by-laws, as they may
deem best;
Second: To elect and remove at pleasure the
officers, agents and employees of the corporation, prescribe
their duties and fix their compensation;
Third: To authorize the issue of shares of stock
of the corporation from time to time upon such terms as may be
lawful, in consideration of money paid, labor done, services
actually rendered to the corporation or for its benefit or in
its formation or reorganization, debts or securities canceled,
and tangible or intangible property actually received, but
neither promissory notes of the purchaser (unless adequately
secured by collateral other than the shares acquired or unless
permitted by Section 408 of the General Corporation Law) nor
future services shall constitute payment or part payment for
the shares of the corporation;
Fourth: To borrow money and incur indebtedness
for the purposes of the corporation and to cause to be
executed and delivered therefor, in the corporate name,
promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations or other evidences of debt
and securities therefor;
Fifth: To alter, repeal or amend, from time to
time, and at any time, these by-laws and any and all
amendments of the same, and from time to time, and at any
time, to make and adopt such new and additional by-laws as may
be necessary and proper, subject to the power of the
shareholders to adopt, amend or repeal such by-laws, or to
revoke the delegation of authority of the directors, as
provided by law or by Article VIII of these by-laws; and
Sixth: By resolution adopted by a majority of
the authorized number of directors, to designate an executive
and other committees, each consisting of two or more
directors, to serve at the pleasure of the board, and to
prescribe the manner in which proceedings of such committee
shall be conducted. The
<PAGE> 17
appointment of members or alternate members (who may replace
any absent member at any meeting of the committee) of a
committee requires the vote of a majority of the authorized
number of directors. Any such committee, to the extent
provided in a resolution of the board, shall have all of the
authority of the board, except with respect to:
(i) The approval of any action for which the
General Corporation Law or the articles of
incorporation also require shareholder approval;
(ii) The filling of vacancies on the board or in
any committee;
(iii) The fixing of compensation of the directors
for serving on the board or on any committee;
(iv) The adoption, amendment or repeal of by-laws;
(v) The amendment or repeal of any resolution
of the board which by its express terms is not so
amendable or repealable;
(vi) Any distribution to the shareholders, except at
a rate or in a periodic amount or within a price
range determined by the board; and
(vii) The appointment of other committees of the
board or the members thereof.
Section 2a. The authorized number of directors shall not be
less than three (3) nor more than five (5). The exact authorized number of
directors shall be fixed from time to time, within the limits specified in
this Section 2a or in the articles of incorporation, by resolution of the board
of directors, or by a by-law or amendment thereof duly adopted by the vote of a
majority of the shares represented and voting at a duly held meeting at which a
quorum is present (which shares voting affirmatively also constitute at least a
majority of the required quorum), or by the written consent of the holders, of
a majority of the outstanding shares entitled to vote.
Section 2b. Subject to the foregoing provisions for changing
the authorized number of directors, the authorized number of directors of this
corporation shall initially be three (3).
Section 3. The directors shall be elected at each annual of
shareholders, but if any such annual meeting is not held or the directors are
not elected thereat, the directors may be elected at any special meeting of
shareholders held for that purpose. Each director, including a
<PAGE> 18
director elected to fill a vacancy, shall hold office until his successor is
elected, except as otherwise provided by statute.
Section 4. A vacancy in the board of directors shall be
deemed to exist in case of the death, resignation or removal of any director,
if the authorized number of directors be increased, or if the shareholders
fail, at any annual or special meeting of shareholders at which any director or
directors are elected, to elect the full authorized number of directors to be
voted for at that meeting. The board of directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or has been convicted of a felony.
Vacancies in the board of directors, except for a vacancy
created by the removal of a director, may be filled by a majority of the
directors then in office, whether or not less than a quorum, or by a sole
remaining director, and each director so elected shall hold office until his
successor is elected at an annual or a special meeting of the shareholders. A
vacancy in the board of directors created by the removal of a director may only
be filled by the vote of a majority of the shares represented and voting at a
duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum), or
by the written consent of the holders of all of the outstanding shares.
The shareholders may elect a director or directors at any time
to fill any vacancy or vacancies not filled by the directors. Any such
election by written consent other than to fill a vacancy created by removal
shall require the consent of holders of a majority of the outstanding shares
entitled to vote.
Any director may resign effective upon giving written notice
to the chairman of the board, the president, the secretary or the board of
directors of the corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the board of directors accepts the
resignation of a director tendered to take effect at a future time, the board
or the shareholders shall have power to elect a successor to take office when
the resignation is to become effective.
No reduction of the authorized number of the directors shall
have the effect of removing any director prior to the expiration of his term of
office.
<PAGE> 19
ARTICLE IV
Meetings of Directors
Section 1. Regular meetings of the board of directors shall
be held at any place within or without the State of California that has been
designated from time to time by the board of directors. In the absence of such
designation, regular meetings shall be held at the principal executive office
of the corporation, except as provided in Section 2. Special meetings of the
board of directors may be held at any place within or without the State of
California which has been designated in the notice of the meeting, or, if not
designated in the notice or if there is no notice, at the principal executive
office of the corporation.
Section 2. Immediately following each annual meeting of the
shareholders there shall be a regular meeting of the board of directors of the
corporation at the place of said annual meeting or at such other place as shall
have been designated by the board of directors for the purpose of organization,
election of officers and the transaction of other business. Other regular
meetings of the board of directors shall be held without call on such date and
time as may be fixed by the board of directors; provided, however, that should
any such day fall on a legal holiday, then said meeting shall be held at the
same time on the next business day thereafter ensuing which is not a legal
holiday. Notice of regular meetings of the directors is hereby dispensed with
and no notice whatever of any such meeting need be given, provided that notice
of any change in the time or place of regular meetings shall be given to all of
the directors in the same manner as notice for special meetings of the board of
directors.
Section 3. Special meetings of the board of directors for any
purpose or purposes may be called at any time by the chairman of the board or
president or, if both the chairman of the board and the president are absent or
are unable or refuse to act, by any vice president or by any two directors.
Notice of the time and place of special meetings shall be delivered personally
or by telephone to each director, or sent by first-class mail or telegram or
facsimile transmission, charges prepaid, addressed to him at his address as it
appears upon the records of the corporation or, if it is not so shown on the
records and is not readily ascertainable, at the place at which the meetings of
the directors are regularly held. In case such notice is mailed, it shall be
deposited in the United States mail at least four (4) days prior to the time of
the holding of the meeting. In case such notice is telegraphed or sent by
facsimile transmission, it shall be delivered to a common carrier for
transmission to the director or actually transmitted by the person giving the
notice by electronic means to the director at least forty-eight (48) hours
prior to the time of the holding of the meeting. In case such notice is
delivered personally or by telephone as above provided, it shall be so
delivered at least twenty-four (24) hours prior to the time of the holding of
the meeting. Any notice given personally or by telephone may be communicated
to either the director or to a person at the office of the director whom the
person giving the notice has reason to believe will promptly communicate it to
the director. Such deposit in the mail, delivery to a common carrier,
transmission by electronic means or delivery, personally or by telephone, as
above provided, shall be due, legal and personal notice to such directors. The
notice need not specify the place of the meeting if the meeting is to be held
at the principal executive office of the corporation, and need not specify the
purpose of the meeting.
Section 4. Presence of a majority of the authorized number of
directors at a meeting of the board of directors constitutes a quorum for the
transaction of business, except as hereinafter provided. Members of the board
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Sections 310, 311 and 317 of the General
<PAGE> 20
Corporation Law. A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, provided that
any action taken is approved by at least a majority of the required quorum for
such meeting. A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. If the meeting is
adjourned for more than twenty-four (24) hours, notice of any adjournment to
another time or place (other than adjournments until the time fixed for the
next regular meeting of the board of directors, as to which no notice is
required) shall be given prior to the time of the adjourned meeting to the
directors who were not present at the time of the adjournment.
Section 5. Notice of a meeting need not be given to any
director who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
Section 6. Any action required or permitted to be taken by
the board of directors, may be taken without a meeting if all members of the
board shall individually or collectively consent in writing to such action.
Such written consent or consents shall be filed with the minutes of the
proceedings of the board. Such action by written consent shall have the same
force and effect as a unanimous vote of such directors.
Section 7. The provisions of this Article IV shall also
apply, with necessary changes in points of detail, to committees of the board
of directors, if any, and to actions by such committees (except for the first
sentence of Section 2 of Article IV, which shall not apply, and except that
special meetings of a committee may also be called at any time by any two
members of the committee), unless otherwise provided by these by-laws or by the
resolution of the board of directors designating such committees. For such
purpose, references to "the board" or "the board of directors" shall be deemed
to refer to each such committee and references to "directors" and "members of
the board" shall be deemed to refer to members of the committee.
Section 8. Directors and members of committees may receive
such compensation, if any, for their services, and such reimbursement for
expenses, as may be fixed or determined by resolution of the board.
Section 9. The corporation shall, to the maximum extent
permitted by the General Corporation Law, indemnify each of its agents against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that any such person is or was an agent of the corporation. For purposes
of this Section, an "agent" of the corporation includes any person who is or
was a director, officer, employee or other agent of the corporation, or who is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or who was a director, officer, employee or agent of a
corporation which was a predecessor of the corporation or of another enterprise
at the request of such predecessor corporation.
<PAGE> 21
ARTICLE V
Officers
Section 1. The officers of the corporation shall be a
chairman of the board or a president, or both, a secretary, and a treasurer,
who shall also be the chief financial officer of the corporation. The
corporation may also have, at the discretion of the board of directors, one or
more vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be designated from time to time by
the board of directors. Any number of offices may be held by the same person.
The officers shall be elected by the board of directors and shall hold office
at the pleasure of such board.
Chairman of the Board
Section 2. The chairman of the board, if there is such an
officer, shall, if present, preside at all meetings of the board of directors
and exercise and perform such other powers and duties as may be from time to
time assigned to him by the board of directors or prescribed by the by-laws.
If there is no president, the chairman of the board shall, in addition, be the
general manager and chief executive officer of the corporation and shall have
the powers and duties prescribed in Section 3 of Article V of these by-laws.
President
Section 3. Subject to such powers and duties, if any, as may
be prescribed by these by-laws or the board of directors for the chairman of
the board, if there is such an officer, the president shall be the general
manager and chief executive officer of the corporation and shall, subject to
the control of the board of directors, have general supervision, direction and
control of the business and officers of the corporation. He shall preside at
all meetings of the shareholders and, in the absence of the chairman of the
board, or if there is no chairman, at all meetings of the board of directors.
He shall have all of the powers and shall perform all of the duties which are
ordinarily inherent in the office of the president, and he shall have such
further powers and shall perform such further duties as may be prescribed for
him by the board of directors.
Vice Presidents
Section 4. In the absence or disability or refusal to act of
the president, the vice presidents in order of their rank as fixed by the board
of directors, or, if not ranked, the vice president designated by the president
or the board of directors, shall perform all of the duties of the president and
when so acting shall have all the powers of and be subject to all the
restrictions upon the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them, respectively, by the board of directors or the by-laws.
<PAGE> 22
Secretary
Section 5. The secretary shall keep or cause to be kept at
the principal executive office of the corporation or such other place as the
board of directors may order, a book of minutes of all proceedings of the
shareholders, the board of directors and committees of the board, with the time
and place of holding, whether regular or special, and if special how
authorized, the notice thereof given, the names of those present at directors'
and committee meetings, and the number of shares present or represented at
shareholders' meetings. The secretary shall keep or cause to be kept at the
principal executive office or at the office of the corporation's transfer agent
a record of shareholders or a duplicate record of shareholders showing the
names of the shareholders and their addresses, the number of shares and classes
of shares held by each, the number and date of certificates issued for the same
and the number and date of cancellation of every certificate surrendered for
cancellation. The secretary or an assistant secretary, or, if they are absent
or unable or refuse to act, any other officer of the corporation, shall give or
cause to be given notice of all the meetings of the shareholders, the board of
directors and committees of the board required by the by-laws or by law to be
given, and he shall keep the seal of the corporation, if any, in safe custody
and shall have such other powers and perform such other duties as may be
prescribed by the board of directors or by the by-laws.
Section 6. It shall be the duty of the assistant secretaries
to assist the secretary in the performance of his duties and generally to
perform such other duties as may be delegated to them by the board of
directors.
Treasurer
Section 7. The treasurer shall be the chief financial officer
of the corporation and shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of account of the
corporation. He shall receive and deposit all moneys and other valuables
belonging to the corporation in the name and to the credit of the corporation
and shall disburse the same only in such manner as the board of directors or
the appropriate officers of the corporation may from time to time determine,
shall render to the president and the board of directors, whenever they request
it, an account of all his transactions as treasurer and of the financial
condition of the corporation, and shall perform such further duties as the
board of directors may require.
Section 8. It shall be the duty of the assistant treasurers
to assist the treasurer in the performance of his duties and generally to
perform such other duties as may be delegated to them by the board of
directors.
ARTICLE VI
Miscellaneous
Record Date
Section 1. The board of directors may fix a time in the
future as a record date for the determination of the shareholders entitled to
notice of and to vote at any meeting of shareholders or entitled to give
consent to corporate action in writing without a meeting, to receive any
report, to receive any dividend or distribution, or any allotment of rights, or
to exercise rights in respect of any change, conversion, or exchange of shares.
The record date so fixed shall be not more than sixty (60) days nor less than
ten (10) days prior to the date of any
<PAGE> 23
meeting, nor more than sixty (60) days prior to any other event for the
purposes of which it is fixed. When a record date is so fixed, only
shareholders of record at the close of business on that date are entitled to
notice of and to vote at any such meeting, to give consent without a meeting,
to receive any report, to receive a dividend, distribution, or allotment of
rights, or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date,
except as otherwise provided by statute or in the articles of incorporation or
by-laws.
If the board of directors does not so fix a record date:
(a) The record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(b) The record date for determining shareholders
entitled to give consent to corporate action in writing
without a meeting, when no prior action by the board has been
taken, shall be the day on which the first written consent is
given.
(c) The record date for determining shareholders for
any other purpose shall be at the close of business on the day
on which the board adopts the resolution relating thereto, or
the sixtieth (60th) day prior to the date of such other
action, whichever is later.
Inspection of Corporate Records
Section 2. The accounting books and records, the record of
shareholders, and minutes of proceedings of the shareholders and the board and
committees of the board of this corporation and any subsidiary of this
corporation shall be open to inspection upon the written demand on the
corporation of any shareholder or holder of a voting trust certificate at any
reasonable time during usual business hours, for a purpose reasonably related
to such holder's interests as a shareholder or as the holder of such voting
trust certificate. Such inspection by a shareholder or holder of a voting
trust certificate may be made in person or by agent or attorney, and the right
of inspection includes the right to copy and make extracts.
A shareholder or shareholders holding at least five percent
(5%) in the aggregate of the outstanding voting shares of the corporation or
who hold at least one percent (1%) of such voting shares and have filed a
Schedule 14B with the United States Securities and Exchange Commission relating
to the election of directors of the corporation shall have (in person, or by
agent or attorney) the right to inspect and copy the record of shareholders'
names and addresses and shareholdings during usual business hours upon five (5)
business days' prior written demand upon the corporation and to obtain from the
transfer agent for the corporation, upon, written demand and upon the tender of
its usual charges, a list of the shareholders' names and addresses, who are
entitled to vote for the election of directors, and their shareholdings, as of
the most recent record date for which it has been compiled or as of a date
specified by the shareholder subsequent to the date of demand. The list shall
be made available on or before the later of five
<PAGE> 24
(5) business days after the demand is received or the date specified therein as
the date as of which the list is to be compiled.
Every director shall have the absolute right at any reasonable
time to inspect and copy all books, records and documents of every kind and to
inspect the physical properties of the corporation and its subsidiary
corporations. Such inspection by a director may be made in person or by agent
or attorney and the right of inspection includes the right to copy and make
extracts.
Certificates for Shares
Section 3. Every holder of shares in the corporation shall be
entitled to have a certificate signed in the name of the corporation by the
chairman or vice chairman of the board or the president or a vice president and
by the treasurer or an assistant treasurer or the secretary or any assistant
secretary, certifying the number of shares and the class or series of shares
owned by the shareholder. Any or all of the signatures on the certificate may
be facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if such
person were an officer, transfer agent or registrar at the date of issue.
If the shares of the corporation are classified or if any
class of shares has two or more series, there shall appear on the certificate
one of the following:
(a) A statement of the rights, preferences,
privileges and restrictions granted to or imposed upon each
class or series of shares authorized to be issued and upon the
holders thereof.
(b) A summary of such rights, preferences,
privileges and restrictions with reference to the provisions
of the articles and any certificates of determination
establishing the same.
(c) A statement setting forth the office or
agency of the corporation from which shareholders may obtain,
upon request and without charge, a copy of the statement
referred to in subdivision (a).
There shall also appear on the certificate (unless summarized
under subparagraphs (a) or (b) above) the statements required by all of the
following clauses to the extent applicable:
(a) The fact that the shares are subject to
restrictions upon transfer.
(b) If the shares are assessable or are not
fully paid, a statement that they are assessable or the
statements required by subdivision (d) of Section 409 of the
General Corporation Law if they are not fully paid.
<PAGE> 25
(c) The fact that the shares are subject to a
voting agreement under subdivision (a) of Section 706 or an
irrevocable proxy under subdivision (e) of Section 705 of the
General Corporation Law or restrictions upon voting rights
contractually imposed by the corporation.
(d) The fact that the shares are redeemable.
(e) The fact that the shares are convertible
and the period for conversion.
Any such statement or reference thereto required by
subparagraphs (a) or (b) above shall appear conspicuously on the face of the
certificate.
Any such certificate shall also contain such legend or other
statement as may be required by the California Corporate Securities Law of
1968, the Federal securities laws, and any agreement between the corporation
and the issuee thereof.
Certificates for shares may be issued prior to full payment
under such restrictions and for such purposes as the board of directors or the
by-laws may provide; provided, however, that any such certificate so issued
prior to full payment shall state on the face thereof the amount remaining
unpaid and the terms of payment, thereof.
No new certificate for shares shall be issued in lieu of an
old certificate unless the latter is surrendered and cancelled at the same
time; provided, however, that a new certificate will be issued without the
surrender and cancellation of the old certificate if (a) the old certificate
is lost, apparently destroyed or wrongfully taken; (b) the request for the
issuance of the new certificate is made within a reasonable time after the
owner of the old certificate has notice of its loss, destruction or theft; (c)
the request for the issuance of a new certificate is made prior to the receipt
of notice by the corporation that the old certificate has been acquired by a
bona fide purchaser; (d) the owner of the old, certificate files a sufficient
indemnity bond with or provides other adequate security to the corporation; and
(e) the owner satisfies any other reasonable requirements imposed by the
corporation. In the event of the issuance of a new certificate, the rights and
liabilities of the corporation, and of the, holders of the old and new
certificates, shall be governed by the provisions of Sections 8104 and 8405 of
the California Commercial Code.
Representation of Shares of Other Corporations
Section 4. The president or any vice president or the
secretary or any assistant secretary of this corporation is authorized to vote,
represent and exercise on behalf of this corporation all rights incident to any
and all shares of any other corporation or corporations standing in the name of
this corporation. The authority herein granted to said officers to vote or
represent on behalf of this corporation any and all shares held by this
corporation in any other corporation or corporations may be exercised either by
such officers in person or by any other person authorized so to do by proxy or
power of attorney duly executed by said officers.
Inspection of By-laws
Section 5. The corporation shall keep in its principal
executive office in California, or if its principal executive office is not in
California, then at its principal business office in California (or otherwise
provide upon written request of any shareholder), the original or a copy of the
by-laws as amended to date, certified by the secretary, which shall be open to
inspection by the shareholders at all reasonable times during office hours.
<PAGE> 26
Construction and Definitions
Section 6. Unless the context otherwise requires, the general
provisions, rules of construction and definitions contained in the General
Corporation Law shall govern the construction of these by-laws. Without
limiting the generality of the foregoing, the masculine gender includes the
feminine and neuter, the singular number includes the plural and the plural
number includes the singular, and the term "person" includes a corporation as
well as a natural person.
ARTICLE VII
Corporate Loans and Guarantees
Section 1. The provisions contained in this Article VII set
forth the terms and conditions by which the corporation may make a loan or
guaranty to the officers and directors of the corporation except as otherwise
permitted or limited by the General Corporation Law or any other applicable
law.
Section 2. The corporation shall not make any loan of money
or property to, or guarantee the obligation of, any director or officer of the
corporation, unless the transaction or an employee benefit plan authorizing
such loans or guaranties, after disclosure of the right under such a plan to
include officers or directors, is approved by (a) the shareholders, with the
shares owned by the director or officer, or by the directors or officers then
eligible to participate in such plan, not being entitled to vote thereon, or
(b) the unanimous vote of the shareholders.
Section 3. The corporation shall not make any loan of money
or property to, or guarantee the obligation of, any person upon the security of
shares of the corporation or of its parent, unless the loan or guaranty is (a)
otherwise adequately secured, (b) made pursuant to an employee benefit plan
permitted, by Section 408 of the General Corporation Law, (c) approved by the
shareholders with the shares owned by the borrower not entitled to vote, or (d)
approved by unanimous vote of the shareholders.
Section 4. Notwithstanding anything to the contrary contained
in Section 2 of this Article VII, the corporation may advance money to a
director or officer of the corporation for any expenses reasonably anticipated
to be incurred in the performance of the duties of such director or officer,
provided that in the absence of such advance, such director or officer would be
entitled to be reimbursed for such expenses by such corporation, its parent or
any subsidiary.
Section 5. The provisions of Section 2 of this Article VII do
not apply to the payment of premiums in whole or in part by the corporation on
a life insurance policy on the life of a director or officer of the corporation
so long as repayment to the corporation of the amount paid by it is secured by
the proceeds of the policy and its cash surrender value.
<PAGE> 27
ARTICLE VIII
Amendments
Section 1. New by-laws may be adopted or these by-laws may be
amended or repealed by the affirmative vote or written consent of a majority of
the outstanding shares entitled to vote, except as otherwise provided by law or
by the articles of incorporation or these by-laws.
Section 2. Subject to the right of shareholders as provided
in Section 1 of this Article to adopt, amend or repeal by-laws, and except as
otherwise provided by law or by the articles of incorporation, by-laws (other
than a by-law or amendment thereof changing the authorized number of
directors), may be adopted, amended or repealed by the board of directors.
ARTICLE IX
Annual and Other Reports
Section 1.
(a) So long as the corporation shall have fewer than one
hundred shareholders of record (determined as provided in Section 605 of the
General Corporation Law), the requirement of Section 1501(a) of said law that
an annual report be sent to the shareholders is expressly waived.
(b) Notwithstanding subdivision (a) of this Section, the
corporation shall, upon the written request of any shareholder made more than
one hundred twenty (120) days after the close of a fiscal year, deliver or mail
to the person making the request, within thirty (30) days thereafter, the
financial statements required by Section 1501(a) of the General Corporation
Law.
Section 2. A shareholder or shareholders holding at least
five percent (5%) of the outstanding shares of any class of the corporation may
make a written request to the corporation for an income statement of the
corporation for the three-month, six-month or nine-month period of the current
fiscal year ended more than thirty (30) days prior to the date of the request
and a balance sheet of the corporation as of the end of such period and, in
addition, if no annual report for the last fiscal year has been sent to
shareholders, the statements referred to in Section 1501(a) of the General
Corporation Law for the last fiscal year. The corporation shall deliver or
mail the statements to the person making the request within thirty (30) days
thereafter. A copy of any such statements shall be kept on file in the
principal executive office of the corporation for twelve (12) months and they
shall be exhibited at all reasonable times to any shareholder demanding an
examination of them or a copy shall be mailed to such shareholder. The
quarterly income statements and balance sheets referred to in this Section
shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that such financial statements were prepared without
audit from the books and records of the corporation.
<PAGE> 1
EXHIBIT 3.2(b)
B Y L A W S
OF
HESKA MERGER CORPORATION
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1: Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Principal Office. . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Additional Offices. . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2: Meeting of Stockholders . . . . . . . . . . . . . . . . . . . . 1
2.1 Place of Meeting. . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Annual Meeting. . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . 1
2.4 Action Without a Meeting. . . . . . . . . . . . . . . . . . . 1
2.5 Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . 2
2.6 Business Matter of a Special Meeting. . . . . . . . . . . . . 2
2.7 List of Stockholders. . . . . . . . . . . . . . . . . . . . . 2
2.8 Organization and Conduct of Business. . . . . . . . . . . . . 3
2.9 Quorum and Adjournments. . . . . . . . . . . . . . . . . . . . 3
2.10 Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . 3
2.11 Majority Vote. . . . . . . . . . . . . . . . . . . . . . . . 3
2.12 Record Date for Stockholder Notice and Voting. . . . . . . . 3
2.13 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.14 Inspectors of Election. . . . . . . . . . . . . . . . . . . . 4
ARTICLE 3: Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Number; Qualifications. . . . . . . . . . . . . . . . . . . . 5
3.2 Resignation and Vacancies. . . . . . . . . . . . . . . . . . . 5
3.3 Removal of Directors. . . . . . . . . . . . . . . . . . . . . 5
3.4 Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . 5
3.6 Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . 5
3.7 Regular Meetings. . . . . . . . . . . . . . . . . . . . . . . 5
3.8 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . 6
3.9 Quorum and Adjournments. . . . . . . . . . . . . . . . . . . . 6
3.10 Action Without Meeting. . . . . . . . . . . . . . . . . . . . 6
3.11 Telephone Meetings. . . . . . . . . . . . . . . . . . . . . . 6
3.12 Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . . 6
3.13 Fees and Compensation of Directors. . . . . . . . . . . . . . 6
3.14 Rights of Inspection. . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 4: Committees of Directors . . . . . . . . . . . . . . . . . . . . 7
4.1 Selection. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Power. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Committee Minutes. . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 5: Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Officers Designated. . . . . . . . . . . . . . . . . . . . . . 8
5.2 Appointment of Officers. . . . . . . . . . . . . . . . . . . . 8
5.3 Subordinate Officers. . . . . . . . . . . . . . . . . . . . . 8
5.4 Removal and Resignation of Officers. . . . . . . . . . . . . . 8
5.5 Vacancies in Offices. . . . . . . . . . . . . . . . . . . . . 8
5.6 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 The Chairman of the Board. . . . . . . . . . . . . . . . . . . 8
5.8 The President. . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 The Vice President. . . . . . . . . . . . . . . . . . . . . . 9
5.10 The Secretary. . . . . . . . . . . . . . . . . . . . . . . . 9
5.11 The Assistant Secretary. . . . . . . . . . . . . . . . . . . 9
5.12 The Chief Financial Officer. . . . . . . . . . . . . . . . . 10
ARTICLE 6: Stock Certificates . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Certificates for Shares. . . . . . . . . . . . . . . . . . . . 10
6.2 Signatures on Certificates. . . . . . . . . . . . . . . . . . 10
6.3 Transfer of Stock. . . . . . . . . . . . . . . . . . . . . . . 10
6.4 Registered Stockholders. . . . . . . . . . . . . . . . . . . . 10
6.5 Lost, Stolen or Destroyed Certificates. . . . . . . . . . . . 11
ARTICLE 7: General Provisions . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Dividend Reserve. . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Checks. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Corporate Seal. . . . . . . . . . . . . . . . . . . . . . . . 11
7.5 Execution of Corporate Contracts and Instruments. . . . . . . 11
ARTICLE 8: Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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<PAGE> 4
B Y L A W S
OF
HESKA MERGER CORPORATION
(A DELAWARE CORPORATION)
ARTICLE 1
Offices
1.1 Principal Office. The initial registered office of the Corporation
shall be 1209 Orange Street, Wilmington, DE, and the name of the initial
registered agent in charge thereof is The Corporation Trust Company.
1.2 Additional Offices. The Corporation may also have offices at such
other places, either within or without the State of Delaware, as the Board of
Directors (the "Board") may from time to time designate or the business of the
Corporation may require.
ARTICLE 2
Meeting of Stockholders
2.1 Place of Meeting. Meetings of stockholders may be held at such
place, either within or without of the State of Delaware, as may be designated
by or in the manner provided in these Bylaws, or, if not so designated, at the
registered office of the corporation or the principal executive offices of the
corporation.
2.2 Annual Meeting. Annual meetings of stockholders shall be held each
year at such date and time as shall be designated from time to time by the
Board and stated in the notice of the meeting. At such annual meetings, the
stockholders shall elect a Board and transact such other business as may
properly be brought before the meetings.
2.3 Special Meetings. Special meetings of the stockholders may be
called for any purpose or purposes, unless otherwise prescribed by the statute
or by the Certificate of Incorporation, at the request of the Chairman, the
Board of Directors, the President or by the holders of shares entitled to cast
not less than 10% of the votes at such meeting. Such request shall state the
purpose or purposes of the proposed meeting.
2.4 Action Without a Meeting. Any action which may be taken at any
annual or special meeting of the stockholders of this corporation may be taken
without a meeting, without prior notice, and without a vote, if a consent or
consents in writing, setting forth the action or actions so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting
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<PAGE> 5
at which all shares entitled to vote thereon were present and voted. Such
consent or consents shall be delivered to the corporation by hand or certified
mail, return receipt requested, to its principal executive office, or to an
officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded.
2.5 Notice of Meetings. Written notice of stockholders' meetings,
stating the place, date and time of the meeting and, in the case of a special
meeting, the purpose or purposes for which such special meeting is called,
shall be given to each stockholder entitled to vote at such meeting not less
than ten (10) nor more than sixty (60) days prior to the meeting.
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, however, that if the date of any adjourned meeting is more than
thirty (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. At any adjourned meeting, any business may be transacted which might
have been transacted at the original meeting.
Whenever, under the provisions of Delaware law or of the Certificate of
Incorporation or of these Bylaws, notice is required to be given to any
stockholder it shall not be construed to mean personal notice, but such notice
may be given in writing, by mail, addressed to such director or stockholder, at
his or her address as it appears on the records of the Corporation, with
postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail.
Whenever any notice is required to be given under the provisions of
Delaware law or of the Certificate of Incorporation or of these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
2.6 Business Matter of a Special Meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice, except to the extent such notice is waived or is not required.
2.7 List of Stockholders. The officer in charge of the stock ledger of
the Corporation or the transfer agent shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, at a place
within the city where the meeting is to be held, which place, if other than the
place of the meeting, shall be specified in the notice of the meeting. The
list shall also be produced and kept at the place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present in
person thereat.
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<PAGE> 6
2.8 Organization and Conduct of Business. The Chairman of the Board
or, in his or her absence, the President of the Corporation or, in their
absence, such person as the Board may have designated or, in the absence of
such a person, 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 call to
order any meeting of the stockholders and 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 appoints.
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 seems to him or her in order.
2.9 Quorum and Adjournments. Except where otherwise provided by law or
the Certificate of Incorporation or these Bylaws, the holders of a majority of
the stock issued and outstanding and entitled to vote, present in person or
represented in proxy, shall constitute a quorum at all meetings of the
stockholders. The stockholders present at a duly called or held meeting at
which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to have less than a
quorum if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum. At such adjourned
meeting at which a quorum is present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If, however, a quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat who are
present in person or represented by proxy shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented.
2.10 Voting Rights. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.
2.11 Majority Vote. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the Certificate of Incorporation or of these Bylaws, a different vote is
required in which case such express provision shall govern and control the
decision of such question.
2.12 Record Date for Stockholder Notice and Voting.
(i) For purposes of determining the stockholders entitled to notice
of any meeting or to vote, or entitled to receive payment of any
dividend or other distribution, or entitled to exercise any right in
respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than sixty (60) days nor less than
ten (10) days before the date of any such meeting nor more than sixty
(60) days before any other action. If the Board does not so fix a
record
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<PAGE> 7
date, 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 business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business
day next preceding the day on which the meeting is held.
(ii) For purposes of determining the stockholders entitled to consent
to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten (10) days after the
date upon which the resolution fixing sch record date is adopted by the
board of directors. If no record date has been fixed by the board of
directors, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior
action by the board of directors is required under Delaware law, shall
be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by
hand or certified mail, return receipt requested, to its principal
executive office, or to an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. If no record date has been fixed by the board of directors
and prior action by the board of directors is required under Delaware
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be the close of
business on the day on which the board of directors adopts the
resolution taking such prior action.
2.13 Proxies. Every person entitled to vote for directors or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the Corporation. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by
a writing delivered to the Corporation stating that the proxy is revoked or by
a subsequent proxy executed by, or attendance at the meeting and voting in
person by, the person executing the proxy; or (ii) written notice of the death
or incapacity of the maker of that proxy is received by the Corporation before
the vote pursuant to that proxy is counted; provided, however, that no proxy
shall be valid after the expiration of three years from the date of the proxy,
unless otherwise provided in the proxy.
2.14 Inspectors of Election. The corporation shall, in advance of any
meeting of stockholders, appoint one or more inspectors of election to act at
the meeting and make a written report thereof. The corporation may designate
one or more persons to act 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 shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or
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<PAGE> 8
her duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability.
ARTICLE 3
Directors
3.1 Number; Qualifications. The Board shall consist of not less than
five (5) members nor more than nine (9) members, the exact number thereof to be
determined from time to time by resolution of the Board. At each annual
meeting of the stockholders, directors shall be elected for that class of
directors whose terms are then expiring, except as provided in Section 3.2, and
each director so elected shall hold office until his or her successor is
elected and qualified or until his or her earlier resignation or removal.
Directors need not be stockholders.
3.2 Resignation and Vacancies. A vacancy or vacancies in the Board
shall be deemed to exist in the case of the death, resignation or removal of
any director, or if the authorized number of directors be increased. Vacancies
may be filled by a majority of the remaining directors, though less than a
quorum, or by a sole remaining director, unless otherwise provided in the
Certificate of Incorporation. The stockholders may elect a director or
directors at any time to fill any vacancy or vacancies not filled by the
directors. If the Board accepts the resignation of a director tendered to take
effect at a future time, the Board shall have power to elect a successor to
take office when the resignation is to become effective. If there are no
directors in office, then an election of directors may be held in the manner
provided by statute.
3.3 Removal of Directors. Unless otherwise restricted by statute, the
Certificate of Incorporation or these Bylaws, any director or the entire Board
may be removed, with or without cause, by the holders of at least a majority of
the shares entitled to vote at an election of directors.
3.4 Powers. The business of the Corporation shall be managed by or
under the direction of the Board which may exercise all such powers of the
Corporation and do all such lawful acts and things which are not by statute or
by the Certificate of Incorporation or by these Bylaws directed or required to
be exercised or done by the stockholders.
3.5 Place of Meetings. The Board may hold meetings, both regular and
special, either within or without the State of Delaware.
3.6 Annual Meetings. The annual meetings of the Board shall be held
immediately following the annual meeting of stockholders, and no notice of such
meeting shall be necessary to the Board, provided a quorum shall be present.
The annual meetings shall be for the purposes of organization, and an election
of officers and the transaction of other business.
3.7 Regular Meetings. Regular meetings of the Board may be held
without notice at such time and place as may be determined from time to time by
the Board.
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<PAGE> 9
3.8 Special Meetings. Special meetings of the Board may be called by
the Chairman of the Board, the President, a Vice President or a majority of the
Board upon one (1) day's notice to each director and can be delivered either
personally, or by telephone, express delivery service (so that the scheduled
delivery date of the notice is at least one (1) day in advance of the meeting),
telegram or facsimile transmission, and on five (5) day's notice, by mail. The
notice need not describe the purpose of the special meeting.
3.9 Quorum and Adjournments. At all meetings of the Board, a majority
of the directors then in office shall constitute a quorum for the transaction
of business, and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board, except as may
otherwise be specifically provided by law or the Certificate of Incorporation.
If a quorum is not present at any meeting of the Board, the directors present
may adjourn the meeting from time to time, without notice other than
announcement at the meeting at which the adjournment is taken, until a quorum
shall be present. A meeting at which a quorum is initially present may
continue to transact business notwithstanding the withdrawal of directors, if
any action taken is approved of by at least a majority of the required quorum
for that meeting.
3.10 Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be
taken without a meeting, if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
3.11 Telephone Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any member of the Board or any
committee may participate in a meeting 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 in a meeting shall
constitute presence in person at the meeting.
3.12 Waiver of Notice. Notice of a meeting need not be given to any
director who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
3.13 Fees and Compensation of Directors. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, the Board shall have the
authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board and may be
paid a fixed sum for attendance at each meeting of the Board or a stated salary
as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for
attending committee meetings.
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<PAGE> 10
3.14 Rights of Inspection. Any director shall have the right to
examine the corporation's stock ledger, a list of its stockholders and its
other books and records for a purpose reasonably related to his or her position
as a director.
ARTICLE 4
Committees of Directors
4.1 Selection. The Board may, by resolution passed by a majority of
the entire Board, designate one or more committees, each committee to consist
of one or more of the directors of the Corporation. The Board may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may unanimously
appoint another member of the Board to act at the meeting in the place of any
such absent or disqualified member.
4.2 Power. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation (except
that a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board as provided
in Section 151(a) of the General Corporation Law of Delaware, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of dissolution, removing or
indemnifying directors or amending the Bylaws of the Corporation; and, unless
the resolution or the Certificate of Incorporation expressly so provides, no
such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of ownership and
merger. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board.
4.3 Committee Minutes. Each committee shall keep regular minutes of
its meetings and report the same to the Board when required.
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ARTICLE 5
Officers
5.1 Officers Designated. The officers of the Corporation shall be
chosen by the Board and shall be a President, a Secretary and a Chief Financial
Officer. The Board may also choose a Chairman of the Board, one or more Vice
Presidents, and one or more assistant Secretaries. Any number of offices may
be held by the same person, unless the Certificate of Incorporation or these
Bylaws otherwise provide.
5.2 Appointment of Officers. The officers of the Corporation, except
such officers as may be appointed in accordance with the provisions of Section
5.3 or 5.5 of this Article 5, shall be chosen in such manner and shall hold
their offices for such terms as are prescribed by these Bylaws or determined by
the board of directors. Each officer shall hold his or her office until his or
her successor is elected and qualified or until his or her earlier resignation
or removal. This section does not create any rights of employment or continued
employment. The corporation may secure the fidelity of any or all of its
officers or agents by bond or otherwise.
5.3 Subordinate Officers. The Board may appoint, and may empower the
President to appoint, such other officers and agents as the business of the
Corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the Bylaws or as the
Board may from time to time determine.
5.4 Removal and Resignation of Officers. Subject to the rights, if
any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by an affirmative vote of the majority
of the Board, at any regular or special meeting of the Board, or, except in
case of an officer chosen by the Board, by any officer upon whom such power of
removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
5.5 Vacancies in Offices. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in these Bylaws for regular appointment to that office.
5.6 Compensation. The salaries of all officers of the Corporation
shall be fixed from time to time by the Board and no officer shall be prevented
from receiving a salary because he is also a director of the Corporation.
5.7 The Chairman of the Board. The Chairman of the Board, if such an
officer be elected, shall, if present, perform such other powers and duties as
may be assigned to him from time to time by the Board. If there is no
President, the Chairman of the Board shall also be
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<PAGE> 12
the Chief Executive Officer of the Corporation and shall have the powers and
duties prescribed in Section 5.8 of this Article 5.
5.8 The President. Subject to such supervisory powers, if any, as may
be given by the Board to the Chairman of the Board, if there be such an
officer, the President shall be the Chief Executive Officer of the Corporation,
shall preside at all meetings of the stockholders and in the absence of the
Chairman of the Board, or if there be none, at all meetings of the Board, shall
have general and active management of the business of the Corporation and shall
see that all orders and resolutions of the Board are carried into effect. He
or she shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board to some other officer or
agent of the Corporation.
5.9 The Vice President. The Vice President (or in the event there be
more than one, the Vice Presidents in the order designated by the directors, or
in the absence of any designation, in the order of their election), shall, in
the absence of the President or in the event of his or her disability or
refusal to act, perform the duties of the President, and when so acting, shall
have the powers of and subject to all the restrictions upon the President. The
Vice President(s) shall perform such other duties and have such other powers as
may from time to time be prescribed for them by the Board, the President, the
Chairman of the Board or these Bylaws.
5.10 The Secretary. The Secretary shall attend all meetings of the
Board and the stockholders and record all votes and the proceedings of the
meetings in a book to be kept for that purpose and shall perform like duties
for the standing committees, when required. The Secretary shall give, or cause
to be given, notice of all meetings of stockholders and special meetings of the
Board, and shall perform such other duties as may from time to time be
prescribed by the Board, the Chairman of the Board or the President, under
whose supervision he or she shall act. The Secretary shall have custody of the
seal of the Corporation, and the Secretary, or an Assistant Secretary, shall
have authority to affix the same to any instrument requiring it, and, when so
affixed, the seal may be attested by his or her signature or by the signature
of such Assistant Secretary. The Board may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing thereof
by his or her signature. The Secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the Corporation's transfer agent
or registrar, as determined by resolution of the Board, a share register, or a
duplicate share register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date
of certificates issued for the same and the number and date of cancellation of
every certificate surrendered for cancellation.
5.11 The Assistant Secretary. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order designated by the Board
(or in the absence of any designation, in the order of their election) shall,
in the absence of the Secretary or in the event of his or her inability or
refusal to act, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board.
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5.12 The Chief Financial Officer. The Chief Financial Officer shall
have the custody of the Corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board. The Chief Financial Officer shall disburse the funds of the
Corporation as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the President and the Board, at its regular
meetings, or when the Board so requires, an account of all his or her
transactions as Chief Financial Officer and of the financial condition of the
Corporation.
ARTICLE 6
Stock Certificates
6.1 Certificates for Shares. The shares of the Corporation shall be
represented by certificates or shall be uncertificated. Certificates shall be
signed by, or in the name of the Corporation by, the Chairman of the Board, or
the President or a Vice President and by the Chief Financial Officer, or the
Secretary or an Assistant Secretary of the Corporation.
Within a reasonable time after the issuance or transfer of
uncertificated stock, the Corporation shall send to the registered owner
thereof a written notice containing the information required by the General
Corporation Law of the State of Delaware or a statement that the Corporation
will furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
6.2 Signatures on Certificates. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
6.3 Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate of shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Upon receipt of proper transfer instructions from
the registered owner of uncertificated share, such uncertificated shares shall
be canceled and issuance of new equivalent uncertificated shares or
certificated shares shall be made to the person entitled thereto and the
transaction shall be recorded upon the books of the Corporation.
6.4 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a percent registered on
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<PAGE> 14
its books as the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
6.5 Lost, Stolen or Destroyed Certificates. The Board may direct that
a new certificate or certificates be issued to replace any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing the issue of a new certificate or certificates, the Board may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of the lost, stolen or destroyed certificate or certificates, or his
or her legal representative, to advertise the same in such manner as it shall
require, and/or to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
ARTICLE 7
General Provisions
7.1 Dividends. Dividends upon the capital stock of the Corporation,
subject to any restrictions contained in the General Corporation Laws of
Delaware or the provisions of the Certificate of Incorporation, if any, may be
declared by the Board at any regular or special meeting. Dividends may be paid
in cash, in property or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation.
7.2 Dividend Reserve. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest
of the Corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
7.3 Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board may from time to time designate.
7.4 Corporate Seal. The Board may provide a suitable seal, containing
the name of the Corporation, which seal shall be in charge of the Secretary.
If and when so directed by the Board or a committee thereof, duplicates of the
seal may be kept and used by the Chief Financial Officer or by any Assistant
Secretary.
7.5 Execution of Corporate Contracts and Instruments. The Board,
except as otherwise provided in these Bylaws, may authorize any officer or
officers, or agent or agents, to enter into
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any contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board or within the agency power of an
officer, no officer, agent or employee shall have any power or authority to
bind the Corporation by any contract or engagement or to pledge its credit or
to render it liable for any purpose or for any amount.
ARTICLE 8
Amendments
These Bylaws may be altered, amended or repealed, or new Bylaws may be
adopted, by the Board of Directors, or by the affirmative vote of the holders
of a majority of the outstanding shares entitled to vote on such matters.
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EXHIBIT 4.2
FIRST AMENDED INVESTORS' RIGHTS AGREEMENT
This First Amended Investors' Rights Agreement is made and
entered into as of April 12, 1996 by and among HESKA CORPORATION (the
"Company") (formerly Paravax, lnc.), the holders of capital stock or warrants
to purchase capital stock of the Company identified on Schedule A and Schedule
B attached hereto (the "Investors") and CIBA-GEIGY LIMITED (the "Purchaser").
The Investors and the Purchaser are sometimes collectively referred to as the
"Shareholders".
RECITALS:
A. The Company will issue and sell to the Purchaser an
aggregate of 3,000,000 shares of Series F Preferred Stock pursuant to a Series
F Preferred Stock Purchase Agreement of even date herewith (the "Series F
Agreement").
B. The Purchaser has required that certain registration
rights be granted to them with respect to the securities of the Company to be
acquired.
C. The Investors hold shares of Series A, Series B, Series
C, Series D and Series E Preferred Stock of the Company, or warrants to
purchase Series C and Series D Preferred Stock of the Company entitled to
certain registration rights and rights regarding receipt of information
pursuant to the terms of an Investors' Rights Agreement dated as of March 31,
1995 (the "Original Agreement"). The Investors hereby agree that all such
rights under the Original Agreement are hereby amended and superseded by the
rights provided under this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the
mutual promises and covenants contained herein, the parties agree as follows:
1. Integration and Transaction with Diamond.
1.1 Integration. Effective upon the execution of this
Agreement by the Investors holding a majority of the Registrable Securities, as
such term was defined in the Original Agreement, and the closing of the sale
and issuance of Series F Preferred Stock pursuant to the Series F Agreement,
and subject only to the conditions set forth therein, all rights and covenants
contained in the Original Agreement shall be amended and replaced in their
entirety by the rights and covenants in this Agreement. The rights and
covenants of this Agreement set forth the sole and entire agreement among the
Company, the
<PAGE> 2
Investors and the Purchasers on the subject matter hereof and supersede any
prior agreements.
1.2 Transaction With Diamond. The parties agree that
shareholders of Diamond Animal Health, Inc. ("Diamond") who become holders of
Series E Preferred Stock of the Company pursuant to a planned acquisition of
the shares of Diamond may become parties to this Agreement by executing a
counterpart signature page, and all such shareholders shall be Shareholders and
their shares of Series E Preferred Stock shall be Registrable Securities for
all purposes of this Agreement.
2. Restrictions on Transfer Registration Rights.
2.1 Definitions. As used herein:
(a) The terms "register", "registered" and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act of 1 933, as
amended (the "Securities Act"), and the declaration or ordering of the
effectiveness of such registration statement.
(b) For the purposes hereof, the term "Registrable
Securities" means shares of (i) any and all Common Stock of the Company issued
or issuable upon conversion of shares of the Series A, Series B, Series C,
Series D, Series E or Series F Preferred Stock of the Company, which have not
been previously resold to the public in a registered public offering, including
shares of Common Stock issuable upon conversion of Series C and Series D
Preferred Stock issuable upon exercise of warrants as listed in Schedule A
hereto (the "Warrants") issued to Dominion Ventures, Inc., (ii) stock issued
with respect to or in any exchange for or in replacement of stock included in
subparagraph (i) above which have not been previously resold to the public in a
registered public offering, and (iii) stock issued in respect of the stock
referred to in (i) and (ii) above as a result of a stock split, stock dividend
or the like, which have not been previously resold to the public in a
registered public offering.
(c) The terms "Holder" or "Holders" mean any person
or persons to whom Registrable Securities were originally issued and who
execute this Agreement or qualifying transferees under Section 5 hereof who
hold Registrable Securities.
(d) The term "Initiating Holders" means any Holder
or Holders of in the aggregate at least 35% of the Registrable Securities which
have not been previously resold to the public in a registered public offering.
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<PAGE> 3
2.2 Requested Registration.
(a) Request for Registration. In case the Company
shall receive from the Initiating Holders a written request that the Company
effect any registration with respect to Registrable Securities the reasonably
expected aggregate offering price of which equals or exceeds $5,000,000
including underwriting discounts and commissions, the Company will:
(i) within ten (10) days after its receipt
thereof give written notice of the proposed registration to all other Holders;
and
(ii)as soon as practicable, use its best
efforts to effect such registration (including, without limitation, preparation
of a registration statement and prospectus complying as to form with the
requirements of the Securities Act, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under the applicable blue
sky or other state securities laws and appropriate compliance with exemptive
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as is specified in such request, together with
all or such portion of the Registrable Securities of any Holder or Holders
joining in such request as are specified in a written request given within 20
days after receipt of such written notice from the Company;
provided, that the Company shall not be obligated to take any action to effect
such registration pursuant to this Section 2.2:
(A) Prior to the earlier of (1) June
30, 1 998, or (2) one hundred and eighty (180) days following the effective
date of the Company's first registered offering to the general public of its
securities for its own account; or
(B) In any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration unless the Company is already subject to
service in such jurisdiction and except as may be required by the Securities
Act; or
(C) After the Company has effected
two such registrations pursuant to this subsection 2.2(a) and such
registrations have been declared or ordered effective.
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<PAGE> 4
Subject to the foregoing clauses (A) through (C), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practical, but in any event within ninety (90) days after
receipt of the request or requests of the Initiating Holders; provided,
however, that if the Company shall furnish to such Holders a certificate signed
by the President or Chief Executive Officer of the Company stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to the Company for such registration statement to be filed at the date filing
would be required and it is therefore essential to defer the filing of such
registration statement, the Company shall be entitled to delay the filing of
such registration statement not more than once in any twelve month period for
an additional period of up to ninety (90) days.
(b) Underwriting. If the Initiating Holders intend
to distribute the Registrable Securities covered by their request by means of
an underwriting, they shall so advise the Company as a part of their request
made pursuant to Section 2.2 and the Company shall include such information in
the written notice referred to in subsection 2.2(a)(i). The right of any Holder
to registration pursuant to Section 2.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders, provided, however, that the managing underwriter shall be approved by
the Company, which approval shall not be unreasonably withheld.
Notwithstanding any other provision of this Section 2.2, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, the lnitiating Holders
shall so advise all Holders of Registrable Securities who have elected to
participate in such offering, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all such Holders thereof in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders. If any Holder of Registrable Securities disapproves of the terms of
the underwriting, he may elect to withdraw therefrom by written notice to the
Company, the underwriter and the Initiating Holders. Any Registrable
Securities which are excluded from the underwriting by reason of the
underwriter's marketing limitation or withdrawn from such underwriting shall be
withdrawn from such registration. If the underwriter has not limited the
number of Registrable Securities to be underwritten, the Company,
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<PAGE> 5
employees of the Company and other holders of the Company's Common Stock may
include securities for its (or their) own account in such registration if the
underwriter so agrees and if the number of Registrable Securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited by the underwriter.
2.3 Company Registration.
(a) Right to Include. If at any time or from time
to time, the Company proposes to register any of its securities, for its own
account or the account of any of its shareholders other than the Holders,
(other than a registration relating solely to employee stock option or purchase
plans, or a registration relating solely to an SEC Rule 145 transaction, or a
registration on any other form, other than Form 5-1, S-2 or S-3, or any
successor to such form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities) the Company will:
(i) promptly give to each Holder written
notice thereof; and
(ii)include in such registration (and any
related qualification under blue sky laws or other compliance with applicable
laws), and in any underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made within 20 days after receipt
of such written notice from the Company, by any Holder or Holders to be
included in any such registration, except as set forth in subsection 2.3(b)
below.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to subsection 2.3(a)(i). In such event the right of any
Holder to registration pursuant to Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Section 2.3, if the underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the underwriter may
limit the number of Registrable Securities to be included in the registration
and underwriting (i) completely, in the case of the Company's initial public
offering, or (ii) to not less than 15% of the shares to be included in any
other registration. In the event of a cutback by the underwriters of the
number of Registrable Securities to be included in the registration and
underwriting, the Company shall advise all Holders of Registrable Securities
which would otherwise be registered and underwritten pursuant hereto, and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all of such Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders. If any Holder disapproves of the terms of any
such underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration. The Company
may not include, pursuant to contractual incidental registration rights or
otherwise, shares of Common Stock held by employees or consultants of the
Company or others in a registration statement pursuant to Section 2.3 if, and
to the extent that, the amount of Registrable
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<PAGE> 6
Securities held by other than employees or consultants that is otherwise
includable in such registration statement would thereby be diminished.
2.4 Form S-3. After its initial public offering, the
Company shall use its best efforts to qualify for registration on Form S-3 or
any comparable or successor form. After the Company has qualified for the use
of Form S-3, the Holders of the Registrable Securities shall have the right to
request an unlimited number of registrations on Form S-3 (such requests shall
be in writing and shall state the number of shares of Registrable Securities to
be disposed of and the intended method of disposition of Shares by such
Holders), subject only to the following:
(a) The Company shall not be required to effect a
registration pursuant to this Section 2.4 within 120 days of the effective date
of any registration referred to in Sections 2.2 or 2.3 above.
(b) The Company shall not be required to effect a
registration pursuant to this Section 2.4 unless the Holder or Holders
requesting registration propose to dispose of shares of Registrable Securities
having an aggregate disposition price (before deduction of underwriting
discounts and expenses of sale) of at least $750,000.
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<PAGE> 7
(c) The Company shall not be required to effect
more than two registrations pursuant to this Section 2.4 in any consecutive 1 2
month period.
The Company shall promptly give written notice to all Holders
of Registrable Securities of the receipt of a request for registration pursuant
to this Section 2.4 and shall provide a reasonable opportunity for other
Holders to participate in the registration, provided that if the registration
is for an underwritten offering, the terms of subsection 2.2(b) shall apply to
all participants in such offering. Subject to the foregoing, the Company will
use its best efforts to effect promptly the registration of all shares of
Registrable Securities on Form S-3 to the extent requested by the Holder or
Holders thereof for purposes of disposition; provided, however, that if the
Company shall furnish to such Holders a certificate signed by the President or
Chief Executive Officer of the Company stating that in the good faith judgement
of the Board of Directors it would be seriously detrimental to the Company for
such registration statement to be filed at the date filing would be required
and it is therefore essential to defer the filing of such registration
statement, the Company shall be entitled to delay the filing of such
registration statement for an additional period of up to ninety (90) days. Any
registration pursuant to this Section 2.4 shall not be counted as a
registration pursuant to Section 2.2.
2.5 Expenses of Registration. All expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 2, including without limitation, all registration, filing and
qualification fees, printing expenses, fees and disbursements of counsel for
the Company and one counsel for the selling Holders and expenses of any special
audits incidental to or required by such registration, shall be borne by the
Company except as follows:
(a) The Company shall not be required to pay for
expenses of any registration proceeding begun pursuant to Section 2.2 or 2.4,
the request for which has been subsequently withdrawn by the Initiating Holders
or Holders requesting registration, in which such case, such expenses shall be
borne by the Holders requesting such withdrawal; provided, however, that in
lieu of paying such expenses a majority in interest of the Initiating Holders
may elect to forfeit their right to request one registration pursuant to
Section 2.2; provided further, however, that if at the time of such withdrawal
the Holders have learned of a material adverse change in the business,
condition or prospects of the Company from that known to the Holders at the
time of their request and have withdrawn the request with reasonable promptness
following disclosure by the Company of such change, then the Holders shall not
be
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<PAGE> 8
required to pay any such expenses and shall retain their rights to such
registration pursuant to Section 2.2.
(b) With respect to any registration proceeding
pursuant to Section 2.4, the Company shall only be required to pay for expenses
of (i) two registrations requested by Charter Ventures and Charter Ventures II,
L.P., (ii) two registrations requested by Volendam lnvesteringen N.V., and
(iii) two registrations requested by the Purchaser, provided in each case that
such registrations have been declared or ordered effective.
(c) The Company shall not be required to pay fees
of legal counsel of a Holder except for a single counsel acting on behalf of
all selling Holders.
(d) The Company shall not be required to pay
underwriters' fees, discounts or commissions relating to the Registrable
Securities.
2.6 Registration Procedures. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Agreement, the Company will keep each Holder participating therein advised
in writing as to the initiation of each registration, qualification and
compliance and as to the completion thereof. At its expense the Company will:
(a) Keep such registration, qualification or
compliance pursuant to Sections 2.2, 2.3 or 2.4 effective for a period of 120
days or until the Holder or Holders have completed the distribution described
in the registration statement relating thereto, whichever first occurs;
(b) Furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them;
(c) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act or the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing;
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<PAGE> 9
(d) Use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such United States jurisdictions as shall be
reasonably requested by the Holders; provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act;
(e) Cause all such Registrable Securities
registered under this Section 2 to be listed on each securities exchange on
which similar securities issued by the Company are then listed;
(f) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering, and each Holder participating in such underwriting shall also enter
into and perform its obligations under such an agreement;
(g) Provide a transfer agent and registrar for all
Registrable Securities registered hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration; and
(h) Furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 2,
on the date that such Registrable Securities are delivered to the underwriters
for sale in connection with such registration, if such securities are being
sold through underwriters or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities, and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
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<PAGE> 10
2.7 Indemnification.
(a) The Company will indemnify and hold harmless each
Holder of Registrable Securities, each of its officers, directors and partners,
and each person controlling such Holder, with respect to which such
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter of the Registrable Securities held by or issuable to such Holder,
against all claims, losses, expenses, damages and liabilities (or actions in
respect thereto) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any preliminary or final
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation or
alleged violation by the Company relating to action or inaction required of the
Company in connection with the requirements of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any rule
or regulation promulgated under the Securities Act or any state securities law
applicable to the Company and will reimburse each such Holder, each of its
officers, directors and partners, and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such claim, loss, damage or liability arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company in an instrument duly executed by such Holder or
underwriter specifically for use therein, and provided further that the
agreement of the Company to indemnify any under writer and any person who
controls such underwriter contained herein with respect to any such preliminary
prospectus shall not inure to the benefit of any underwriter, from whom the
person asserting any such claim, loss, damage, liability or action purchased
the stock which is the subject thereof, if at or prior to the written
confirmation of the sale of such stock, a copy of the prospectus (or the
prospectus as amended or supplemented) was not sent or delivered to such
person, excluding the documents incorporated therein by reference, and the
untrue statement or omission of a material fact contained in such preliminary
prospectus was corrected in the prospectus (or the prospectus as amended or
supplemented).
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(b) Each Holder will, if Registrable Securities
held by or issuable to such Holder are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify and
hold harmless the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company within the meaning of the
Securities Act, and each other such Holder, each of its officers, directors and
partners and each person controlling such Holder, against all claims, losses,
expenses, damages and liabilities (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any preliminary or final prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, persons or underwriters for any reasonable legal or any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company in an
instrument duly executed by such Holder specifically for use therein, and
provided further that the agreement of the Holder to indemnify any underwriter
and any person who controls such underwriter (or to indemnify the Company and
each person who controls the Company if the Company is selling directly and not
through an underwriter) contained herein with respect to any such preliminary
prospectus shall not inure to the benefit of any underwriter, from whom the
person asserting any such claim, loss, damage, liability or action purchased
the stock which is the subject thereof (or the Company if such stock was
purchased directly from the Company), if at or prior to the written
confirmation of the sale of such stock, a copy of the prospectus (or the
prospectus as amended or supplemented) was not sent or delivered to such
person, excluding the documents incorporated therein by reference, and the
untrue statement or omission of a material fact contained in such preliminary
prospectus was corrected in the prospectus (or the prospectus as amended or
supplemented). Notwithstanding the foregoing, in no event shall the
indemnification provided by any Holder hereunder exceed the net proceeds
received by such Holder for the sale of such Holder's securities pursuant to
such registration.
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(c) Each party entitled to indemnification under
this Section 2.7 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "lndemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought. The Indemnified Party shall promptly permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be approved by the Indemnified
Party (whose approval shall not be unreasonably be withheld). The Indemnified
Party may participate in such defense and hire counsel at such party's own
expense; provided, however, that the Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the
Indemnifying Party if the Indemnifying Party refuses to assume the defense
thereof or if representation of such Indemnified Party by the counsel retained
by the Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying
Party of its obligations hereunder, except to the extent that such failure is
materially prejudicial to an Indemnifying Party's ability to defend such
action. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of the Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnified Party shall be entitled to indemnification
hereunder if such Indemnified Party consents to entry of any judgment or enters
into any settlement without the consent of the Indemnifying Party. Any
Indemnified Party shall cooperate with the Indemnifying Party in the defense of
any claim or litigation brought against such Indemnified Party.
2.8 Lock-Up Provision. Upon receipt of a written request
by the Company or by its underwriters, the Holders shall not sell, sell short,
grant an option to buy, or otherwise dispose of shares of the Company's Common
Stock or other securities (except for any such shares included in the
registration) for a period of one hundred and eighty (180) days following the
effective date of the initial registration of the Company's securities;
provided, however, that such Holder shall have no obligation to enter into the
agreement described in this Section 2.8 unless all executive officers and
directors enter into similar agreements. The Company may impose stop-transfer
instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of said 180-day period.
-12-
<PAGE> 13
2.9 Information by Holder. The Holder or Holders of
Registrable Securities included in any registration shall promptly furnish to
the Company such information regarding such Holder or Holders and the
distribution proposed by such Holder or Holders as the Company may reasonably
request in writing and as shall be required in connection with any
registration, qualification or compliance referred to herein.
2.10 Rule 144 Reporting. With a view to making available
to Holders of Registrable Securities the benefits of certain rules and
regulations of the Securities and Exchange Commission (the "SEC") which may
permit the sale of the Registrable Securities to the public without
registration, at all times after the effective date of the first registration
filed by the Company for an offering of its securities to the general public
the Company agrees to:
(a) Make and keep public information available, as
those terms are understood and defined in SEC Rule 144 under the Securities
Act;
(b) File with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(c) So long as a Holder owns any Registrable
Securities, to furnish to such Holder forthwith upon such Holder's request a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144 (at any time after 90 days after the effective
date of the first registration statement filed by the Company for an offering
of its securities to the public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such Holder may
reasonably request in availing itself of any
rule or regulation of the SEC allowing such Holder to sell any such securities
without registration.
2.11 Limitations on Subsequent Registration Rights. From
and after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
2.2, 2.3 or 2.4 hereof, unless under the terms of such agreement, such holder
or prospective holder may include such securities in any such registration only
to the extent that the inclusion of its securities will not reduce the amount
of the
-13-
<PAGE> 14
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
2.2(a)(ii)(A) or within 120 days of the effective date of any registration
effected pursuant to Section 2.2 hereof.
2.12 Termination. The rights of a Holder under this
Agreement (other than rights under Section 2.7) shall terminate on the earlier
to occur of (a) the date on which a Holder can sell all of its Registrable
Securities without registration pursuant to Rule 144 within a three (3) month
period, unless at the time the Holder's Registrable Securities represent more
than one percent (1 %) of the outstanding capital stock of the Company, or (b)
the eighth anniversary of the closing of the Company's first registered public
offering of its securities.
3. Covenants of the Company.
3.1 Financial Information. So long as a Shareholder
continues to hold at least 200,000 shares of Preferred Stock (including shares
of Common Stock issued upon conversion of Preferred Stock) (collectively, the
"Securities") with respect to subsections (a) and (b) below, and 500,000 shares
of the Securities with respect to subsections (c) and (d) below, the Company
will furnish the following information to the Shareholder:
(a) Annual Financials. As soon as practicable
after the end of each fiscal year, and in any event within 90 days thereafter,
the Company will provide the Shareholder with consolidated balance sheets of
the Company and its subsidiaries, if any, as at the end of such fiscal year,
and consolidated income statements and consolidated statements of cash flows of
the Company and its subsidiaries, if any, for such year, prepared in accordance
with generally accepted accounting principles, all in reasonable detail,
certified by independent public auditors of recognized national standing
selected by the Company.
(b) Quarterly Financials. As soon as practicable
after the end of each fiscal quarter (except the fourth fiscal quarter), and in
any event within 45 days thereafter, the Company will provide the Shareholders
with consolidated balance sheets of the Company and its subsidiaries, if any,
as at the end of such fiscal quarter, and consolidated income statements of the
Company and its subsidiaries, if any, for such quarter, prepared in accordance
with generally accepted accounting principles (except for required footnotes
and for minor year-end adjustments), all in reasonable detail, certified by the
chief financial officer of the Company.
-14-
<PAGE> 15
(c) Monthly Financials. As soon as practicable
after the end of each month (except the last month of the fiscal year), and in
any event within 20 days thereafter, the Company will provide the Shareholders
with consolidated balance sheets and income statements of the Company and its
subsidiaries, if any, as of the end of such month, prepared in accordance with
generally accepted accounting principles (except for required footnotes and for
minor year end adjustments).
(d) Budget. As soon as practicable after its
adoption or approval by the Company's Board of Directors, but not later than
the commencement of such fiscal year, the Company will provide the Shareholders
with a consolidated annual plan for each fiscal year which shall include
monthly capital and operating expense budgets, cash flow statements, projected
balance sheets and profit and loss projections for each such month and for the
end of the year, itemized in such detail as the Board of Directors may
reasonably determine.
(e) Termination of Covenant. The Company's
obligation to deliver the information required under subsections (c) and (d)
above shall terminate upon the date on which the Company is required to file a
report with the SEC pursuant to Section 13(a) or 1 5(d) of the Exchange Act by
reason of (i) the Company's having registered any of its securities pursuant to
Section 12 of the Exchange Act or (ii) a registration statement filed by the
Company under the Securities Act having become effective.
3.2 Confidentiality of Information. All information
obtained by a Shareholder pursuant to Section 3.1 shall be deemed proprietary
and confidential to the Company and will not be disclosed by a Shareholder to
any person or entity without the prior written consent of the Company;
provided, however, that such consent shall not be unreasonably withheld. This
restriction shall not apply to information which becomes known to the public
without fault of the recipient or which is disclosed pursuant to a governmental
regulation or order, provided that prior to disclosure the disclosing party
notifies the Company of such proposed disclosure in order to permit the Company
to seek confidential treatment of such information.
4. Right to Maintain.
4.1 "New Securities". For purposes of this Section 4,
the term "New Securities" shall mean shares of Common Stock, Preferred Stock or
any other class of capital stock of the Company, whether or not now authorized,
securities of any type that are convertible into shares of such capital stock,
and
-15-
<PAGE> 16
options, warrants or rights to acquire shares of such capital stock.
Notwithstanding the foregoing, the term "New Securities" will not include (a)
securities issuable upon conversion of the Series A, Series B, Series C, Series
D, Series E or Series F Preferred Stock; (b) up to an additional 1,020,000
shares of Series E Preferred Stock and Common Stock (or related options) in the
aggregate issuable to the shareholders or optionholders of Diamond; (c)
securities issuable upon exercise of the Warrants; (d) securities offered to
the public in a bona fide underwritten public offering pursuant to a
registration statement filed under the Securities Act; (e) securities issued
pursuant to the acquisition of another corporation by the Company by merger,
purchase of substantially all of the assets, or other reorganization whereby
the Company owns not less than fifty-one percent (51%) of the voting power of
such corporation; (f) up to an aggregate of 2,674,073 shares of Common Stock
first issued after the date of this Agreement or related options outstanding on
or first issued after the date of this Agreement to officers, directors,
employees or consultants of the Company, pursuant to any stock grant, stock
option plan or stock purchase plan or other stock incentive agreement or
arrangement approved by the vote or written consent of not less than sixty-six
and two-thirds percent (66 2/3%) of the directors then in office; (g)
securities issued in connection with equipment lease or working capital debt
financings, so long as the number of securities so issued does not exceed one
percent (1 %) of the then outstanding capital stock of the Company; (h)
securities issued upon exercise or conversion of options, warrants and other
convertible securities outstanding on the date hereof; and (i) shares of Common
Stock or Preferred Stock issued in connection with any stock split, stock
dividend or recapitalization by the Company.
4.2 Grant of Rights. Subject to the terms specified in
this Section 4, so long as a Shareholder holds not less than 500,000 shares of
Securities, the Company hereby grants to the Shareholders the right of first
refusal to purchase a portion of any issue of New Securities which the Company
hereafter may from time to time propose to issue and sell as shall maintain the
Shareholders' pro rata percentage ownership of the Company's capital stock.
The "pro rata" percentage ownership of a Shareholder is calculated by dividing
(i) the number of shares of Common Stock held by the Shareholder plus the total
number of shares of Common Stock issuable upon the conversion of all Preferred
Stock then held by the Shareholder by (ii) the total number of shares of Common
Stock then outstanding, including shares issuable upon conversion of any
Preferred Stock.
-16-
<PAGE> 17
4.3 Procedure.
(a) In the event the Company proposes to
undertake an issuance of New Securities, it shall give the Shareholders written
notice of its intention, describing the type of New Securities, the price and
material terms upon which the Company proposes to issue the same. A
Shareholder shall have 20 calendar days from the date of receipt of any such
notice to agree to purchase up to its pro rata share of such New Securities for
the price and upon the terms specified in the Company's notice by giving
written notice to the Company to such effect and stating therein the quantity
of New Securities to be purchased.
(b) If less than all of the New Securities are
subscribed for after the expiration of the 20 calendar day period referred to
in Section 4.3(a), the Company shall have 90 days thereafter to sell or enter
into an agreement to sell any New Securities not purchased by Shareholders
exercising their rights at a price and upon terms no more favorable to the
purchaser than the terms specified in the Company's notice to the Shareholders,
after which 90 day period the Company shall not thereafter sell such New
Securities without first offering a portion to the Shareholders in accordance
with this Section 4.
4.4 Termination of Rights. The rights granted under this
Section 4 shall expire upon the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act covering the offer and sale of Common Stock for the account of
the Company to the public at an aggregate offering price of not less than
$10,000,000 and at a public offering price per share (prior to underwriter
commissions and expenses) that is not less than $8.00 (as adjusted for stock
splits, stock combinations and the like).
5. Assignment of Rights.
The rights granted pursuant to this Agreement may be assigned
by a Shareholder or its transferee upon sale or transfer (other than a sale to
the public) of at least 200,000 shares of Preferred Stock (including shares of
Common Stock issued upon conversion thereof) (as adjusted for stock dividends,
stock splits, recapitalizations and the like) held by a Shareholder, provided
that certain rights under Sections 3 and 4 will continue to require ownership
of a greater number of shares. The rights under Sections 3 and 4 may not be
assigned to a transferee which the Company reasonably believes is a competitor
or intends to become a competitor of the Company. The Company shall be given
prompt notice of such transfer and any such transferee shall agree to become
subject to the obligations of the Shareholders under this
-17-
<PAGE> 18
Agreement. Notwithstanding the foregoing, Ciba-Geigy Limited may assign all of
its rights and obligations hereunder in connection with the merger of
Ciba-Geigy Limited and Sandoz Limited, and the formation of a new entity,
Novartis.
6. Miscellaneous.
6.1 Amendment or Waiver. Any term of this Agreement may
be amended and the observance of any such term may be waived (either generally
or in a particular instance and either retroactively or prospectively) with the
written consent of the Company and Shareholders holding at least a majority of
the outstanding Registrable Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon all of the parties hereto
and their successors and assigns, even if such Shareholder did not consent in
writing to such amendment or waiver.
6.2 Governing Law. This Agreement shall be governed in
all respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
6.3 Entire Agreement. This Agreement constitutes the
full and entire understanding and agreement between the parties with respect to
the subject hereof and it supersedes, merges, and renders void any and all
prior understandings and/or agreements, written or oral, with respect to such
subject matter.
6.4 Notices. All notices and other communications
required or permitted hereunder shall be in writing and shall be personally
delivered, mailed by certified or registered mail, postage prepaid, or
delivered by overnight delivery or express courier, addressed to the Holders at
their addresses shown on the records of the Company or, to the Company, at its
principal executive office, or at such other address as the Company or any
Holder shall hereafter furnish in writing. All notices that are mailed shall
be deemed delivered five (5) days after deposit in the United States mail.
6.5 Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
6.6 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one and the same instrument.
-18-
<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
HESKA CORPORATION
By: /s/ FRED M. SCHWARZER
--------------------------------------
Fred M. Schwarzer
Title: President
-----------------------------------
INVESTORS AND PURCHASER:
CIBA-GEIGY LIMITED
By: /s/ H.B. GURTLER /s/ DR. P. KORNICKER
---------------------------------------
H.B. Gurtler
President Animal Dr. P. Kornicker
Title: Health Division Division Counsel
-----------------------------------
-19-
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
HESKA CORPORATION
By:
----------------------------------
Title:
-------------------------------
INVESTORS AND PURCHASER:
CHARTER VENTURES
By: /s/ A. BARR DOLEN
----------------------------------
Title: General Position
-------------------------------
-19-
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
HESKA CORPORATION
By:
----------------------------------
Title:
-------------------------------
INVESTORS AND PURCHASER:
CHARTER VENTURES II, L.P.
By: /s/ A. BARR DOLEN
----------------------------------
Title: General Partner
-------------------------------
-19-
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
HESKA CORPORATION
By:
----------------------------------
Title:
-------------------------------
INVESTORS AND PURCHASER:
VOLENDAM INVESTERINGEN N.V.
/s/ ANNEKE SOEDHOE /s/ GERMAIN SPROEK
By: MeesPierson Trust (Curacao) N.V.
----------------------------------
Title: Managing Director
-------------------------------
-19-
<PAGE> 23
SCHEDULE A
List of Warrants
Series C Preferred Stock Warrants:
<TABLE>
<CAPTION>
Date of No. Shares Subject
-------- ------------------
Name Grant Expiration Date Exercise Price to Warrant
---- ----- --------------- -------------- ----------
<S> <C> <C> <C> <C>
Dominion Ventures 11/22/89 11/22/1998 $2.50 6,400
-----
Total: 6,400
</TABLE>
Series D Preferred Stock Warrants:
<TABLE>
<CAPTION>
Date of Subject to
-------- -----------
Name Grant Expiration Date Exercise Price Warrant
---- ----- --------------- -------------- -------
<S> <C> <C> <C> <C>
Dominion Ventures 06/07/93 06/07/2002 $3.25 6,225
Dominion Ventures 12/30/93 12/30/2002 $3.25 267
Dominion Ventures 11/20/94 11/20/2003 $3.25 18,500
-------
Total: 24,992
Total of all warrants: 31,392
=======
</TABLE>
-20-
<PAGE> 24
SCHEDULE B
LIST OF INVESTORS
<TABLE>
<CAPTION>
Number of
Name Series Shares
---- ------ ------
<S> <C> <C>
Charter Ventures A 300,000
B 250,000
C 1,340,000
D 800,000
E 695,510
Charter Ventures II, L.P. E 155,652
Volendam Investerigen N.V. E 3,076,923
</TABLE>
-21-
<PAGE> 1
EXHIBIT 4.3
NEITHER THIS WARRANT NOR THE SHARES OF PREFERRED STOCK ISSUABLE UPON EXERCISE
NOR SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF SAID SHARES OF PREFERRED
STOCK HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NO SALE, TRANSFER OR OTHER DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE
EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii)
AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER
FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION
UNDER THE ACT IS NOT REQUIRED.
Shares Issuable Upon Exercise:
WARRANT TO PURCHASE
SHARES OF SERIES C PREFERRED STOCK
Expires ___________________
THIS CERTIFIES THAT, for value received, Dominion Ventures, Inc., is
entitled to subscribe for and purchase the number of shares (as adjusted
pursuant to provisions hereof, the "Shares") of the fully paid and
nonassessable Series C Preferred Stock of Paravax, Inc., a California
corporation (the "Company"), that have an aggregate purchase price (based on
the Series C Preferred Stock issue price) of ___________; provided however, that
if an Equity Financing (as defined in Section 1.1 hereof) has not occurred on
or prior to _________________, or in the event the Company does not issue Series
C Preferred Stock prior to such date, Dominion Ventures, Inc. shall be entitled
to purchase ________ shares (as adjusted pursuant to provisions herein, also
referred to herein as the "Shares") of the fully paid and nonassessable Series
B Preferred Stock of the Company based on the original Series B Preferred Stock
issue price of _______ per share. The purchase price of each share of Series B
Preferred Stock or Series C Preferred Stock, as applicable, shall be the amount
set forth in Section 1.1 herein as such amount may be adjusted from time to
time (the "Warrant Price"), subject to the provisions and upon the terms and
conditions hereinafter set forth. The terms of the Series C Preferred Stock
shall be substantially the same as those of the Series B Preferred Stock with
such changes as shall be approved by the holder hereof, which approval shall
not be unreasonably withheld. As used herein, the term "Preferred Stock" shall
mean the Company's Series C Preferred Stock, as applicable, and any stock into
or for which such Series C Preferred Stock, as applicable, may hereafter be
converted or exchanged pursuant to the Articles of Incorporation of the Company
as from time to time amended as provided by law and in such Articles, and the
term "Grant Date" shall mean ___________________.
1. Warrant Price and Term.
1.1 Warrant Price. The Warrant Price hereunder shall be equal to
the effective price per share received by the Company in the first equity
financing with net proceeds to the Company of at least $1,500,000 which closes
after the date hereof (an "Equity Financing"). In the event an Equity
Financing does not occur on or before _________________, the Warrant Price shall
be _______.
1.2 Term. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from and
after the Grant Date and prior to the earlier of the ninth annual anniversary
date of the Grant Date or the fourth annual anniversary of the consummation of
the Company's initial public offering of its Common Stock, the aggregate gross
proceeds from which exceed $5,000,000.
<PAGE> 2
2. Method of Exercise; Net Issue Exercise.
2.1 Method of Exercise; Payment; Issuance of New Warrant.
The purchase right represented by this Warrant may be exercised by the holder
hereof, in whole or in part and from time to time, by either, at the election
of the holder hereof, (a) the surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A duly executed) at the principal
office of the Company and by the payment to the Company, by check, of an amount
equal to the then applicable Warrant Price per share multiplied by the number
of Shares then being purchased or (b) if in connection with a registered public
offering of the Company's securities, the surrender of this Warrant (with the
notice of exercise form attached hereto as Exhibit A-1 duly executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by check or from
the proceeds of the sale of shares to be sold by the holder in such public
offering of an amount equal to the then applicable Warrant Price per share
multiplied by the number of Shares then being purchased. The person or persons
in whose name(s) any certificate(s) representing shares of Preferred Stock
shall be issuable upon exercise of this Warrant shall be deemed to have become
the holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed
to have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised. In the event of any exercise of
the rights represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the holder hereof as soon as possible and in
any event within thirty days of receipt of such notice and, unless this Warrant
has been fully exercised or expired, a new Warrant representing the portion of
the Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible and in
any event within such thirty-day period.
2.2 Net Issue Exercise.
(a) In lieu of exercising this Warrant, holder
may elect to receive shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the principal office of
the Company together with notice of such election in which event the Company
shall issue to the holder hereof a number of shares of the Company's Preferred
Stock computed using the following formula:
X = Y (A - B)
---------
A
Where: X - The number of shares of Preferred Stock to be issued to holder.
Y - the number of shares of Preferred Stock purchasable under this
Warrant.
A - the fair market value of one share of the Company's Preferred
Stock.
B - Warrant price (as adjusted to the date of such calculations).
(b) For purposes of this Section, fair market
value of the Company's Preferred Stock shall mean the average of the closing
bid and asked prices of the Company's Preferred Stock quoted in the
Over-The-Counter. Market Summary or the closing price quoted on any exchange
on which the Preferred Stock is listed, whichever is applicable, as published
in the Western Edition of The Wall Street Journal for the ten trading days
prior to the date of determination of fair market value. If the Preferred
Stock is not traded Over-The-Counter or on an exchange, the fair market value
shall be the price per share which the Company could obtain from a willing
buyer for shares sold by the Company from authorized but unissued shares, as
such price shall be determined in good faith by the Company's Board of
Directors and shall be
<PAGE> 3
acceptable to the holder hereof, which acceptance shall not be unreasonably
withheld.
3. Stock Fully Paid; Reservation of Shares. All Shares that may
be issued upon the exercise of the rights represented by this Warrant and
Common Stock issuable upon conversion of the Preferred Stock will, upon
issuance, be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof. During the period within which the
rights represented by the Warrant may be exercised, the Company will at all
times have authorized and reserved for the purpose of issuance upon exercise of
the purchase rights evidenced by this Warrant, a sufficient number of shares of
its Preferred Stock (and Common Stock issuable upon conversion thereof) to
provide for the exercise of the right represented by this Warrant.
<PAGE> 4
4. Adjustment of Warrant Price and Number of Shares. The number
and kind of securities purchasable upon the exercise of the Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) Reclassification or Merger. In case of any
reclassification, change or conversion of securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or in case of any merger of the Company with or
into another corporation (other than a merger with another corporation in which
the Company is a continuing corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as
the case may be, shall execute a new Warrant (in form and substance
satisfactory to the holder of this Warrant) providing that the holder of this
Warrant shall have the right to exercise such new Warrant and upon such
exercise to receive, in lieu of each share of Preferred Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification,
change or merger by a holder of one share of Preferred Stock. Such new Warrant
shall provide for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Paragraph 4. The
provisions of this subparagraph (a) shall similarly apply to successive
reclassifications, changes, mergers and transfers.
(b) Subdivisions or Combination of Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its Preferred Stock, the Warrant Price and the number of
Shares issuable upon exercise hereof shall be proportionately adjusted.
(c) Stock Dividends. If the Company at any time while
this Warrant is outstanding and unexpired shall pay a dividend payable in
shares of Preferred Stock (except any distribution specifically provided for in
the foregoing subparagraphs (a) and (b)), then the Warrant Price shall be
adjusted, from and after the date of determination of shareholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Warrant Price in effect immediately prior to such date of determination by
a fraction (a) the numerator of which shall be the total number of shares of
Preferred Stock outstanding immediately prior to such dividend or distribution,
and (b) the denominator of which shall be the total number of shares of
Preferred Stock outstanding immediately after such dividend or distribution and
the number of Shares subject to this Warrant shall be proportionately adjusted.
(d) No Impairment. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Paragraph 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
(e) Notices of Record Date. In the event of any taking
by the Company of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend (other than a
cash dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property,
or to receive any other right, or for the purpose of determining shareholders
who are entitled to vote in connection with any proposed merger or
consolidation of the Company with or into any other corporation, or any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail to the holder of the Warrant, at least twenty
(20) days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
<PAGE> 5
(f) Dilutive Issuances. If and whenever the Company should issue
shares of its Common Stock at a price per share less than the Warrant Price in
effect immediately prior to such issuance (other than Common Stock issuable or
issued to Officers, Directors, Employees or Consultants of the Company, either
directly or upon the exercise of options or terms approved by the Company's
Board of Directors), then the warrant price shall be adjusted by dividing (1)
the sum of (A) the total number of shares of Common Stock outstanding
immediately prior to such issuance multiplied by the then effective Warrant
Price and (B) the value of the consideration received by the Company upon such
issuance as determined by the Board of Directors by (2) the total number of
shares of Common Stock outstanding immediately after such issuance. The holder
of the Warrant shall thereafter be entitled to purchase at the Warrant price
resulting from such adjustment, the number of shares of Common Stock
(calculated to the nearest whole share) obtained by multiplying the Warrant
Price in effect immediately prior to such adjustment by the number of shares of
Common Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Warrant Price resulting from
such adjustment. For the purposes of this paragraph (d) the issuance of
securities convertible into or exercisable for the Common Stock shall be deemed
the issuance of the number of shares of Common Stock into which such securities
are convertible or for which such securities are exercisable, and the
consideration received for such securities shall be deemed to include the
minimum aggregate amount payable upon conversion or exercise of such
securities. In the event the right to convert or exercise such securities
expires unexercised, the Warrant Price of shares issuable upon the exercise
hereof shall be readjusted accordingly.
<PAGE> 6
5. Notice of Adjustments. Whenever the Warrant Price shall be
adjusted pursuant to the provisions hereof, the Company shall within thirty
(30) days of such adjustment deliver a certificate signed by its chief
financial officer to the registered holder(s) hereof setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Warrant
Price after giving effect to such adjustment.
6. Fractional Shares. No fractional shares of Preferred Stock
will be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor upon the basis
of the Warrant Price then in effect.
7. Compliance with Securities Act; Disposition of Warrant or
Shares of Preferred Stock.
(a) Compliance with Securities Act. The holder of this
Warrant, by acceptance hereof, agrees that this Warrant, the shares of
Preferred Stock to be issued upon exercise hereof and the Common Stock to be
issued upon conversion of such Preferred Stock are being acquired for
investment and that such holder will not offer, sell or otherwise dispose of
this Warrant or any shares of Preferred Stock to be issued upon exercise hereof
(or Common Stock issued upon conversion of the Preferred Stock) except as
permitted in the legend below so as to not result in a violation of the
Securities Act of 1933, as amended (the "Act"). This Warrant, all shares of
Preferred Stock issued upon exercise of this Warrant and all shares of Common
Stocks issuable upon conversion of said Preferred Stock (unless registered
under the Act) shall be stamped or imprinted with a legend in substantially the
following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT
REGISTRATION UNDER THE ACT IS NOT REQUIRED.
(b) Disposition of Warrant and Shares. With respect
to any offer, sale or other disposition of this Warrant or any shares
of Preferred Stock acquired pursuant to the exercise of this Warrant (or Common
Stock issued upon conversion of such Preferred Stock) prior to registration of
such shares, the holder hereof and each subsequent holder of the Warrant agrees
to give written notice to the Company prior thereto, describing briefly the
manner thereof, together with a written opinion of such holder's counsel, if
reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Act as then in effect or any federal or state law then in effect) of this
Warrant or such shares of Preferred Stock or Common Stock and indicating
whether or not under the Act certificates for this Warrant or such shares of
Preferred Stock or Common Stock to be sold or otherwise disposed of require
<PAGE> 7
any restrictive legend as to applicable restrictions on transferability in
order to insure compliance with the Act. Each certificate representing this
Warrant or the shares of Preferred Stock or Common Stock thus transferred
(except a transfer pursuant to Rule 144) shall bear a legend as to the
applicable restrictions on transferability in order to insure compliance with
the Act, unless in the aforesaid opinion of counsel for the holder, such legend
is not required in order to insure compliance with the Act. Nothing herein
shall restrict the transfer of this Warrant or any portion hereof by the
initial holder hereof to any partnership affiliated with the initial holder, or
to any partner of any such partnership provided such transfer may be made in
compliance with applicable federal and state securities laws. The Company may
issue stop transfer instructions to its transfer agent in connection with the
foregoing restrictions.
8. Rights as Shareholders; Information.
8.1 Shareholder Rights. No holder of the Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder of
Preferred Stock or any other securities of the Company which may at any time be
issuable on the exercise thereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein.
8.2 Financial Statements and Information. The Company
shall deliver to the registered holder hereof (i) within 120 days after the end
of the fiscal year of the Company, a consolidated statement of income for such
fiscal year, a consolidated balance sheet of the Company as of the end of such
year and a consolidated statement of the sources and application of funds for
such year, which year-end financial reports shall be in reasonable detail and
certified by independent public accountants of nationally recognized standing
selected by the Company, and (ii) within 45 days after the end of each fiscal
quarter other than the last fiscal quarter, unaudited consolidated statements
of income and sources and application of funds for such quarter and a
consolidated balance sheet as of the end of such quarter. In addition, the
Company shall deliver to the registered holder hereof any other information or
data provided to the shareholders of the Company.
9. Registration Rights. The Company hereby covenants and
agrees as follows:
(a) The holder hereof shall be given the same
registration rights as holders of the Company's Series C Preferred Stock, which
shall be substantially of the form of the registration rights of the holders of
the Company's Series B Preferred Stock attached hereto as Exhibit B. If the
registration rights of the Series C Preferred Stock are not effective by
January 31, 1990, the holder hereof shall be granted the registration rights
granted to holders of Series B Preferred Stock. The holder hereof shall be
deemed holder of the Registrable Securities as defined in the Exhibit B.
10. Additional Rights
10.1 Secondary Sales. The Company agrees to assist the
holder of this Warrant in obtaining liquidity if opportunities to make
secondary sales of the Company's securities become available. To this end, the
Company will promptly provide the holder of this Warrant with notice of any
offer to acquire from the Company's security holders more than five percent
(5%) of the total voting power of the Company and will cooperate with the
holder in arranging the sale of this Warrant to the person or persons making
such offer.
<PAGE> 8
10.2 Mergers. Unless the Company provides the holder of
this Warrant with at least 7 days' notice' of the terms and conditions of the
proposed transaction, the Company will not (i) sell, lease, exchange, convey or
otherwise dispose of all or substantially all of its property or business, or
(ii) merge into or consolidate with any other corporation (other than a
wholly-owned subsidiary of the Company), or effect any transaction (including a
merger or other reorganization) or series of related transactions, in which
more than 50% of the voting power of the Company is disposed of. The Company
will cooperate with the holder in arranging the sale of this Warrant in
connection with any such transaction.
11. Representations and Warranties. This Warrant is issued and
delivered on the basis of the following:
(a) This Warrant has been duly authorized and executed by
the Company and when delivered will be the valid and binding obligation of the
Company enforceable in accordance with its terms;
(b) The Shares will be duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions
granted to or imposed upon the shares of Preferred Stock and the holders
thereof will be set forth in the Company's Articles of Incorporation, as
amended, a true and complete copy of which will be delivered to the original
Warrantholder;
(d) The shares of Common Stock issuable upon conversion
of the Shares will be duly authorized and reserved and, when issued in
accordance with the terms of the Company's Articles of Incorporation, as
amended, will be validly issued, fully paid and nonassessable; and
(e) The execution and delivery of this Warrant are not,
and the issuance of the Shares upon exercise of this Warrant in accordance with
the terms hereof will not be, inconsistent with the Company's Articles of
Incorporation or by-laws, do not and will not contravene any law, governmental
rule or regulation, judgment or order applicable to the Company, and do not and
will not contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound or require the consent or approval of, the giving
of notice to, the registration with or the taking of any action in respect of
or by, any Federal, state or local government authority or agency or other
person.
12. Modification and Waiver. This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of the same is sought.
13. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid,
to each such holder at its address as shown on the books of the Company or to
the Company at the address indicated therefore on the signature page of this
Warrant.
14. Binding Effect on Successors. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company relating to the Preferred Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant and all of the covenants and agreements of the Company shall inure to
the benefit of the successors and assigns of the holder hereof. The Company
will, at the time of the exercise of this Warrant, in whole or in part, upon
request of the holder hereof but at the Company's expense, acknowledge in
writing its continuing obligation to the holder hereof in respect of any rights
(including, without limitation, any right to registration of the shares of
Registrable
<PAGE> 9
Securities) to which the holder hereof shall continue to be entitled after such
exercise in accordance with this Warrant; provided, that the failure of the
holder hereof to make any such request shall not affect the continuing
obligation of the Company to the holder hereof in respect of such rights.
15. Lost Warrants or Stock Certificates. The Company covenants
to the holder hereof that upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant or
any stock certificate and, in the case of any such loss, theft or destruction,
upon receipt of an indemnity reasonably satisfactory to the Company, or in the
case of any such mutilation upon surrender and cancellation of such Warrant or
stock certificate, the Company will make and deliver a new Warrant or stock
certificate, or like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. Governing Law. This Warrant shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the
laws of the State of California.
By:
Title:
Address:
Date:
<PAGE> 10
EXHIBIT A
Notice of Exercise
To:
1. The undersigned hereby elects to purchase shares of
Series Preferred Stock of Corporation pursuant to the terms of the
attached Warrant, and tenders herewith payment of the price of such shares in
full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below:
(Name)
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
--------------------------------
(Signature)
- --------------------------------
(Date)
<PAGE> 11
EXHIBIT A-1
Notice of Exercise
To:
1. Contingent upon and effective immediately prior to the closing
(the "Closing") of the Company's public offering contemplated by the
Registration Statement of Form S-_____, filed ____________________, 19_____,
the undersigned hereby elects to purchase ___________ shares of Series _____
Preferred Stock of the Company (or such lesser number of shares as may be sold
on behalf of the undersigned at the Closing) pursuant to the terms of the
attached Warrant.
2. Please deliver to the custodian for the selling shareholders a
stock certificate representing such ___________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $________________ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such
shares, the undersigned agrees to deliver the difference to the Company prior
to the Closing.
-----------------------------
(Signature)
- ---------------------------
(Date)
<PAGE> 1
EXHIBIT 4.4
NEITHER THIS WARRANT NOR THE SHARES OF PREFERRED STOCK
ISSUABLE UPON EXERCISE NOR SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF SAID SHARES OF PREFERRED
STOCK HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. NO SALE, TRANSFER OR OTHER
DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE
EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE
HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT
SUCH REGISTRATION IS NOT REQUIRED OR (iii) RECEIPT OF A
NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION TO THE EFFECT THAT REGISTRATION UNDER THE ACT
IS NOT REQUIRED.
Shares Issuable Upon Exercise:
WARRANT TO PURCHASE
SHARES OF SERIES D PREFERRED STOCK
Expires _______________
THIS CERTIFIES THAT, for value received _________, is entitled to
subscribe for and purchase ________ shares (as adjusted pursuant to
provisions hereof, the "Shares") of the fully paid and
nonassessable Series D Preferred Stock of Paravax, Inc., a
California corporation (the "Company"), at a price per share of
$_____ (such price and such other price as shall result, from time
to time, from adjustments specified herein is herein referred to as
the "Warrant Price"), subject to the provisions and upon the terms
and conditions hereinafter set forth. As used herein, the term
"Preferred Stock" shall mean the Company's presently authorized
Series D Preferred Stock, or any stock into or for which such
Series D Preferred Stock may hereafter be converted or exchanged
pursuant to the Articles of Incorporation of the Company as from
time to time amended as provided by law and in such Articles, and
the term "Grant Date" shall mean _________.
<PAGE> 2
1. Term. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from and
after the Grant Date and prior to the earlier of the ninth annual anniversary
date of the Grant Date or the fourth annual anniversary of the consummation of
the Company's initial public offering of its Common Stock, the aggregate gross
proceeds from which exceed $5,000,000.
2. Method of Exercise; Net Issue Exercise.
2.1 Method of Exercise; Payment; Issuance of New Warrant. The
purchase right represented by this Warrant may be exercised by the holder
hereof, in whole or in part and from time to time, by either, at the election
of the holder hereof, (a) the surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A duly executed) at the principal
office of the Company and by the payment to the Company, by check, of an amount
equal to the then applicable Warrant Price per share multiplied by the number
of Shares then being purchased or (b) if in connection with a registered public
offering of the Company's securities, the surrender of this Warrant (with the
notice of exercise form attached hereto as Exhibit A-l duly executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by check or from
the proceeds of the sale of shares to be sold by the holder in such public
offering of an amount equal to the then applicable Warrant Price per share
multiplied by the number of Shares then being purchased. The person or persons
in whose name(s) any certificate(s) representing shares of Preferred Stock
shall be issuable upon exercise of this Warrant shall be deemed to have become
the holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed
to have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised. In the event of any exercise of
the rights represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the holder hereof as soon as possible and in
any event within thirty days of receipt of such notice and, unless this Warrant
has been fully exercised or expired, a new Warrant representing the portion of
the Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible and in
any event within such thirty-day period.
2.2 Net Issue Exercise.
(a) In lieu of exercising this Warrant, holder
<PAGE> 3
may elect to receive shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the principal office of
the Company together with notice of such election in which event the Company
shall issue to the holder hereof a number of shares of the Company's Preferred
Stock computed using the following formula:
X = Y (A - B)
---------
A
Where
X - The number of shares of Preferred Stock to be issued to
holder.
Y - the number of shares of Preferred Stock purchasable under this
Warrant.
A - the fair market value of one share of the Company's Preferred
Stock.
B - Warrant price (as adjusted to the date of such calculations).
(b) For purposes of this Section, fair market value of the
Company's Preferred Stock shall mean the average of the closing bid and asked
prices of the Company's Preferred Stock quoted in the Over-The-Counter Market
Summary or the closing price quoted on any exchange on which the Preferred
Stock is listed, whichever is applicable, as published in the Western Edition
of The Wall Street Journal for the ten trading days prior to the date of
determination of fair market value. If the Preferred Stock is not traded
Over-The-Counter or on an exchange, the fair market value shall be the price
per share which the Company could obtain from a willing buyer for shares sold
by the Company from authorized but unissued shares, as such price shall be
determined in good faith by the Company's Board of Directors and shall be
acceptable to the holder hereof, which acceptance shall not be unreasonably
withheld.
3. Stock Fully Paid; Reservation of Shares. All Shares that may
be issued upon the exercise of the rights represented by this Warrant and
Common Stock issuable upon conversion of the Preferred Stock will, upon
issuance, be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof. During the period within which the
rights represented by the Warrant may be exercised, the Company will at all
times have authorized and reserved for the purpose of issuance upon exercise of
the purchase rights evidenced by this Warrant, a sufficient number of shares of
its Preferred Stock (and Common Stock issuable upon conversion thereof) to
provide for the exercise of the right represented by this Warrant.
<PAGE> 4
4. Adjustment of Warrant Price and Number of Shares. The number
and kind of securities purchasable upon the exercise of the Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) Reclassification or Merger. In case of any
reclassification, change or conversion of securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or in case of any merger of the Company with or
into another corporation (other than a merger with another corporation in which
the Company is a continuing corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as
the case may be, shall execute a new Warrant (in form and substance
satisfactory to the holder of this Warrant) providing that the holder of this
Warrant shall have the right to exercise such new Warrant and upon such
exercise to receive, in lieu of each share of Preferred Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification,
change or merger by a holder of one share of Preferred Stock. Such new Warrant
shall provide for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Paragraph 4. The
provisions of this subparagraph (a) shall similarly apply to successive
reclassifications, changes, mergers and transfers.
(b) Subdivisions or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide
or combine its Preferred Stock, the Warrant Price and the number of Shares
issuable upon exercise hereof shall be proportionately adjusted.
(c) Stock Dividends. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend payable in shares of
Preferred Stock (except any distribution specifically provided for in the
foregoing subparagraphs (a) and (b)), then the Warrant Price shall be adjusted,
from and after the date of determination of shareholders entitled to receive
such dividend or distribution, to that price determined by multiplying the
Warrant Price in effect immediately prior to such date of determination by a
fraction (a) the numerator of which shall be the total number of shares of
Preferred Stock outstanding immediately prior to such dividend or distribution,
and (b) the denominator of which shall be the total number of shares of
Preferred Stock outstanding immediately after such dividend or distribution and
the number of Shares subject to this Warrant shall be proportionately adjusted.
(d) No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary
<PAGE> 5
action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Paragraph 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant
against impairment.
(e) Notices of Record Date. In the event of any taking by the
Company of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend (other than a
cash dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property,
or to receive any other right, or for the purpose of determining shareholders
who are entitled to vote in connection with any proposed merger or
consolidation of the Company with or into any other corporation, or any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail to the holder of the Warrant, at least twenty
(20) days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(f) Dilutive Issuances. See Exhibit C attached hereto and made
a part hereof.
[Remainder of this page intentionally left blank]
<PAGE> 6
5. Notice of Adjustments. Whenever the Warrant Price shall be
adjusted pursuant to the provisions hereof, the Company shall within thirty
(30) days of such adjustment deliver a certificate signed by its chief
financial officer to the registered holder(s) hereof setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Warrant
Price after giving effect to such adjustment.
6. Fractional Shares. No fractional shares of Preferred Stock
will be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor upon the basis
of the Warrant Price then in effect.
7. Compliance with Securities Act; Disposition of Warrant or
Shares of Preferred Stock.
(a) Compliance with Securities Act. The holder of this
Warrant, by acceptance hereof, agrees that this Warrant, the shares of
Preferred Stock to be issued upon exercise hereof and the Common Stock to be
issued upon conversion of such Preferred Stock are being acquired for
investment and that such holder will not offer, sell or otherwise dispose of
this Warrant or any shares of Preferred Stock to be issued upon exercise hereof
(or Common Stock issued upon conversion of the Preferred Stock) except as
permitted in the legend below so as to not result in a violation of the
Securities Act of 1933, as amended (the "Act"). This Warrant, all shares of
Preferred Stock issued upon exercise of this Warrant and all shares of Common
Stocks issuable upon conversion of said Preferred Stock (unless registered
under the Act) shall be stamped or imprinted with a legend in substantially the
following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT
REGISTRATION UNDER THE ACT IS NOT REQUIRED.
(b) Disposition of Warrant and Shares. With respect to any
offer, sale or other disposition of this Warrant or any shares of Preferred
Stock acquired pursuant to the exercise of this Warrant (or Common Stock issued
upon conversion of such Preferred Stock) prior to registration of such shares,
the holder hereof and each subsequent holder of the Warrant agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of such holder's counsel, if
reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Act as then in effect or any federal or state law then in effect) of this
Warrant or such shares of Preferred Stock or Common Stock and indicating
whether or not under the Act certificates for this Warrant or such shares of
Preferred Stock or Common Stock to be sold or otherwise disposed of require
<PAGE> 7
any restrictive legend as to applicable restrictions on transferability in
order to insure compliance with the Act. Each certificate representing this
Warrant or the shares of Preferred Stock or Common Stock thus transferred
(except a transfer pursuant to Rule 144) shall bear a legend as to the
applicable restrictions on transferability in order to insure compliance with
the Act, unless in the aforesaid opinion of counsel for the holder, such legend
is not required in order to insure compliance with the Act. Nothing herein
shall restrict the transfer of this Warrant or any portion hereof by the
initial holder hereof to any partnership affiliated with the initial holder, or
to any partner of any such partnership provided such transfer may be made in
compliance with applicable federal and state securities laws. The Company may
issue stop transfer instructions to its transfer agent in connection with the
foregoing restrictions.
8. Rights as Shareholders; Information.
8.1 Shareholder Rights. No holder of the Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of
Preferred Stock or any other securities of the Company which may at any time be
issuable on the exercise thereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein.
8.2 Financial Statements and Information. The Company shall
deliver to the registered holder hereof (i) within 120 days after the end of
the fiscal year of the Company, a consolidated statement of income for such
fiscal year, a consolidated balance sheet of the Company as of the end of such
year and a consolidated statement of the sources and application of funds for
such year, which year-end financial reports shall be in reasonable detail and
certified by independent public accountants of nationally recognized standing
selected by the Company, and (ii) within 45 days after the end of each fiscal
quarter other than the last fiscal quarter, unaudited consolidated statements
of income and sources and application of funds for such quarter and a
consolidated balance sheet as of the end of such quarter. In addition, the
Company shall deliver to the registered holder hereof any other information or
data provided to the shareholders of the Company.
9. Registration Rights. The Company hereby covenants and
agrees that the holder hereof (or any registered transferee thereof pursuant to
section 7 hereof), shall be entitled to participate in the registration rights
with respect to the Preferred Stock or Common Stock issuable upon conversion
thereof purchasable by the holder hereof pursuant to the Warrant, in the same
manner and to the same extent as a "Holder" pursuant to Section 6 of the
Company's Series D Preferred Stock Purchase Agreement, dated as of
<PAGE> 8
[ ], a true and correct copy of which is attached hereto as
Exhibit B (the "Registration Rights"). The holder hereof shall be deemed a
"Holder" and the shares of Preferred Stock issuable upon exercise of this
Warrant and Common Stock upon conversion thereof shall be deemed "Registrable
Securities" as those terms are defined in the Registration Rights. Anything
to the contrary notwithstanding, the registration rights of the holder of this
Warrant under this Section 9., may be transferred to any affiliate of the
holder hereof.
10. Additional Rights.
10.1 Secondary Sales. The Company agrees to assist the holder
of this Warrant in obtaining liquidity if opportunities to make secondary sales
of the Company's securities become available. To this end, the Company will
promptly provide the holder of this Warrant with notice of any offer to acquire
from the Company's security holders more than five percent (5%) of the total
voting power of the Company and will cooperate with the holder in arranging the
sale of this Warrant to the person or persons making such offer.
10.2 Mergers. Unless the Company provides the holder of this
Warrant with at least 7 days' notice of the terms and conditions of the
proposed transaction, the Company will not (i) sell, lease, exchange, convey or
otherwise dispose of all or substantially all of its property or business, or
(ii) merge into or consolidate with any other corporation (other than a
wholly-owned subsidiary of the Company), or effect any transaction (including a
merger or other reorganization) or series of related transactions, in which
more than 50% of the voting power of the Company is disposed of. The Company
will cooperate with the holder in arranging the sale of this Warrant in
connection with any such transaction.
11. Representations and Warranties. This Warrant is issued and
delivered on the basis of the following:
(a) This Warrant has been duly authorized and executed by the
Company and when delivered will be the valid and binding obligation of the
Company enforceable in accordance with its terms;
(b) The Shares will be duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions
granted to or imposed upon the shares of Preferred Stock and the holders
thereof will be set forth in the Company's Articles of Incorporation, as
amended, a true and complete copy of which will be delivered to the original
Warrantholder;
(d) The shares of Common Stock issuable upon conversion of the
Shares will be duly authorized and reserved and, when issued in accordance with
the terms of the Company's Articles of Incorporation, as amended, will be
validly issued, fully paid and nonassessable; and
<PAGE> 9
(e) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Articles of
Incorporation or by-laws, do not and will not contravene any law, governmental
rule or regulation, judgment or order applicable to the Company, and do not and
will not contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound or require the consent or approval of, the giving
of notice to, the registration with or the taking of any action in respect of
or by, any Federal, state or local government authority or agency or other
person.
12. Modification and Waiver. This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of the same is sought.
13. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid,
to each such holder at its address as shown on the books of the Company or to
the Company at the address indicated therefore on the signature page of this
Warrant.
14. Binding Effect on Successors. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company relating to the Preferred Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant and all of the covenants and agreements of the Company shall inure to
the benefit of the successors and assigns of the holder hereof. The Company
will, at the time of the exercise of this Warrant, in whole or in part, upon
request of the holder hereof but at the Company's expense, acknowledge in
writing its continuing obligation to the holder hereof in respect of any rights
(including, without limitation, any right to registration of the shares of
Registrable Securities) to which the holder hereof shall continue to be
entitled after such exercise in accordance with this Warrant; provided, that
the failure of the holder hereof to make any such request shall not affect the
continuing obligation of the Company to the holder hereof in respect of such
rights.
15. Lost Warrants or Stock Certificates. The Company covenants to
the holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation
<PAGE> 10
of such Warrant or stock certificate, the Company will make and deliver a new
Warrant or stock certificate, or like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. Governing Law. This Warrant shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the
laws of the State of California.
By:
Title:
Address: 1825 Sharp Point Drive
Fort Collins, CO 80525
Date:
<PAGE> 11
EXHIBIT A
Notice of Exercise
To:
1. The undersigned hereby elects to purchase shares of
Series Preferred Stock of Corporation pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or name as are
specified below:
(Name)
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
(Signature)
(Date)
<PAGE> 12
EXHIBIT A-l
Notice of Exercise
To:
1. Contingent upon and effective immediately prior to the closing
(the "Closing") of the Company's public offering contemplated by the
Registration Statement of Form S-_____, filed _____________________, 19_____,
the undersigned hereby elects to purchase ___________ shares of Series _____
Preferred Stock of the Company (or such lesser number of shares as may be sold
on behalf of the undersigned at the Closing) pursuant to the terms of the
attached Warrant.
2. Please deliver to the custodian for the selling shareholders a
stock certificate representing such __________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $________________ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such
shares, the undersigned agrees to deliver the difference to the Company prior
to the Closing.
(Signature)
(Date)
<PAGE> 13
EXHIBIT C
Dilutive Issuances
Adjustment of Warrant Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of the Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
(a) Adjustment of Warrant Price upon Issuance of
Additional Stock. The Warrant Price shall be subject to
adjustment from time to time as follows:
(i) (A) Upon each issuance by the Company of any Additional
Stock (as defined below), after the Grant Date, without consideration or for a
consideration per share less than the Warrant Price in effect immediately prior
to the issuance of such Additional Stock, the Warrant Price in effect
immediately prior to each such issuance shall forthwith (except as otherwise
provided in this Section 4 (a)) be adjusted to a price determined by
multiplying the Warrant Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance (including the number of Shares of Common Stock issuable upon
conversion of all outstanding shares of preferred stock of the Company) plus
the number of shares of Common Stock which could be purchased were the then
Warrant Price used instead (calculated by dividing the total consideration
(before deduction of costs) to be received by the Company in such issuance by
the then Warrant Price) and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance
(including the number of Shares of Common Stock issuable upon conversion of all
outstanding shares of preferred stock of the Company) plus the number of shares
of such Additional Stock issued in such issuance.
(B) No adjustment of the Warrant Price shall be made in an
amount less than one cent per share, provided that any adjustments which are
not required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to 3
years from the date of the event giving rise to the adjustment being carried
forward, or shall be made at the end of 3 years from the date of the event
giving rise to the adjustment being carried forward. Except to the limited
extent provided for in subsections 4 (a) (i) E (3) and E (4), no adjustment of
the Warrant Price pursuant to this subsection 4 (a) (i) shall have the effect
of increasing the Warrant Price above the Warrant Price in effect immediately
prior to such adjustment.
(C) In the case of issuance by the Company of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by the Company for any underwriting or otherwise in
connection with the issuance and sale thereof.
(D) In the case of issuance by the Company of Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value as determined by the Board of
Directors of the Company irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or after
the Grant Date) of options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
subsection 4 (a) (i);
1. The aggregate maximum number of shares of Common
Stock deliverable upon exercise (to the extent then exercisable) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections 4 (a) (i) (C) and (a) (i) (D)), if any, received by the Company
upon issuance of such options or rights plus the minimum exercise price
provided in
<PAGE> 14
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
2. The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for (to the extent then
convertible or exchangeable) convertible or exchangeable securities or upon
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by the Company for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Company (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case
to be determined in the manner provided in subsections 4 (a) (i) (C) and 4 (a)
(i) (D)).
3. In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the Company upon
exercise of such options or rights or upon conversion of or in exchange for
such convertible or exchangeable securities, including but not limited to, a
change resulting from antidilution provisions thereof, the Warrant Price, to
the extent in any way affected by or computed using such options, rights or
securities, shall be adjusted based upon the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
4. Upon the expiration of any such options or rights,
the termination of any such options or rights to convert or exchange, or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Warrant Price, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related to such
securities, shall
<PAGE> 15
be recomputed to reflect the issuance of only the number of shares of Common
Stock (and convertible or exchangeable securities which remain in effect)
actually issued upon the exercise of such options or rights(1) upon the
conversion or exchange of such securities or upon the exercise of the options
or rights related to such securities.
5. The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subsections 4 (a) (i)
(E) (1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection 4 (a) (i)
(E) (3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 4 (a) (i) (E)) by
this Company after the Grant Date other than
(A) Common Stock issued pursuant to a transaction described in
subsection 4 (a) (iii) hereof, or
(B) shares of Common Stock issuable or issued to officers,
employees, consultants, directors of the Company or, in connection with
commercial relationships, to vendors or customers.
(iii) Notwithstanding any provisions to this Section 4 (a) to
the contrary, no adjustment to the Warrant Price shall be made to this Section
4 (a) upon issuance by the company of Additional Stock to the extent a
corresponding adjustment is made to the Conversion Price of the Preferred Stock
pursuant to the Company's Articles of Incorporation.
(iii) Upon each adjustment of the Warrant Price pursuant to
this Section 4 (a), the number of Shares issuable upon exercise hereof shall be
adjusted such that the aggregate purchase price for all of such Shares, as
adjusted, equals $60,125.00.
<PAGE> 1
EXHIBIT 9.1
VOTING AGREEMENT
This Agreement is made as of the 12th day of April, 1996 by
and among HESKA CORPORATION, a California corporation (the "Company"),
CIBA-GEIGY LIMITED, a Swiss corporation ("Ciba- Geigy"), VOLENDAM INVESTERINGEN
N.V., a Netherlands Antilles corporation ("Volendam"), CHARTER VENTURES, a
California limited partnership ("Charter I"), and CHARTER VENTURES II, L.P., a
California limited partnership ("Charter II", and collectively with Ciba-Geigy,
Volendam and Charter I, the "Shareholders").
WHEREAS, in order to induce Ciba-Geigy and the Company to
enter into that certain Series F Preferred Stock Purchase Agreement dated as of
the date hereof (the "Series F Agreement"), and to induce Charter I, Charter II
and Volendam to consent to the transactions contemplated by the Series F
Agreement, the parties hereto have indicated their willingness to enter into
this Agreement upon the terms and conditions set forth below; and
WHEREAS, the parties hereto enter this Agreement for the
additional purpose of confirming the arrangements for election of directors of
the Company;
IT IS HEREBY AGREED AS FOLLOWS:
1. Agreement to Vote. During the term of this Agreement, and
notwithstanding the provisions of Article Four, Sections 6(b), 6(c) and 6(d) of
the Amended and Restated Articles of Incorporation of the Company (the
"Restated Articles"), the Shareholders shall vote or act with respect to all
shares of the Company's voting securities now or hereafter owned by them,
whether beneficially or otherwise (the "Shares"), so as to elect the directors
of the Company as follows:
(a) One designee of Charter I and Charter II
(the "Charter Designee") who shall be reasonably acceptable to Volendam and
Ciba-Geigy. The Charter Designee shall initially be A. Barr Dolan. Any vacancy
occurring because of the death, resignation, or removal of the Charter Designee
shall be filled according to this paragraph 1(a).
(b) One designee of Volendam (the "Volendam
Designee"), who shall be reasonably acceptable to Charter I, Charter II and
Ciba-Geigy. The Volendam Designee shall initially be Denis Pomroy. Any vacancy
occurring because of the death, resignation, or removal of the Volendam
Designee shall be filled according to this paragraph 1(b).
(c) One designee of Ciba-Geigy (the
"Ciba-Geigy Designee"), who shall be reasonably acceptable to Charter I,
Charter II and Volendam. The Ciba-Geigy Designee shall initially be Dr.
Giuseppe Miozzari. Any
<PAGE> 2
vacancy occurring because of the death, resignation, or removal of the
Ciba-Geigy Designee shall be filled according to this paragraph 1(c).
(d) With respect to the remaining directors
not elected pursuant to Sections 1(a), (b) and (c), the Shareholders shall vote
their Shares to elect directors who are not affiliated in any material respect
with any of the Shareholders but are reasonably acceptable to all of the
Shareholders (the "Remaining Designees"). The Shareholders shall vote their
Shares to fill any vacancy occurring because of the death, resignation, or
removal of a Remaining Designee according to this paragraph 1(d).
2. Successors in Interest of the Shareholders. The
provisions of this Agreement shall be binding upon the successors in interest
of the Shareholders to any of the Shareholders' Shares, excluding any
purchasers of Shares in the public market.
3. Covenants of the Company. The Company agrees to take all
actions required to ensure that the rights given to the Shareholders hereunder
are effective and that the Shareholders enjoy the benefits thereof. Such
actions include, without limitation, the use of the Company's best efforts to
cause the nomination of the designees of the Shareholders, as provided herein,
for election as directors of the Company. The Company will not, by any
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all of the provisions of this
Agreement and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the Shareholders hereunder
against impairment.
4. Termination. This Agreement shall terminate upon the
earlier of (a) such time as any of the Shareholders or their successors in
interest bound hereby (with the holdings of Charter I and Charter II
aggregated) does not hold an aggregate of 2,000,000 shares of voting securities
of the Company, as adjusted for stock splits, recapitalizations and the like,
or (b) December 31, 2005.
5. Amendments and Waivers. Any term hereof may be amended
and the observance of any term hereof may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Company and each of the Shareholders.
6. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be held to
be prohibited
-2-
<PAGE> 3
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
7. Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California, without regard to the
conflict of laws provisions thereof.
8. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9. Successors and Assigns. Except as otherwise expressly
provided in this Agreement, the provisions hereof shall inure to the benefit
of, and be binding upon, the successors and assigns of the parties hereto.
Notwithstanding any other provision of this Agreement, Ciba-Geigy may assign
all of its rights and obligations hereunder in connection with the merger of
Ciba-Geigy and Sandoz Limited, and the formation of a new entity, Novartis.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
HESKA CORPORATION
By: /s/ FRED M. SCHWARZER
-----------------------
Title: President
--------------------
Address: 1825 Sharp Point Drive
Fort Collins, CO 80525
Attention: Chief Executive Officer
-3-
<PAGE> 4
SHAREHOLDERS:
CIBA-GEIGY LIMITED, a Swiss corporation
By: /s/ H.B. GURTLER DR. P. KORNICKER
-------------------------------------
H.B. GURTLER
President Animal Dr. P. Kornicker
Title: Health Division Division Counsel
----------------------------------
Address: Klybecksts A4A
----------------------------------------
4002 Basel
----------------------------------------
Attention: Dr. R. Muttenzer
----------------------------------------
CHARTER VENTURES, a California limited
partnership
By: /s/ A. BARR DOLAN
-------------------------------------
Title: General Partner
----------------------------------
Address: 525 University Avenue
Suite 1500
Palo Alto, CA 94301
Attention: A. Barr Dolan
CHARTER VENTURES II, L.P.
By: /s/ A. BARR DOLAN
-------------------------------------
Title: GENERAL PARTNER
----------------------------------
Address: 525 University Avenue
Suite 1500
Palo Alto, CA 94301
Attention: A. Barr Dolan
-4-
<PAGE> 5
VOLENDAM INVESTERINGEN N.V.
/s/ ANNEKE SOEDHOE
By: Mees Pierson Trust (Curacao) N.V.
-------------------------------------
Title: Managing Director
----------------------------------
Address: c/o Mees Pierson Trust (Curacao)
14 John B. Gorsiraweg
P.O. Box 3889
Curacao, Netherlands Antilles
Attention: Germaine Sprock
-5-
<PAGE> 1
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION]
EXHIBIT 10.1
EISAI/PARAVAX
COLLABORATIVE
AGREEMENT
JANUARY 1993
<PAGE> 2
AGREEMENT
This Agreement is made and entered into on this 25 day of January 1993 by and
between Paravax, Inc., a corporation duly organized and existing under the laws
of the Sate of California, U.S.A., having its principal place of business at
2301 Research Blvd. Suite 110, Fort Collins, Colorado 80526, U.S.A ("Paravax")
and Eisai Co., Ltd., a corporation duly organized and existing under the laws
of Japan, having its principal place of business at 4-6-10, Koishikawa, Bunkyo-
ku, Tokyo, 112-88 Japan ("Eisai").
WITNESSETH:
WHEREAS, Paravax is in the business of the research and development of
certain potential vaccines for animal use and has the full right to develop,
manufacture, use and sell the potential vaccines described in Exhibits A and C
attached hereto (the "Products");
WHEREAS, Eisai is willing to provide certain funding to assist Paravax
in the research and development of the Products; and;
WHEREAS, in exchange for Eisai's provision of funding, Paravax is
willing to grant to Eisai the exclusive right to distribute, sell and market
the Products in Japan and Southeast Asia including the People's Republic of
China which are more fully described in Exhibit B attached hereto (the
"Territory").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, Paravax and Eisai hereby agree as follows:
1
<PAGE> 3
ARTICLE 1. GRANT OF RIGHTS
Paravax hereby grants to Eisai the exclusive rights to distribute, sell
and market the Products in the Territory during the term of this Agreement.
Eisai shall have the right to distribute, sell and market the Products through
its subsidiary corporations or through corporations over which it has common
control with another corporation. Eisai shall also have the right to appoint a
third party as a distributor in connection with the distribution, sale and
marketing of the Products in the Territory.
ARTICLE 2. CONSIDERATION
As consideration for the rights granted by Paravax to Eisai hereunder,
Eisai shall pay a license fee of [
] to Paravax within 30 days from the date of execution of this
Agreement.
ARTICLE 3. RESEARCH SUPPORT PAYMENT
Eisai shall provide annual funds to support research and development to
Paravax in two equal payments per year (the "Research Support Payments") for
each of the Products. The first of the Research Support Payments for each of
the Products shall be equal to one-half (1/2) of the annual amount indicated in
Exhibit D attached hereto and shall be made within thirty (30) days from the
date of this Agreement. The second of the Research Support Payments for each
of the Products shall also be equal to one-half (1/2) of the annual amount
2
<PAGE> 4
indicated in Exhibit D attached hereto and shall be paid when the milestones,
as set forth on Exhibit E attached hereto, have been met with respect to that
specific Product.
The first of the Research Support Payments for each of the Products to
be made in the second and third years of this Agreement shall be equal to one-
half (1/2) of the annual amount indicated in Exhibit D attached hereto and
shall be paid within thirty (30) days from the first day of such year. The
second of the Research Support Payments for each of the Products to be made in
the second and third years of this Agreement shall also be equal to one-half
(1/2) of the annual amount indicated in Exhibit D attached hereto and shall be
paid when the respective milestone for such payment, as set forth on Exhibit E
attached hereto, has been met with respect to that specific Product.
ARTICLE 4. TERMINATION OF RESEARCH SUPPORT PAYMENTS
Eisai shall have the option to discontinue the Research Support Payments
for any and/or all the Product(s) by giving ninety (90) days prior written
notice to Paravax. In the event that Eisai decides to discontinue Research
Support Payments for such Product(s), Eisai shall lose all rights granted by
Paravax to Eisai hereunder with respect to the distribution, sale and marketing
of such product(s) in the Territory.
ARTICLE 5. RESEARCH AND DEVELOPMENT
In the event that Paravax decides to discontinue research and
development with respect to any Product as to which Eisai is willing to
continue Research Support Payments or has paid Research Support Payments:
3
<PAGE> 5
i) Eisai shall have the right to discontinue Research Support Payments
immediately;
ii) Paravax shall provide Eisai with all data, reports, materials and
any other technical information that are in the possession of Paravax at the
time of such discontinuation;
iii) Eisai shall have the right to use all data, reports, materials and
any other technical information provided by Paravax hereunder in order to
continue research and development of such Product on its own and shall also
have the exclusive rights (with the right to sublicense) to manufacture,
distribute, sell and market any resulting Product in the Territory, provided,
however, that Eisai shall pay a reasonable royalty to Paravax with respect to
its sales of such resulting Product in the Territory, the amount of which
royalty shall take into consideration the value of the technical information
and materials provided by Paravax and whether any patents owned by Paravax are
used in the manufacture, distribution, sale or marketing of the Product;
iv) Eisai shall give Paravax the right of first refusal to obtain an
exclusive right to distribute, sell and market such resulting Product anywhere
outside of the Territory, except for European countries where Paravax shall be
granted the non-exclusive right to distribute, sell and market such resulting
Product. The terms of such exclusive right and non-exclusive right shall take
into consideration the value of the technical information and materials
provided by Paravax and whether any patents owned by Paravax are used in the
manufacture, distribution, sale of marketing of the Product:
v) When Paravax is interested in obtaining the exclusive right and/or
the non-exclusive right set forth in the preceding paragraph, Paravax and Eisai
shall in good faith discuss and determine the terms and conditions of a
distribution agreement to be executed by the parties hereto, separately from
this
4
<PAGE> 6
Agreement. Paravax shall pay a reasonable purchase price to Eisai with respect
to Paravax's purchase of such resulting Product from Eisai, in accordance with
the provisions of the distribution agreement. In the event that it is not
commercially feasible for Paravax to distribute, sell and market any Products
outside the Territory at the price charged to Paravax by Eisai for such
Products, or that Eisai materially breaches its obligation pursuant to the
terms and conditions of the distribution agreement to supply Paravax's
requirements for Products for distribution and sale outside the Territory,
Eisai shall grant to Paravax the rights (with the rights to sublicense) to
manufacture, distribute, sell and market such Products outside the Territory,
provided, however, that Paravax shall pay a reasonable royalty to Eisai with
respect to Paravax's sale of such Products outside the Territory.
ARTICLE 6. SUPPLY OF PRODUCTS
Paravax shall manufacture and provide Eisai with all Products to be sold
by Eisai pursuant to this Agreement, other than those developed by Eisai
pursuant to Article 5 hereof. The price charged to Eisai by Paravax for such
Products shall be reasonably agreed to by Paravax and Eisai and shall provide
for a reasonable profit to Paravax as part of such price. A Supply Agreement
for Products will be made and executed by the parties hereto, separately from
this Agreement. The Supply Agreement will provide for reasonable forecasts,
lead times and minimum order quantities and will require Paravax to use its
best efforts to fill all such orders by Eisai, but will allow for reasonable
and understandable delays.
5
<PAGE> 7
ARTICLE 7. GRANT OF MANUFACTURING RIGHTS
Notwithstanding the provisions of Article 6 above, in the event that it
is not commercially feasible for Eisai to distribute, sell and market any
Product in the Territory at the price charged to Eisai by Paravax for such
Product, or that Paravax materially breaches its obligations pursuant to terms
of the Supply Agreement to supply Eisai's requirements for Products for
distribution and sale in the Territory, Paravax shall grant to Eisai the
exclusive rights (with the right to sublicense) to manufacture the Product for
distribution, sale and marketing in the Territory to the extent permitted by
Article 1 of this Agreement.
ARTICLE 8. DEVELOPMENT PLAN
Paravax shall, as a condition precedent hereto, prior to execution of
this Agreement, deliver a development plan for the Products to Eisai. This
development plan shall set forth Paravax's anticipated development program for
each of the Products, together with significant anticipated milestones and
corresponding projection dates for the completion of such milestones.
ARTICLE 9. PATENT AND REPORTS, ETC.
9.1 Paravax shall represent and warrant to Eisai that Paravax has full right
and authority to fulfill its obligations pursuant to this Agreement, and
Paravax shall immediately disclose to Eisai any pending patent applications and
registered patents for the Products in the Territory and shall cooperate with
Eisai with respect to the filing of additional patent applications for the
Products in the Territory.
6
<PAGE> 8
9.2 Promptly after registration and issuance of the patents for the Products
in the Territory, Paravax and Eisai, shall register, at Eisai's sole
discretion, any and all exclusive licenses for the patent (in Japan, such
exclusive license for the patent shall be registered as "senyo-jisshi-ken" as
provided for in Articles 77 and 98 of the Japanese Patent Law and corresponding
provisions in other countries and jurisdictions in the Territory) granted to
Eisai hereunder under the patent law in the Territory. Upon Eisai's request,
Paravax shall provide Eisai with necessary documents and/or information in
cooperation with the registration of such exclusive license for the patent.
9.3 In the event that additional patents are filed as a result of scientific
collaboration between Paravax and Eisai, such patents shall be jointly owned
by both Paravax and Eisai and all necessary filings shall be made to reflect
such joint ownership with the applicable patent authorities. Paravax and Eisai
shall enter into a separate written agreement reflecting the nature and scope
of any such scientific collaboration prior to its commencements. Any and all
expenses necessary for obtaining and maintaining such patents jointly owned by
both Paravax and Eisai shall be equally borne by Paravax and Eisai anywhere.
9.4 Paravax shall cooperate with Eisai to allow Eisai to conduct reasonable
testing of the antigen materials to be used for the Products.
9.5 Paravax shall provide quarterly written reports to Eisai on its research
efforts with respect to the Products during the time that Eisai is providing
Research Support Payments with respect to such Products. Paravax shall also
provide written reports to Eisai on its research efforts with respect to the
Products during the term of this Agreement at any time upon written request
from Eisai.
7
<PAGE> 9
9.6 Eisai's scientific personnel shall be freely allowed to visit Paravax's
facilities in order to evaluate the research efforts by Paravax pursuant to
this Agreement.
ARTICLE 10. TRADEMARK
Eisai shall distribute, sell and market the Products in the Territory
using its own trademarks and trade names. Eisai shall be responsible for
obtaining and maintaining all regulatory approval necessary for the lawful
distribution, sale and marketing of the Products in the Territory.
ARTICLE 11. TERM
The term of this Agreement shall be fifteen (15) years from the date of
execution of this Agreement, unless this Agreement is terminated sooner in
accordance with the provisions set forth herein, provided, however, that this
period may be extended by mutual agreement between both parties.
ARTICLE 12. TERMINATION
12.1 If this Agreement has not otherwise been extended or terminated, not
later than twelve months prior to end of the fifteen (15) year term provided
for in Article 11 hereof, Eisai and Paravax shall meet and attempt in good
faith to negotiate an extension of this Agreement upon terms which are
commercially reasonable as of such date.
8
<PAGE> 10
12.2 Either party may terminate this Agreement upon written notice to the
other party if the other party has materially failed to perform or comply with
any of its material obligations set forth herein and if such failure has
continued for more than sixty (60) days after the receipt of written notice
requesting performance of compliance thereof. Although either party may
terminate this Agreement in the event that the other party fails to perform or
comply with any of its obligations set forth herein, neither party shall be
responsible to the other party for any lost profits, replacement costs or
similar damages as a result of such failure to perform or comply with any of
its obligations set forth herein, provided, however, that in the event that the
other party has materially failed to perform or comply with any of its material
obligations set forth herein, the other party in default shall be responsible
to the non-defaulting party for any expenses, costs, lost profits, replacement
costs and damages (including reasonable attorney's fees) incurred by the non-
defaulting party as a result of such failure.
12.3 Eisai may terminate this Agreement upon written notice to Paravax (i) if
Dr. Robert B. Grieve has retired or resigned from Paravax or has stopped his
involvement in the research and development of the Products, such that, in
Eisai's judgment, it will be difficult to continue the research and development
of the Products, or (ii) if a key researcher has retired or resigned from
Paravax or has stopped his/her involvement in the research and development of
the Products, such that, in Eisai's judgment, it will be difficult to continue
the research and development of the Products.
9
<PAGE> 11
12.4 Either party may terminate this Agreement upon sending a written notice
to the other party when (i) the other party has transferred its business or
material assets to a third party, (ii) the rights and obligations under this
Agreement, in whole or in part, have been assigned by the other party to any
third party without the prior written consent of the party or (iii) the other
party is deemed to have financial difficulties which would necessitate, among
others, the appointment of a receiver, the postponement of loan payments,
application for bankruptcy, insolvency or similar proceedings.
12.5 In the event that either party is acquired by a third party, including
but not limited to, by merger, consolidation, sale of assets, or by such
issuance or transfer of a sufficient number of shares of its capital stock that
the shareholders of such party immediately prior to the transaction hold less
than fifty percent (50%) of the number of share outstanding immediately after
such transaction, the other party may, at its sole option, either (i) terminate
this Agreement upon thirty (30) days written notice to such party, or (ii)
continue the performance of this Agreement thereafter, provided that the
acquiring party assign all rights and obligations of this Agreement to the
acquiring party and the terms and conditions thereof shall be reviewed by the
other party to determine if they would be acceptable to the other party.
12.6 In the event that this Agreement is terminated by Eisai pursuant to
Section 12.2, 12.3(i), and 12.4 hereof as a result of a breach of this
Agreement by Paravax, Paravax shall immediately provide Eisai with all data,
reports, materials and any other technical information that are in the
possession of Paravax at the time of the termination of this Agreement with
respect to the
10
<PAGE> 12
manufacture of the Products, and without paying any compensation to Paravax,
Eisai shall have the right to use all such data, reports, materials, patents
(if any) and any other technical information provided by Paravax hereunder in
order to continue research and development of the Products on its own and shall
have the perpetual rights (with the rights to sublicense) to manufacture such
Products for distribution, sale and marketing in the Territory to the extent
permitted by Article I of its Agreement, provided, however, that, in case of
termination of this Agreement by Eisai pursuant to Section 12.3(i), Paravax
also has a right to use the data, reports, materials, patents (if any) and any
other technical information provided by Paravax to Eisai hereunder. It is
expressly agreed that a termination of this Agreement pursuant to the
provisions of Sections 12.3, 12.4 (excluding Sections 12.4 (ii) and (iii)) or
12.5 hereof shall not be deemed to be a termination as a result of a material
breach of this Agreement.
ARTICLE 13. INTELLECTUAL PROPERTY
13.1 Paravax will defend, at its own expense, any claim, suit or proceeding
brought against Eisai to the extent it is based upon a claim that any Product
sold to Eisai pursuant to this Agreement infringes upon any patent, copyright
or trade secret of any third party in the Territory. Eisai agrees that it
shall promptly notify Paravax in writing of any such claim or action and give
Paravax full information and assistance in connection therewith. Paravax shall
have the right to control the defense of any such claim or action and the right
to settle or compromise any such claim or action, provided, however, that
Paravax shall not make any settlement or compromise which would prevent Eisai
from manufacturing, distributing, selling, and marketing the Product(s) under
this Agreement. If Eisai complies with the provisions hereof, Paravax will pay
all damages, costs and expenses finally awarded to third parties against Eisai
in such action. If such Product does infringe, or in Paravax's opinion
11
<PAGE> 13
might be held to infringe, as set forth above, Paravax may, at its option,
replace or modify such Product so as to avoid infringement, or procure the
right for Eisai to continue the distribution, sale and marketing of such
Product in the Territory. If neither of such alternatives is commercially
reasonable, Eisai may terminate this Agreement upon written notice to Paravax.
13.2 Paravax will have no liability for any claim of infringement arising as
a result of Eisai's use of the products in combination with any items not
supplied by Paravax, or any modification of the products by Eisai or third
parties.
13.3 The foregoing states the entire liability of Paravax to Eisai or any
purchaser of Products concerning infringement of intellectual property rights,
including but not limited to, patent, copyright and trade secret rights.
ARTICLE 14. CONFIDENTIALITY
During the term of this Agreement and for a period of two (2) years
after the expiration of the term of this Agreement or for a period of five (5)
years after early termination of this Agreement for any cause whatsoever,
neither party shall disclose any information acquired during the performance of
this Agreement related to plans, drawings, specifications, business goals,
customers, personnel, products, manufacturing processes, work procedures or
servicing to any third party.
The confidentiality provision set forth above shall not be applicable in
the following circumstances:
a. when the information concerned becomes public knowledge or
publicly available without infringing the terms of this
Agreement;
12
<PAGE> 14
b. when the party which received the information concerned had
already been, in possession of such information without any
obligation to keep it confidential, on the date of such receipt;
c. when either party received the information concerned from a third
party or developed such information independent from the
information received from the other party;
d. when the other party has given its consent in writing for the
information concerned to be revealed;
e. when it is inevitable for the information concerned to be
revealed through distribution of the Products or through
documents related to the Products;
f. when the information concerned is revealed in accordance with a
legal order from government authorities;
In this case, however, the party receiving the information shall
in good faith use the information or documents received only for
the objectives of the order concerned; or
g. when the information concerned is required by law or when it is
required in connection with government investigations, procedures
or regulations.
13
<PAGE> 15
ARTICLE 15. LIABILITY
15.1 Paravax agrees to indemnify Eisai against any damages awarded to any
third party against Eisai and/or its distributor for any effect of defective
Product or any adverse side effects resulting to such third party as a result
of the use of the Products in the manner specified by Paravax or for any
failure of warning to the extent that the warnings specified by Paravax have
been provided.
15.2 Eisai agrees to indemnify Paravax against any damages awarded to any
third party against Paravax arising out of any fault or misconduct of Eisai or
its distribution of the products, including any failure to provide the warnings
specified by Paravax.
ARTICLE 16. WITHHOLDING TAX
Any tax required to be withheld by the Japanese government or other
authorities on the amounts payable by Eisai to Paravax under this Agreement
shall be deductible from the payment due to Paravax, provided that Eisai shall
furnish Paravax with a copy of the official tax receipt for such withholding
tax.
ARTICLE 17. ARBITRATION
All disputes, controversies, or differences which may arise between the
parties, out of or in relation to or in connection with this Agreement or a
breach thereof, unless amicably resolved by mutual agreement, shall be finally
settled by arbitration pursuant to the Japan-American Trade Arbitration
Agreement of September 16, 1952, by which each party hereto is bound. If the
arbitration is demanded by Paravax, it shall be held in Tokyo, Japan, and if
the arbitration is demanded by Eisai, it shall be held in Denver, Colorado,
U.S.A.
14
<PAGE> 16
ARTICLE 18. NOTICES
All notices, consents, approvals, and other communications hereunder
shall be in writing and shall be deemed to have been given when received if
delivered by hand, international courier service, certified or registered air
mail, postage prepaid, return receipt requested, telex, of telecopy.
ARTICLE 19. MISCELLANEOUS PROVISIONS
19.1 This Agreement cancels and replaces all prior oral or written agreements
pertaining to the subject matter of this Agreement between Paravax and Eisai.
19.2 Either party shall not, without the prior written consent of the other
party (such consent shall not be withheld unreasonably), transfer this
Agreement in whole or in part to a third party or subsidiary, affiliated
company, parent company or to any other related company.
19.3 This Agreement shall not be altered or modified unless documents
specifying the alteration or modification are signed by both parties, and it
shall be binding and valid for any person succeeding to or taking over from
either party.
19.4 Nothing herein shall create any association, partnership, joint venture,
or the relation of principal and agent between the parties hereto. They are,
with respect to each other, independent contractors. Neither party shall have
any authority to bind the other or the other's representatives in any way.
Neither party shall hold itself out contrary to the terms of this paragraph nor
become liable by any contrary act or omission of the other party. This
Agreement is not for the benefit of any third party.
15
<PAGE> 17
19.5 A waiver by either party of any term or condition of this Agreement in
any instance shall not be deemed or construed as a waiver of such term or
condition for the future, or of any subsequent breach thereof. All remedies,
rights, undertakings, obligations and agreements contained in this Agreement
shall be cumulative and none of them shall be in limitation of any other
remedy, right, undertaking, obligation or agreement of either party.
IN WITNESS WHEREOF, this Agreement is executed in two (2) originals by
the duly authorized representatives of the parties hereto, each original being
legally binding when signatures have been affixed thereto, as of the date first
written above.
Paravax, Inc. a Eisai Co., Ltd., a
California corporation Japanese corporation
by /s/ DANIEL F. CAIN by /s/ ICHIRO TANAKA
---------------------------------- ----------------------------------
16
<PAGE> 18
EXHIBIT A
SCOPE OF THE PRODUCTS
1. Canine Heartworm Vaccine
2. Feline Heartworm Vaccine
3. Feline Flea Vaccine
4. Canine Flea Vaccine
5. Feline Toxoplasmosis Vaccine
6. Swine/Ovine Toxoplasmosis Vaccine
7. Canine Tick Vaccine
8. Canine Borreliosis (Lyme) Vaccine
17
<PAGE> 19
EXHIBIT B
LIST OF THE TERRITORY
1. Japan
2. People's Republic of China including Hong Kong
3. Taiwan
4. Thailand
5. Singapore
6. Malaysia
7. Philippines
8. Indonesia
9. Korea
10. Other countries to be agreed by both parties
18
<PAGE> 20
EISAI/PARAVAX
COLLABORATIVE
AGREEMENT
EXHIBIT C
JANUARY 1993
<PAGE> 21
Exhibit C
TABLE OF CONTENTS
<TABLE>
<S> <C>
CANINE HEARTWORM 1 - 5
FELINE HEARTWORM 6 - 10
CANINE FLEA 11 - 15
FELINE FLEA VACCINE 16 - 19
FELINE TOXOPLASMOSIS 20 - 24
SWINE/OVINE TOXOPLASMOSIS 25 - 30
CANINE TICK 31 - 34
CANINE BORRELIOSIS (LYME) 35 - 38
</TABLE>
<PAGE> 22
Exhibit C
CANINE HEARTWORM VACCINE PROJECT
INTRODUCTION
Dirofilaria immitis, a filarial nematode, is a significant pathogen of
dogs and cats. There is little evidence for naturally occurring protective
immunity in any filarial infection arising from a natural host-parasite
relationship. However, we have created a highly significant immune response in
dogs which received chemically abbreviated Dirofilaria immitis larval
infections. We also used sera from the immune animals to demonstrate that
antibody was effective in passively transferring larval killing and stunting.
Therefore, those same sera were used to selectively identify native larval
antigens not detected by sera from nonimmune, infected cohorts. Antigens that
are detected only by immune dog sera have been characterized by Western blot
analysis of larval extracts and excretory-secretory products, and
immunoprecipitation of metabolically labeled proteins and larval surface
antigens.
CURRENT STATUS
To molecularly clone the genes encoding protective antigens, four cDNA
expression libraries have been prepared in a lambda bacteriophage vector using
Poly A selected RNA from adult male or female worms, 48 hour third stage (L3)
larvae and 6 day fourth stage (L4) larvae. Screening of the D.immitis 48 hour
L3 cDNA library has resulted in identification of two clones (p39 and p17.5)
which have been targeted as potential vaccine candidates. We have shown that
these clones encode larval specific proteins of 39 kD and 17.5 kD, respectively,
that are only recognized by immune dog sera. The p39 beta-galactosidase fusion
peptide has been expressed in E. coil and shown to react specifically with
immune dog sera by Western blot analysis. Both genes are being subcloned into
bacterial plasmid vectors designed for large scale production of affinty
purified recombinant protein for use in immunization trials. These genes are
also being subcloned into species-specific viral constructs for use as live,
attenuated viral vaccines in dogs.
RESEARCH PLAN
1. Isolating recombinant clones.
The library screening strategy is designed to detect genes encoding
protective antigens. Therefore, larval-specific proteins selectively identified
by immune dog sera on Western blots are being targeted for molecular cloning by
immunoscreening the larval libraries with the immune dog sera. Initially, four
of these putative immunogens will be cloned, expressed and tested for efficacy.
Following isolation and purification of a positive clone, the D. immitis
recombinant phage will be converted to plasmid clones by in vivo excision in
the presence of helper phage. The resulting pBluescript clones will be
transformed into an appropriate E. coil host for generation of recombinant
plasmid DNA.
1
<PAGE> 23
Exhibit C
To verify that the recombinant clones encode the protein of interest,
fusion protein expressed by the purified recombinant phage will be bound to a
nitrocellulose filter and used to affinity-purify clone-specific antibodies
from the original immune dog sera. The monospecific antibodies will then be
eluted and used in Western blot analysis to identify the molecular weight of
the native D. immitis larval antigen encoded by the recombinant.
COMPLETION CRITERIA: Isolation and purification of four independent
recombinant clones encoding larval specific antigens recognized by immune sera.
Completion of the western blot analyses to determine the molecular weight of
the native D. immitis antigen encoded by each clone.
[
]
3. Identification of protective recombinant antigens in a mouse
model.
Protective immunity to the larval stages of D. immitis will be
demonstrated by active and passive immunization of mice.
A. Active immunization of mice.
Mice will be immunized with affinity purified recombinant fusion
protein and challenged by implantation of diffusion chambers containing
infective larvae. The parameters for protection will include larval
survival and larval length compared to nonimmune controls.
B. Passive immunization of mice.
Mice will receive sera from dogs immunized with the affinity
purified
2
<PAGE> 24
Exhibit C
recombinant fusion proteins or sera from dogs vaccinated with recombinant
virus. Challenge and evaluation for protection will be as described above.
COMPLETION CRITERIA: Demonstration of significant stunting of larvae or
reduction in larval survival.
4. Identification of protective recombinant antigens in dogs.
A. Immunization with D. immitis recombinant fusion protein expressed in E.
coil:
Dogs will be immunized with affinity-purified recombinant protein in
adjuvant. Antibody titers will be monitored by enzyme linked immunosorbent
assay (ELISA) and specificity of the response will be verified by Western blot
analysis. Following verification of an antibody response to the fusion
protein, dogs will be challenged with infective third stage larvae. Protection
will be assessed by the enumeration of adult worms at necropsy, 7 months after
challenge.
B. Live, attenuated viral vaccine.
D. immitis viral constructs will be administered subcutaneously.
Antibody titers will be monitored as described above. Following verification
of an antibody response to the recombinant protein, dogs will be challenged and
protection evaluated as previously described.
COMPLETION CRITERIA: 70% protection in immunized dogs.
5. Maximize protective immunity.
The immunization regime and antigen(s) stimulating the highest level of
protection will be used for optimization of the vaccination protocol. These
studies may include administration of a pool of antigens, dose titrations of
inoculum and alternate formulations in adjuvant(s).
COMPLETION CRITERIA: A minimum of 95% efficacy.
6. Large-scale production of immunogens.
Depending on the most successful immunization regime, vaccine production
will involve either large scale production of recombinant fusion protein in E.
coil or species-specific recombinant viral constructs produced in tissue
culture.
COMPLETION CRITERIA: Production of product in a USDA licensed facility for
USDA pre-licensing serials.
7. Submission to USDA.
Submission of application for United States veterinary biological
product license.
3
<PAGE> 25
Exhibit C
PATENTS AND PATENT SUBMISSIONS OF RELEVANCE TO
LICENSING IN JAPAN AND SOUTHEAST ASIA
[
]
[
]
[
]
Per agreement with Colorado State University Research Foundation, Paravax has
acquired exclusive worldwide rights to technology arising out of a Research
Agreement dated June 1, 1988, relating to heartworm vaccine, for a period of 15
years or expiration of the patent.
4
<PAGE> 26
Exhibit C
FELINE HEARTWORM VACCINE PROJECT
INTRODUCTION
Feline heartworm infections are an increasingly recognized problem. The
clinical signs and pathology induced in cats by heartworm infection are
generally thought to be more severe than in dogs, death sometimes occurring
with as few as one or two worms. There is currently no approved chemo- or
immuno-prophylactic for cats, so the introduction of any preventative product,
even if less than 100% effective, would be widely accepted.
The purpose is to develop a vaccine to prevent mature heartworm
infections in cats. Since cats are poorly adapted hosts for Dirofilaria
immitis, development of an efficacious vaccine would be more readily achieved
than that for the canine host. It is also believed that antigens not
necessarily effective in the dog would be effective as vaccines in the cat.
Proof of concept has been shown by Paravax, Inc. Two studies using
homogenized fourth stage larvae with adjuvant given by intramuscular injection
resulted in complete protection levels as high as 100% when compared to
controls. In one experiment a decrease in worm numbers in immunized cats that
were not completely protected was also observed. By contrast, the use of
killed homogenized parasites has no protective effect in the definitive canine
host.
CURRENT STATUS
Further evaluation of the relative ease of protecting cats with
homogenized native antigen pools is underway. A 48 cat study using whole adult
male worm homogenate with or without adjuvant is in progress. This is an
antigen preparation shown to have no effect in protecting dogs from heartworm
infections. Preliminary results are expected in the first quarter of 1993 and
the final results in the second quarter of 1993.
Paravax, Inc. has one of the best facilities and supply of reagents for
the study of D. immitis in the world. [
] Dogs
with patent infections are maintained for continuous larval production.
Treatment and challenge studies are routinely performed on dogs and cats, and
in a mouse model system. A variety of larval specific monoclonal antibodies,
infected dog sera, occult infected dog sera, sera from dogs immune to infection
with heartworm and sera from a variety of cat heartworm studies are available.
Four cDNA expression libraries have been prepared using Poly A selected RNA
from 48 hour third stage larvae, 6 day fourth stage larvae, adult male worms
and adult female worms.
6
<PAGE> 27
Exhibit C
Two molecules (p39 and p17.5) have been cloned from the 48 hour third
stage larval cDNA library. These molecules are uniquely recognized by sera
derived from dogs immune to infection with heartworm, but not sera from
infected non-immune dogs. These molecules are currently being subcloned for
expression for the purpose of immunizing cats. Both will also be used in a
live feline-specific virus vector system in cats.
RESEARCH PLAN
1. Evaluation of adult worm homogenate.
This study is to further validate that cats can be protected against
heartworm infection by means unsuccessful in dogs. Cats have been immunized
twice with adult male worm homogenate and challenged with forty infective stage
larvae either 3 months or 6 months post second immunization. The studies will
be terminated 170 days post challenge.
COMPLETION CRITERIA: Termination of the study and evaluation of the protective
effect, if any, of adult male worm antigen.
2. Expression of recombinant proteins.
Two potentially protective proteins (p39 and p17.5) have been cloned
from the 48 hour third stage larval cDNA library. These will be subcloned into
a vector system designed for large scale production of protein that can be
purified.
COMPLETION CRITERIA: Purification of the recombinant protein for initial
immunization trials.
[
]
4. Evaluation of efficacy of recombinant protein immunogens.
Cats will be immunized twice with purified recombinant protein suspended
in adjuvant, and sero-conversion verified by enzyme linked immunosorbent assay
(ELISA). Following verification of sero-conversion, standard challenge and
evaluation of protection will be performed.
COMPLETION CRITERIA: Termination of the study and evaluation of the protective
effect.
7
<PAGE> 28
Exhibit C
[
]
6. Maximization of protective immunity.
The immunization regime and antigen(s) stimulating the highest level of
protection will be used for optimization of the vaccination protocol. These
studies may include administration of a pool of antigens, dose titrations,
alternate route of inoculation and utilization of alternate adjuvants. At this
stage, other cloned D. immitis proteins identified in the canine heartworm
vaccine project may also be evaluated to augment immunity.
COMPLETION CRITERIA: Achievement of complete protection in at least 80% of
immunized cats.
[
]
8. Submission to USDA.
Submission of application for United States veterinary biological
product license.
8
<PAGE> 29
Exhibit C
PATENTS AND PATENT SUBMISSIONS OF RELEVANCE TO
LICENSING IN JAPAN AND SOUTHEAST ASIA
Colorado State University and Paravax, Inc.
Attorney: Kate Murashige
Morrison and Forester, Palo Alto, CA
[
]
Per agreement with Colorado State University Research Foundation, Paravax has
acquired exclusive worldwide rights to technology arising out of a Research
Agreement dated June 1, 1988, relating to heartworm vaccine technology, for a
period of 15 years or expiration of the patent. Please note that the
preceding patent application which is specific to the feline heartworm vaccine
is in addition to the two patents listed previously for the canine heartworm
vaccine technology. Those patents will also apply to the feline heartworm
vaccine technology.
9
<PAGE> 30
Exhibit C
CANINE FLEA VACCINE PROJECT
INTRODUCTION
Fleas are a leading health problem in companion animals worldwide. Flea
allergy dermatitis is the most common skin disorder of dogs and cats. Flea
problems comprise as much as 80% of all visits to veterinarians during summer
months in the United States; flea problems of similar magnitude exist
throughout the world.
There are chemical compounds on the market for dogs that, when ingested,
will absorb into the bloodstream and kill fleas that are feeding on the dog.
However, these products have toxic side effects and veterinarians prefer not to
prescribe them. A safe vaccine against fleas would be welcomed by
veterinarians, and would replace existing systemic products.
The purpose of the flea vaccine project is to develop a vaccine product
that elicits antibodies that will kill fleas when they feed on dogs or cats.
In addition to killing fleas, the vaccine will also reduce the number of eggs
infesting the environment.
The rationale for the flea vaccine is that cattle can be protected from
tick infestation when vaccinated with "hidden antigens" derived from the gut of
the tick. The flea, like the tick, is a blood feeding arthropod. Fleas
feeding on vaccinated animals will take up antibodies to the hidden antigens.
The function of the antigen will be disrupted, leading to death of the flea.
Paravax has demonstrated proof of concept for this vaccine. Trials with
a prototype vaccine have demonstrated a significant flea killing ability when
administered to dogs. In addition, female fleas that initially survived had a
significantly reduced capacity to produce eggs.
CURRENT STATUS
Paravax has established a flea colony utilizing a novel artificial
feeding system. This system has a production capacity of 60,000 fleas per
week. Vaccine preparations are made from the fleas produced in this system. A
flea bioassay has also been developed utilizing the artificial feeding system.
The bioassay can be used to evaluate the potency of antiserum generated in
animals and then artificially fed to fleas.
Paravax scientists have demonstrated that antigens derived from the gut of fed
fleas induce greater immunity to fleas than those derived from unfed fleas.
Antiserum to both fed and unfed flea gut antigens has been generated in dogs
and rabbits, and is available for a subtractive approach to antigen discovery.
11
<PAGE> 31
Exhibit C
RESEARCH PLAN
1. Identification of relevant native antigens.
Antigens that are specifically recognized by antibodies from protected
dogs will be identified by Western blotting and radioimmunoprecipitation. Of
these antigens, those that are exclusive to the fed gut will be targeted for
gene cloning.
COMPLETION CRITERIA: Identification of up to four native antigens that are
exclusively recognized by antibodies from protected animals.
2. Generation of a flea gut cDNA library.
A cDNA expression library will be generated using poly A selected RNA
derived from the gut of blood fed fleas. A cDNA library will also be generated
from mRNA isolated from the gut of unfed fleas to facilitate a subtractive
approach to the identification of relevant antigens exclusive to the fed gut.
COMPLETION CRITERIA: Production of a representative fed flea gut and unfed
flea gut cDNA library.
3. Clone genes of relevant antigens.
Immunization studies have indicated a protective effect in animals
inoculated with fed flea gut supernatants, therefore to target protective
antigens, the fed gut library will be differentially screened with antisera
from immune animals. Positive clones will subsequently be screened with non
immune sera to eliminate nonrelevant clones. This same differential approach
can be implemented by hybridization analysis of the fed flea gut library with
cDNA probes prepared from fed and unfed flea gut mRNA. This would identify
clones not detected by immunoscreening due to incorrect reading frames. To
further enrich for fed flea gut specific genes, a third subtracted cDNA library
will be constructed from the original cDNA libraries by standard protocols and
then immunoscreened as described. This library will contain cDNA clones
corresponding to mRNAs present in fed flea gut and not present in unfed flea
gut.
COMPLETION CRITERIA: Identification of up to four antigens that are
exclusively recognized by antibodies from protected animals.
4. Gene expression.
Clones isolated from the fed flea gut cDNA expression library will be
expressed in E. coil and the resulting fusion proteins characterized by Western
blot analysis with immune sera. To verify that the recombinant clones encode
the protein of interest, fusion protein expressed by the purified recombinant
phage is bound to a nitrocellulose filter and used to affinity-purify clone-
specific Antibodies from the
12
<PAGE> 32
Exhibit C
original immune sera. The monospecific antibodies are then eluted and used in
Western blot analysis to identify the molecular weight of the native flea gut
antigen encoded by the recombinant. The clones will be subcloned into a vector
system optimized for large scale production of fusion protein that can be
purified by affinity chromotography.
COMPLETION CRITERIA: Identification of the molecular weight of up to four
relevant flea gut native antigens encoded by the recombinant clone. Affinity
purification of the recombinant fusion peptides for initial immunization
trials.
5. Identification of protective recombinant antigens.
Recombinant proteins will be produced in flask cultures of E. coil. The
proteins will be purified from culture supernatants by affinity chromatography.
Dogs will be vaccinated and challenged using a standard protocol. Briefly,
animals will be vaccinated with antigen plus adjuvant in 2 doses, 2 weeks
apart. Two weeks after the second vaccine dose, each animal will be challenged
with 50 fleas contained in a flea cage. The number of viable and dead fleas,
plus the number of eggs produced will be counted 7 days later. Animals
receiving adjuvant alone will be used as controls. The antigen that stimulates
the highest level of protective immunity will be selected for final
optimization.
COMPLETION CRITERIA: Identification of one antigen that elicits a
statistically significant level of immunity in dogs.
6. Maximization of protective immunity.
The vaccine will be optimized for the highest level of efficacy. Paravax
has access to a panel of adjuvants and immunopotentators with potential for use
in companion animals. These will be screened in combination with the selected
antigen for maximum efficacy in vaccination experiments as described above.
Vaccine dose and regimen of administration will also be optimized for maximum
efficacy.
COMPLETION CRITERIA: Achievement of 65% protection or greater following
vaccination of dogs with recombinant antigen.
7. Production scale-up.
Production scale-up and optimization will be performed in fermenters
using standard procedures.
COMPLETION CRITERIA: Production of product in a USDA licensed facility for
USDA pre-licensing serials.
8. Submission to USDA.
Submission of application for United States veterinary biological
product license.
13
<PAGE> 33
Exhibit C
PATENTS AND PATENT SUBMISSIONS OF RELEVANCE TO
LICENSING IN JAPAN AND SOUTHEAST ASIA
[
]
14
<PAGE> 34
Exhibit C
FELINE FLEA VACCINE PROJECT
INTRODUCTION
Please see introductory section for canine flea vaccine. It should be
noted that cats cannot tolerate the systemic products that are marketed for
flea control on dogs. A vaccine against fleas on cats would therefore be the
first systemic product to control fleas on cats.
Paravax has demonstrated proof of concept for this vaccine. Trials with
a prototype vaccine have demonstrated a significant flea killing ability when
administered to cats. In addition, female fleas that initially survived the
vaccine effect had a significantly reduced capacity to lay eggs.
CURRENT STATUS
Paravax has established a flea colony utilizing a novel artificial
feeding system. This system has a production capacity of 60,000 fleas per
week. Vaccine preparations are made from the fleas produced in this system. A
flea bioassay has also been developed utilizing the artificial feeding system.
The bioassay can be used to evaluate the potency of antibody to flea antigens.
Flea vaccine trials in cats are performed using a caged flea challenge
system developed at Paravax. Cages containing fleas are attached to the cats
in such a way that the fleas can readily feed. This system is superior to the
standard free roaming flea challenge in that all fleas can be accounted for.
Also, all eggs produced can be collected and accurately counted. We are
currently adapting this system for use on dogs.
Antibody to fed flea gut antigens has been generated in cats and rabbits, and
the antigen discovery part of this project is now underway.
RESEARCH PLAN
It should be noted that considerable methodological similarity exists
between this project and the canine flea vaccine project. However, it is
anticipated that each host species may recognize unique molecules and that
vaccine delivery will be necessarily unique to each host species.
1. Identification of relevant native antigens.
Antigens that are specifically recognized by antibodies from protected
animals will be identified by Western blotting and immunoprecipitation. Of
these antigens, those that are exclusive to the fed gut will be targeted for
gene cloning.
16
<PAGE> 35
Exhibit C
COMPLETION CRITERIA: Identification of up to four antigens that are
exclusively recognized by antibodies from protected animals.
2. Generation of a flea gut cDNA library.
A cDNA expression library will be generated using poly A selected RNA
derived from the gut of blood fed fleas. A cDNA library will also be generated
from mRNA isolated from the gut of unfed fleas to facilitate a subtractive
approach to the identification of relevant antigens exclusive to the fed gut.
COMPLETION CRITERIA: Production of a representative fed flea gut and unfed
flea gut cDNA library.
3. Clone genes of relevant antigens.
Immunization studies have indicated a protective effect in animals
inoculated with fed flea gut supernatants, therefore to target protective
antigens, the fed gut library will be differentially screened with antisera
from immune animals. Positive clones will subsequently be screened with non
immune sera to eliminate nonrelevant clones. This same differential approach
can be implemented by hybridization analysis of the fed flea gut library with
cDNA probes prepared from fed and unfed flea gut mRNA. This would identify
clones not detected by immunoscreening due to incorrect reading frames. To
further enrich for fed flea gut specific genes, a third subtracted cDNA library
will be constructed from the original cDNA libraries by standard protocols and
then immunoscreened as described. This library will contain cDNA clones
corresponding to mRNAs present in fed flea gut and not present in unfed flea
gut.
COMPLETION CRITERIA: Identification of up to four antigens that are
exclusively recognized by antibodies from protected animals.
4. Gene expression.
Clones isolated from the fed flea gut cDNA expression library will be
expressed in E. coli and the resulting fusion proteins characterized by Western
blot analysis with immune sera. To verify that the recombinant clones encode
the protein of interest, fusion protein expressed by the purified recombinant
phage is bound to a nitrocellulose filter and used to affinity-purify clone-
specific antibodies from the original immune sera. The monospecific antibodies
are then eluted and used in Western blot analysis to identify the molecular
weight of the native flea gut antigen encoded by the recombinant. The clones
will be subcloned into a vector system optimized for large scale production of
fusion protein that can be purified by affinity chromotography.
17
<PAGE> 36
Exhibit C
COMPLETION CRITERIA: Identification of the molecular weight of up to four
relevant flea gut native antigens encoded by the recombinant clone. Affinity
purification of the recombinant fusion peptides for initial immunization
trials.
5. Identification of protective recombinant antigens.
Recombinant proteins will be produced in flask cultures of E. coli. The
proteins will be purified from culture supernatants by affinity chromatography.
Cats will be vaccinated and challenged using a standard protocol. Briefly,
animals will be vaccinated with antigen plus adjuvant in 2 doses, 2 weeks
apart. Two weeks after the second vaccine dose, each animal will be challenged
with 50 fleas contained in a flea cage. The number of viable and dead fleas,
plus the number of eggs produced will be counted 7 days later. Animals
receiving adjuvant alone will be used as controls. The antigen that stimulates
the highest level of protective immunity will be selected for final
optimization.
COMPLETION CRITERIA: Identification of one antigen that elicits a
statistically significant level of immunity in cats.
6. Maximization of protective immunity.
The vaccine will be optimized for the highest level of efficacy.
Paravax has access to a panel of adjuvants and immunopotentators with potential
for use in companion animals. These, in addition to conventional adjuvants,
will be screened in combination with the selected antigen for maximum efficacy
in vaccination experiments as described above. Vaccine dose and regimen of
administration will also be optimized for maximum efficacy.
COMPLETION CRITERIA: Achievement of 65% protection or greater following
vaccination of cats with recombinant antigen.
7. Production scale-up.
Production scale-up and optimization will be performed in
fermenters using standard procedures.
COMPLETION CRITERIA: Production of product in a USDA licensed facility for
USDA pre-licensing serials.
8. Submission to USDA.
Submission of application for United States veterinary biological
product license.
18
<PAGE> 37
Exhibit C
FELINE TOXOPLASMOSIS VACCINE PROJECT-1
INTRODUCTION
Toxoplasmosis is a zoonotic infection with severe consequences,
especially in fetal infections and immuno-compromised individuals. The two
sources of human infection are the ingestion of undercooked infected meat and
oocysts shed after the primary infection of cats. The elimination of oocyst
production by house cats and cats frequently found on farms would eliminate a
major source of human infection.
[
]
20
<PAGE> 38
Exhibit C
RESEARCH PLAN
[
]
21
<PAGE> 39
Exhibit C
[
]
22
<PAGE> 40
Exhibit C
7. Production scale-up.
Optimization of large scale production of recombinant proteins will be
done by standard procedures using commercial fermentation and preparative
purification equipment. Purified proteins will be formulated with the chosen
adjuvant by a procedure appropriate for the chosen protein/adjuvant
combination.
COMPLETION CRITERIA: Production of product in a USDA licensed facility for
USDA pre-licensing serials.
8. Submission to USDA.
Submission of application for United States veterinary biological
product license.
PATENTS AND PATENT SUBMISSIONS OF RELEVANCE TO
LICENSING IN JAPAN AND SOUTHEAST ASIA
[
]
23
<PAGE> 41
SWINE/OVINE TOXOPLASMOSIS VACCINE PROJECT
Pages 25-30 intentionally omitted. Project described is no longer being
pursued.
<PAGE> 42
CANINE TICK VACCINE PROJECT
Pages 31-34 intentionally omitted. Project described is no longer being
pursued.
<PAGE> 43
CANINE BORRELIOSIS (LYME) VACCINE PROJECT
Pages 35-38 intentionally omitted. Project described is no longer being
pursued.
<PAGE> 44
EISAI/PARAVAX
COLLABORATIVE
AGREEMENT
EXHIBIT D
JANUARY 1993
<PAGE> 45
EXHIBIT D
PARAVAX, INC.
PROPOSED EISAI
FINANCIAL ARRANGEMENT
(US DOLLARS)
<TABLE>
<CAPTION>
===========================================================================================
LICENSE
FEE
PROJECT UPFRONT RESEARCH SUPPORT
- -------------------------------------------------------------------------------------------
Total Total
Year 1 Year 2 Year 3 Research All
<S> <C> <C> <C> <C> <C>
- -------------------------[
Canine Heartworm
- -------------------------
Feline Heartworm
- -------------------------
TOTAL HEARTWORM
- -------------------------
Feline Flea Vaccine
- -------------------------
Canine Flea Vaccine
- -------------------------
TOTAL FLEA
- -------------------------
Feline Toxoplasma
- -------------------------
Swine/Ovine Toxoplasma
- -------------------------
TOTAL TOXOPLASMA
- -------------------------
Canine Tick
- -------------------------
Canine Lyme
- -------------------------
TOTAL TICK/LYME
- -------------------------
Total
========================= ]
</TABLE>
<PAGE> 46
EISAI/PARAVAX
COLLABORATIVE
AGREEMENT
EXHIBIT E
JANUARY 1993
<PAGE> 47
EXHIBIT E
EISAI/PARAVAX
MILESTONE AND PAYMENT SCHEDULE
CANINE HEARTWORM
<TABLE>
<CAPTION>
====================================================================================================================================
MILESTONE DATE PAYMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[
]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 48
Canine Heartworm EXHIBIT E
Milestone and Payment Schedule
Page 2
<TABLE>
<CAPTION>
====================================================================================================================================
MILESTONE DATE PAYMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[
]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 49
EISAI/PARAVAX
MILESTONE AND PAYMENT SCHEDULE EXHIBIT E
CANINE FLEA VACCINE
<TABLE>
<CAPTION>
====================================================================================================================================
MILESTONE DATE PAYMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 50
EISAI/PARAVAX
MILESTONE AND PAYMENT SCHEDULE EXHIBIT E
FELINE HEARTWORM VACCINE
<TABLE>
<CAPTION>
====================================================================================================================================
MILESTONE DATE PAYMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 51
EISAI/PARAVAX
MILESTONE AND PAYMENT SCHEDULE EXHIBIT E
FELINE FLEA VACCINE
<TABLE>
<CAPTION>
====================================================================================================================================
MILESTONE DATE PAYMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[
]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 52
EISAI/PARAVAX
MILESTONE AND PAYMENT SCHEDULE EXHIBIT E
FELINE TOXOPLASMOSIS VACCINE
<TABLE>
<CAPTION>
====================================================================================================================================
MILESTONE DATE PAYMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[
]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 53
EISAI/PARAVAX
MILESTONE AND PAYMENT SCHEDULE EXHIBIT E
SWINE/OVINE TOXOPLASMOSIS VACCINE
<TABLE>
<CAPTION>
====================================================================================================================================
MILESTONE DATE PAYMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[
]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 54
Swine/Ovine Toxoplasmosis Vaccine
Milestone and Payment Schedule EXHIBIT E
Page 2
<TABLE>
<CAPTION>
====================================================================================================================================
MILESTONE DATE PAYMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[
]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 55
EISAI/PARAVAX
MILESTONE AND PAYMENT SCHEDULE EXHIBIT E
CANINE TICK VACCINE
<TABLE>
<CAPTION>
====================================================================================================================================
MILESTONE DATE PAYMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[
]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 56
EISAI/PARAVAX EXHIBIT E
MILESTONE AND PAYMENT SCHEDULE
CANINE BORRELIOSIS (LYME) VACCINE
<TABLE>
<CAPTION>
====================================================================================================================================
MILESTONE DATE PAYMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[
]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION]
EXHIBIT 10.2
CANINE HEARTWORM COOPERATION AGREEMENT
THIS AGREEMENT, is entered into as of June 10, 1994 between Paravax, Inc., 2301
Research Boulevard, Suite 110, Fort Collins, Colorado ("Paravax") and Bayer AG,
D-51368 Leverkusen, Federal Republic of Germany ("Bayer").
Whereas Paravax is engaged in the research and development of a
vaccine for the prevention of canine heartworm (Dirofilaria immitis) infection;
Whereas Bayer is interested in providing Paravax with certain funds to
support such research and development and to fund a portion of the research and
development expenses which Paravax has incurred prior to the date of this
Agreement; and
Whereas in exchange for providing such research and development
funding, Paravax is willing to grant Bayer options to obtain certain rights
with respect to such canine heartworm vaccine;
Now therefore:
The parties hereto agree as follows:
ARTICLE 1. OVERVIEW
1.1. Overview. This Canine Heartworm Cooperation Agreement (this
"Agreement" or this "Cooperation Agreement") is intended to set forth
the parameters pursuant to which Bayer and Paravax intend to develop,
manufacture and market a vaccine for the prevention of canine
heartworm (Dirofilaria immitis) infection. During the initial phases
of the Cooperation Agreement, the primary goal shall be the
development and preliminary testing of a vaccine for the prevention
of canine heartworm infection. As set forth in ARTICLE 3. RESEARCH
AND DEVELOPMENT, Paravax will undertake the primary responsibility
for attempting to develop and preliminarily testing such a vaccine,
and Bayer shall offer Paravax such technical and scientific
assistance in this endeavor as Bayer deems desirable and appropriate.
Bayer will also provide funding to allow Paravax to perform such
research and development and preliminary testing activities. The
primary goal of the next stage of the Cooperation Agreement will be
to conduct the clinical testing necessary to determine and optimize
the safety and efficacy of the vaccine and to obtain the regulatory
approvals required to allow its manufacture and marketing. As set
forth in ARTICLE 4. CLINICAL TRIALS, Bayer shall determine the scope
and nature of such clinical testing, and Bayer and Paravax shall
jointly determine how to allocate responsibility for conducting such
clinical testing and obtaining such regulatory approvals. Bayer shall
provide the funding necessary to allow Paravax to conduct its portion
of these responsibilities. As set forth in ARTICLE
-1-
<PAGE> 2
5. OPTION AND LICENSE, Bayer shall have the option at any time to
obtain a license to the technology which Paravax develops pursuant to
this Agreement, for certain uses and subject to certain conditions
and the payment of certain royalties. As set forth in ARTICLE 6.
MANUFACTURE OF CANINE HEARTWORM VACCINE, to the extent that upon the
completion of Phase II of the Research Program Paravax has in place a
manufacturing facility that is approved by the appropriate regulatory
authorities, Paravax shall be entitled to manufacture the Canine
Heartworm Vaccine, and to the extent that Paravax does not have such
a facility in place, or chooses not to so manufacture the Canine
Heartworm Vaccine, Bayer shall manufacture, or have manufactured, the
Canine Heartworm Vaccine for sale in the Territory and shall
manufacture Canine Heartworm Vaccine for Paravax as required for sale
outside the Territory. As set forth in ARTICLE 7. DISTRIBUTION
RIGHTS, upon completion of the development and testing of a safe and
efficacious Canine Heartworm Vaccine, Bayer shall have the right to
enter into a Distribution agreement which shall allow Bayer to
distribute the vaccine throughout the world, with certain exceptions.
ARTICLE 2. DEFINITIONS
For purposes of this Agreement, the terms set forth below shall be
deemed to have the meanings indicated:
2.1. Distribution Agreement shall mean he Canine Heartworm Vaccine
Distribution Agreement referred to in Section 7. hereof.
2.2. Manufacturing Agreement shall mean the Canine Heartworm Vaccine
Manufacturing Agreement referred to in Section 6.2 hereof.
2.3. Paravax Technology shall mean all intellectual property of Paravax
as of date of this Agreement and any intellectual property of Paravax
developed during the term of this Agreement, to the extent related to
the research, development, manufacture or sale of a recombinant live
vector vaccine for the prevention of canine heartworm infection,
including but not limited to all patents and patent applications with
respect to such intellectual property.
2.4 Net Sales shall mean gross receipts from independent, unrelated
partes in a bona fide arm's length transactions, less the following
deductions: (a) trade and/or quantity discounts actually allowed and
taken in such amounts as are customary in the trade; (b) commission
paid or allowed to independent brokers and agents; (c) sales and
other excise taxes and duties paid, to the extent separately stated
on an invoice; and (d) amounts paid to cover transportation costs, to
the extent separately stated on any invoice.
2.5 Research Program shall mean the research program for the development
of a vaccine
-2-
<PAGE> 3
for the prevention of canine heartworm infection as set forth on
Exhibit A hereto, as amended by the parties pursuant to the terms of
this Agreement.
2.6. Territory shall mean the entire world, with the exception of Japan
and Southeast Asia (which shall be deemed to include Korea, Thailand,
Singapore, Taiwan, China, Hong Kong, Malaysia Indonesia, and the
Philippines).
2.7 Canine Heartworm Vaccine shall mean a recombinant live vector
vaccine for the prevention of canine heartworm (Dirofilaria immitis)
infection developed during the term of this Agreement pursuant to the
Research Program.
ARTICLE 3. RESEARCH AND DEVELOPMENT
3.1. Phases of the Research Program. The Canine Heartworm Research
Program is divided into four Phases, as described on Exhibit A
hereto, which will be referred to in this Agreement as Phases I
through IV. Phases I and II of the Research Program are primarily
concerned with the initial research and development and preliminary
testing of the Canine Heartworm Vaccine. Phases III and IV of the
Research Program are primarily concerned with the conduct of the
clinical testing necessary to determine and optimize the safety and
efficacy of the vaccine and to obtain the regulatory approvals
required to allow manufacture and marketing, and their performance is
addressed in Article 4 of this Agreement.
3.2. Paravax Responsibility, Phases I and II. Paravax shall have primary
responsibility for performing Phases I and II of the Research
Program. Bayer shall offer Paravax such technical, scientific and
other assistance and cooperation for this undertaking as Bayer deems
appropriate. Paravax shall use diligent efforts to conduct Phases I
and II of the Research Program, with such modifications, additions
and deletions as Bayer and Paravax shall reasonably agree upon.
Paravax will provide Bayer with reports on a quarterly basis with
respect to it progress as to the Research Program. At Semi-annual
intervals, these reports will contain significant detail, and Paravax
will host semi-annual meetings, as requested by Bayer, to update
Bayer personnel as to its progress and plans with respect to the
Research Program. Paravax will use diligent efforts to promptly
replace any significant personnel who depart from Paravax while
working on the Research Program with appropriate personnel who meet
reasonable criteria agreed to with Bayer.
3.3. Research and Development Funding. Upon the execution of this
Agreement, Bayer shall pay to Paravax a lump sum payment of
US$[ ]. In addition, eight months, sixteen months and twenty-four
months after the date of this Agreement Bayer shall pay to Paravax
further lump sum payments of US$[ ] each. The total of such lump
sum payments, US$[ ], shall be deemed to be funding for a
portion of the research and development expenditures which Paravax
has undertaken prior to the
-3-
<PAGE> 4
CONFIDENTIAL TREATMENT REQUESTED
date of this Agreement. Bayer shall also make an initial advance
research and development milestone payment of US[ ] to Paravax upon
the execution of this Agreement. Bayer shall make further research and
development funding payments to Paravax as set forth on Exhibit A hereto
upon completion of the milestones through the end of Phase II of the
Research Program indicated on Exhibit A hereto. The specific dollar
amounts set forth herein and on Exhibit A hereto are intended to be net
of any withholding required upon transfer of funds to Paravax.
3.4. Unexpected Expenses. To the extent that the expense of completing the
Research Program greatly exceeds that contemplated by Paravax at the
time this Agreement was entered into, whether due to a change in
regulatory requirements or other change in circumstance, Paravax and
Bayer shall negotiate in good faith to reach agreement upon a reasonable
level of additional research and development funding to be provided by
Bayer in order to allow Paravax to complete the Research Program;
provided, however, that Bayer shall continue to be entitled to terminate
this Agreement pursuant to the provisions of Section 11.2 hereof. The
parties agree that Paravax shall not be entitled to any additional
research and development funding simply by reason of the fact that the
research and development takes longer than Paravax originally
contemplated due to delays that are customary for research and
development such as the Research Program.
3.5. Bayer Technology. It is contemplated by the parties that Bayer may from
time to time, in its discretion, offer Paravax access to certain Bayer
proprietary technology which would assist in the development and/or
manufacture of the Canine Heartworm Vaccine. In the event that Bayer is
willing to offer access to such technology to Paravax, the parties will
negotiate in good faith to reach agreement upon reasonable terms and
conditions upon which Paravax may make use of such technology for the
development and/or manufacture of the Canine Heartworm Vaccine.
3.6. Additional Antigens. Bayer and/or Paravax may from time to time wish to
consider adding additional non-heartworm antigens to the Canine
Heartworm Vaccine being developed pursuant to this Agreement. In such
event, the parties shall cooperatively discuss the costs and benefits of
adding such additional antigens and shall negotiate in good faith to
reach agreement concerning the wisdom of adding such additional
antigens, how to perform the necessary research and development and how
this Agreement shall be appropriately amended.
3.7. Full Cooperation. Bayer and Paravax agree to cooperate fully during the
term of this Agreement to attempt in good faith to accomplish and
enhance the performance of the Research Program, including, among other
things, keeping each other fully informed of any possible ancillary
technology which would improve the Canine Heartworm Vaccine, such as
live vaccine vector technology, which one or the other has, or might be
able to obtain, access to, to the extent they are entitled to do so.
-4-
<PAGE> 5
ARTICLE 4. CLINICAL TRIALS
4.1. Phase III and IV of the Research Program. Phase III and IV of the
Research Program are primarily concerned with optimizing the safety,
efficacy and manufacturing of the Canine Heartworm Vaccine and
obtaining the regulatory approvals required to allow its
manufacturing and marketing. It is agreed that, as Bayer has greater
regulatory experience than Paravax and as Bayer will have
responsibility for marketing the Canine Heartworm Vaccine, Bayer will
be responsible for designing the regulatory program, including
clinical trial protocols, to obtain the required regulatory
approvals. Bayer shall complete such design of the regulatory program
prior to the completion of Phase II of the Research Program, so that
no delay exists between the completion of Phase II of the Research
Program and the commencement of Phase III of the Research Program.
Once such a regulatory program has been designed, Paravax and Bayer
shall jointly determine how to allocate responsibility for conducting
Phases III and IV of the Research Program in order to complete such
Phases in the most efficient and expeditious manner. To the extent
that Paravax is to undertake responsibility for conducting portions
of Phases III and IV of the Research Program, Bayer shall provide
Paravax in a timely manner with an amount of funding which is
sufficient to allow Paravax to reasonably conduct and complete such
portions of the Research Program, including amounts necessary to
conduct the clinical trials and obtain the regulatory approvals
contemplated. Paravax agrees that it shall use diligent efforts to
conduct all formal clinical trials in a manner which is satisfactory
for regulatory approval, as directed by Bayer.
ARTICLE 5. OPTION AND LICENSE
5.1. Interim License. During the term of this Agreement, Bayer shall have
a license to use all Paravax Technology, including all results
obtained during the Research Program, and all biological materials
created during the Research Program, for purposes of assisting and
evaluating the conduct of the Research Program, including designing
and conducting the regulatory program referred to in Article 4
hereof, and preparing for and conducting preliminary manufacturing of
the Canine Heartworm Vaccine and for all other purposes which are
consistent with the provisions of this Cooperation Agreement.
5.2 Option. For a period 180 days after a termination of this Agreement,
Bayer shall have an option to acquire a license to use all Paravax
Technology to the extent set forth below. The rights to be granted
pursuant to such license shall differ depending upon the
circumstances under which such option is exercised, as set forth
below.
5.3. Exercise upon Completion. In the event that this Agreement terminates
upon completion of the Research Program, as set forth in section 11.1
hereof, Bayer shall obtain an exclusive license to use the Paravax
Technology to manufacture Canine
-5-
<PAGE> 6
Heartworm Vaccine for sale in the Territory. Such license shall
terminate upon a termination of the Distribution Agreement at the
election of Bayer or by reason of a material breach by Bayer. During
the term of such license, Paravax shall not grant any other party a
license to use the Paravax Technology for the manufacture of any
recombinant vaccine for the prevention of canine heartworm infection
for sale in the Territory and Paravax will not use the Paravax
Technology for the manufacture of any recombinant vaccine for the
prevention of canine heartworm infection for sale in the Territory
except for sale through Bayer pursuant to the Distribution Agreement.
Bayer shall also be entitled to obtain various nonexclusive licenses
to use the Paravax Technology for purposes other than a vaccine for
the prevention of canine heartworm infection, to the extent Paravax
is contractually permitted to grant such licenses. In the event that
Bayer elects to obtain such a license, Paravax and Bayer shall
negotiate in good faith a reasonable royalty rate and other
reasonable terms and conditions for such license.
5.4. Exercise upon Premature Termination caused. by Paravax. In the event
that Bayer exercises its option to obtain a license to the Paravax
Technology upon the termination of this Agreement pursuant to Section
11.3 hereof as a result of a breach by Paravax, or upon the
termination of this Agreement by Bayer at its election pursuant to
Section 11.4 hereof as a result of an acquisition of Paravax, Bayer
shall obtain an exclusive license to use all of the Paravax
Technology to manufacture and sell vaccines for the prevention of
canine heartworm infection in the Territory. In such event, Paravax
will not use the Paravax Technology to manufacture and/or sell any
recombinant vaccine for the prevention of canine heartworm infection
in the Territory and will not grant any other party a license to use
the Paravax Technology to manufacture and/or sell any recombinant
vaccine for the prevention of canine heartworm infection in the
Territory; provided, however, that Paravax shall be entitled to use
the Paravax Technology in the Territory to manufacture, or have
manufactured, a vaccine for the prevention of canine heartworm for
sale outside of the Territory. Bayer shall also be entitled to obtain
various nonexclusive licenses to use the Paravax Technology for
purposes other than a vaccine for the prevention of canine heartworm
infection, to the extent Paravax is contractually permitted to grant
such licenses. In the event that Bayer elects to obtain such a
license, Paravax and Bayer shall negotiate in good faith a reasonable
royalty rate and other reasonable terms and conditions for such a
license.
5.5. Exercise upon Premature Termination caused by Bayer. In the event that
Bayer terminates this Agreement at its election pursuant to Section
11.2 hereof, Bayer shall be entitled to obtain various nonexclusive
licenses to use the Paravax Technology for other than a vaccine for
the prevention of canine heartworm infection, to the extent Paravax
is Contractually permitted to grant such licenses. In the event that
Bayer elects to obtain such a license, Paravax and Bayer shall
negotiate in good faith a reasonable royalty rate and other
reasonable terms and conditions for such license.
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<PAGE> 7
5.6 Royalty Rates. The license granted to Bayer pursuant to Section 5.1
hereof shall be royalty free. A license with respect to Canine
Heartworm Vaccine granted to Bayer pursuant to Section 5.3 hereof
shall provide for the payment of royalties to Paravax of [ ]% of Net
Sales of Canine Heartworm Vaccine, other than Canine Heartworm
Vaccine which is sold by Paravax to Bayer pursuant to the
Distribution Agreement. A license with respect to a vaccine for the
prevention of canine heartworm infection granted to Bayer pursuant to
Section 5.4 hereof shall provide for the payment of royalties to
Paravax of [ ]% of Net Sales of any such canine heartworm vaccine.
Bayer's obligation to pay any such royalties shall terminate upon the
later of (i) the expiration of all of the licensed patents, or (ii)
ten years from the first commercial sale of a licensed product by or
on behalf of Bayer. In the event that any royalty and/or license fee
is required to be paid to any third party with respect to the use,
manufacture of sale of Canine Heartworm Vaccine, other than any
amounts which Paravax is contractually obligated to pay as of the
date of this Agreement, such expense shall be borne equally by
Paravax and Bayer. Paravax and Bayer shall jointly decide to
undertake any contractual commitment to pay any such license fee or
royalty with respect to the manufacture or sale of Canine Heartworm
Vaccine. Paravax shall be solely responsible to bear the cost of any
license fee or royalty which Paravax is contractually obligated to
pay as of the date of this Agreement.
5.7. License Agreements. At any time, upon the request of Bayer, Bayer and
Paravax shall negotiate in good faith the form of the license
agreement for any license to be granted to Bayer pursuant to this
Article 5. Such license agreement shall contain the substantive terms
described in this Article 5, together with such other reasonable and
customary terms as the parties shall agree upon. Such license
agreement shall be subject to appropriate decreases in royalties upon
the expiration of patents. Such license agreement shall also provide
for Paravax to provide Bayer with reasonable assistance and
documentation in order to facilitate Bayer's permitted use of the
Paravax Technology.
ARTICLE 6. MANUFACTURE OF CANINE HEARTWORM VACCINE
6.1. Manufacturing Source. To the extent that upon the completion of Phase
II of the Research Program Paravax owns, or leases pursuant to a long
term lease, a manufacturing facility which has been approved by the
United States Department of Agriculture or, if applicable, the United
States Food and Drug Administration which allows Paravax to produce
Canine Heartworm Vaccine for which regulatory approval or clearance
for sale can be obtained in a specific country in the Territory, the
parties shall proceed as though Paravax shall manufacture the Canine
Heartworm Vaccine for distribution in that country by Bayer pursuant
to the Distribution Agreement. To the extent that upon the completion
of Phase II of the Research Program Paravax does not have such an
approved manufacturing facility which allows it to produce Canine
Heartworm Vaccine for which regulatory approval or clearance for sale
can be
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<PAGE> 8
obtained in a specific country, the parties shall proceed as though
Bayer shall manufacture the Canine Heartworm Vaccine for distribution
in that country by Bayer pursuant to the Distribution Agreement.
Paravax may elect to forego or cease manufacture of Canine Heartworm
Vaccine at any time, provided that Paravax gives Bayer adequate
notice to allow Bayer, or a third party, to prepare for the
manufacturing requirements of producing the Canine Heartworm Vaccine
for, as applicable, Phases III ans IV of the Research Program and/or
manufacture for commercial sale. After the commencement of Phase III
of the Research Program, Paravax shall have no right to regain from
Bayer the right to manufacture the Canine Heartworm Vaccine; however,
Bayer agrees that is shall favorably consider any such request made
by Paravax. In the event that Paravax elects to forego or cease
manufacture of the Canine Heartworm Vaccine, Bayer shall be entitled
to manufacture all of Bayer's requirements for Canine Heartworm
Vaccine pursuant to the license described in Section 5.3 above.
6.2 Manufacturing Agreement. In the event that Paravax does not
manufacture any Canine Heartworm Vaccine, as described in Section 6.1
hereof, Bayer and Paravax shall enter into a Manufacturing Agreement
pursuant to which Bayer shall manufacture, or have manufactured, the
Canine Heartworm Vaccine for Paravax for sale outside of the
Territory and sell such Canine Heartworm Vaccine to Paravax at a
reasonable price to be agreed upon by Paravax and Bayer. Such
Manufacturing Agreement shall include such other reasonable and
customary terms as the parties shall agree upon, consistent with the
terms of this Cooperation Agreement.
ARTICLE 7. DISTRIBUTION RIGHTS
7.1. Distribution Agreement. Upon Bayer's decision to file for regulatory
approvals for a Canine Heartworm Vaccine, Bayer and Paravax shall
enter into a Canine Heartworm Vaccine Distribution Agreement. Such
Distribution Agreement shall include the substantive terms described
in Articles 7,8,9 and 10 of this Cooperation Agreement, together with
such other reasonable and customary terms as the parties shall agree
upon, consistent with the terms of this Cooperation Agreement. The
terms of such Distribution Agreement shall be perpetual, subject to
termination by Bayer at its election or termination by Bayer or
Paravax as a result of a breach by the other party.
7.2. Grant of Rights. During the term of the Distribution Agreement, Bayer
and its affiliated companies shall have the exclusive right to
distribute Canine Heartworm Vaccine in the Territory. Bayer and its
affiliated companies shall be entitled to distribute the Canine
Heartworm Vaccine both directly and through distributors. Bayer shall
use diligent efforts during the term of the Distribution Agreement to
promote, market, distribute and sell Canine Heartworm Vaccine in the
countries in the Territory listed on Exhibit B hereto. Bayer shall
have no obligation to promote, market, distribute or sell Canine
Heartworm Vaccine in any portion of the Territory
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<PAGE> 9
in which it is not commercially reasonable to do so.
7.3. Competing Products. Other than Canine Heartworm Vaccine, and any other
vaccine licensed from and/or developed by Paravax, Bayer shall not
directly, or through any subsidiary or affiliated corporation, sell
in the Territory any vaccine for the prevention of canine heartworm
infection during the term of the Distribution Agreement. Bayer also
agrees that neither it nor any subsidiary or affiliated corporation
shall directly or indirectly solicit sales of Canine Heartworm
Vaccine for use in any animal other than domestic canines.
7.4. Additional Territories. In the event that a Paravax relationship for
the distribution of Canine Heartworm Vaccine with an existing partner
terminates as to any portion of the world not included in the
Territory, Paravax agrees that, before entering into a relationship
with any new partner for the distribution of the Canine Heartworm
Vaccine in such portion of the world, it will first offer Bayer the
option to obtain distribution rights for the Canine Heartworm Vaccine
in that portion of the world upon reasonable terms and conditions and
will negotiate in good faith with Bayer with respect to such
reasonable terms and conditions if Bayer is interested in obtaining
such rights.
ARTICLE 8. PURCHASE OF CANINE HEARTWORM VACCINE
8.1. Purchase Obligation. To the extent that Paravax is entitled to be the
manufacturing source for Canine Heartworm Vaccine in some or all of
the Territory, pursuant to the provisions of Section 6.1 hereof, the
Distribution Agreement shall provide that Bayer will purchase from
Paravax all quantities of Canine Heartworm Vaccine to be sold by it
or on behalf of it pursuant to the Distribution Agreement in such
portions of the Territory. Bayer's obligation to purchase Canine
Heartworm Vaccine from Paravax shall terminate in the event that
Paravax consistently fails to provide in a timely manner the Canine
Heartworm Vaccine which Bayer orders pursuant to the terms of the
Distribution Agreement or in the event that Paravax elects to cease
or forego manufacture of the Canine Heartworm Vaccine pursuant to
Section 6.1 hereof. To the extent that Paravax manufacturers Canine
Heartworm Vaccine, the terms set forth in this Article 8 shall be
incorporated in the Distribution Agreement for purposes of Bayer's
purchases of such Canine Heartworm Vaccine.
8.2. Transfer Price. The per dose price at which Bayer shall purchase
Canine Heartworm Vaccine from Paravax pursuant to the Distribution
Agreement shall be equal to the sum of (i) [
], (ii) [ ], and (iii) [
]. To the extent that Paravax and Bayer are
unable to agree upon the price at which [ ] would
manufacture the Canine Heartworm Vaccine, Paravax
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<PAGE> 10
and Bayer shall agree upon [
] for the
manufacture of the Canine Heartworm Vaccine in those quantities which
Bayer reasonably expects to purchase Canine Heartworm Vaccine in the
upcoming year. Upon [
] for purposes of the calculation of the transfer
price payable to Paravax. In addition, Paravax and Bayer will discuss
increases to this price in good faith on a yearly basis in order to
compensate Paravax for increases in the costs of raw materials, labor
and other manufacturing expenses.
8.3. Shipment. All prices and shipments shall be F.C.A. Paravax's Fort
Collins, Colorado location, and risk of loss or damage shall pass to
Bayer on delivery to a common carrier. Bayer shall pay, or reimburse
Paravax for, the amount of any sales, use, excise or similar taxes
and all expenses of clearing customs and duties associated with
importing or exporting the Canine Heartworm Vaccine purchased from
Paravax for sale by or on behalf of Bayer within the Territory.
8.4. Packaging. Bayer shall supply the art work and language for all
labels, packaging, product inserts and related items. Bayer shall
bear any expense, including discarded materials, resulting from any
change in such packaging, labeling, inserts or art work requested by
Bayer. Bayer shall market the Canine Heartworm Vaccine using Bayer's
tradenames, trademarks, logos and trade dress; however, to the extent
the Canine Heartworm Vaccine is manufactured by Paravax, Bayer's name
as distributor and Paravax's name as manufacturer shall receive equal
prominence in the descriptive materials.
8.5. Forecasts and Purchase Orders. In order to assist Paravax in
planning its production schedule for the Canine Heartworm Vaccine,
Bayer shall, no later than last day of each calendar quarter, provide
Paravax with a good faith forecast of the Canine Heartworm Vaccine
that Bayer expects to purchase during each of the following four
calendar quarters. The amounts so forecast for the immediately
following two quarters shall be deemed to be a noncancellable order
for delivery during such quarter; provided, however, that Bayer shall
not be obligated to purchase more than 75 % of the amount so forecast
for the second such quarter. Any additional amounts to be purchased
by Bayer shall be purchased by written purchase order submitted to
Paravax. Paravax shall not be obligated to accept any purchase order
which provides for delivery in less than 90 days from the date of its
receipt. Paravax shall be entitled to establish economically
reasonable minimum quantities for individual deliveries in light of
production expenses.
8.6. Payment. Payment for Canine Heartworm Vaccine shall be due in full
thirty (30) days
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from the date of receipt of invoice, which shall be on or after the
date of shipment. Accounts outstanding more than thirty (30) days
will be subject to a monthly charge at the rate of one and one half
percent (1.5 %) per month, or the maximum permitted by law, whichever
is less.
8.7. Warranty. Paravax will warrant that the Canine Heartworm Vaccine
supplied by Paravax will be free from defects in manufacturing and
workmanship, and will conform to agreed upon standards and
specifications, during the shelf life indicated by Paravax for such
Canine Heartworm Vaccine (the "Warranty Period"), provided that the
Canine Heartworm Vaccine is maintained under the storage conditions
defined by Paravax. Any Canine Heartworm Vaccine which is found to be
defective during the Warranty Period may be returned for replacement.
Bayer agrees to report to Paravax any suspected product defect or
customer complaint. Paravax shall have the right to decide to recall
any or all of the Canine Heartworm Vaccine, and Bayer agrees to
comply with any recall procedures for such Canine Heartworm Vaccine
decided on by Paravax. There shall be no remedies for defective
Canine Heartworm Vaccine other than those expressly set forth herein,
and Paravax will make no other warranties of any kind, express or
implied, with respect to Canine Heartworm Vaccine. Paravax will,
however, bear any producer liability to third parties with respect to
any Canine Heartworm Vaccine manufactured by Paravax, to the extent
imposed by applicable law.
ARTICLE 9. PATENT INDEMNIFICATION
9.1. Infringement Defense. Paravax and Bayer will jointly defend any
claim, suit or proceeding brought against Bayer and/or Paravax to the
extent it is based upon a claim that the Canine Heartworm Vaccine
sold by Bayer or on behalf of Bayer pursuant to the Distribution
Agreement infringes upon any patent or trade secret rights of any
third party. Bayer and Paravax agree that they shall promptly notify
the other in writing of any such claim or action and give the other
full information and assistance in connection therewith. Paravax and
Bayer shall jointly control the defense of any such claim or action
and the settlement or compromise of any such claim or action. Paravax
and Bayer will jointly pay all damages, costs and expenses paid in
settlement or finally awarded to third parties against Bayer and/or
Paravax for such claim or in such action. If the Canine Heartworm
Vaccine is, or in Paravax's or Bayer's opinion might be, held to
infringe as set forth above, Paravax and Bayer shall jointly
determine whether to replace or modify such Canine Heartworm Vaccine
so as to avoid infringement, or procure the right for Bayer and
Paravax to continue the manufacture, use and resale of such Product.
Paravax and Bayer shall also jointly determine how the expense of any
replacement, modification or procurement of rights shall be borne by
Paravax and Bayer. If neither of such alternatives is commercially
reasonable, any infringing Canine Heartworm Vaccine held by Bayer and
purchased from Paravax shall be returned to Paravax and Paravax's
sole liability, in addition to
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its obligation to pay damages, costs and expenses as set forth above,
shall be to refund the amounts paid for such returned Canine
Heartworm Vaccine by Bayer, and Paravax shall have no further
obligation to supply Canine Heartworm Vaccine to Bayer pursuant to
the Distribution Agreement.
9.2. Limitation. Paravax will have no liability for any claim of
infringement arising as a result of Bayer's use of the Canine
Heartworm Vaccine in combination with any items not supplied by
Paravax, any modification of the Canine Heartworm Vaccine by Bayer or
third parties, or, in the event that Bayer manufactures the Canine
Heartworm Vaccine, any manufacturing process used by Bayer. THE
FOREGOING STATES THE ENTIRE LIABILITY OF PARAVAX TO BAYER OR ANY
PURCHASER OR USER OF CANINE HEARTWORM VACCINE CONCERNING INFRINGEMENT
OF INTELLECTUAL PROPERTY RIGHTS, INCLUDING BUT NOT LIMITED TO, PATENT
AND TRADE SECRET RIGHTS.
ARTICLE 10. PATENTS
10.1. Ownership of Inventions. As between the parties, all rights to
inventions or discoveries invented or discovered jointly by Paravax
and Bayer under this Cooperation Agreement shall be jointly owned.
Each party shall have the right to use such inventions and
discoveries for such purposes as it shall deem appropriate, upon
agreement with the other party as to appropriate and reasonable
compensation for uses other than those contemplated by this
Agreement; provided, however, that to the extent set forth in the
Distribution Agreement, Bayer shall have the sole right to distribute
Canine Heartworm Vaccine in the Territory. As between the parties,
all rights to inventions or discoveries invented or discovered solely
by Paravax under this Cooperation Agreement shall belong to Paravax.
Bayer shall have no rights with respect to such inventions or
discoveries other than the rights to enter into the license
agreements and the Distribution Agreement, as set forth herein. As
between the parties, all rights to inventions or discoveries invented
or discovered solely by Bayer under this Cooperation Agreement shall
belong to Bayer.
10.2. Patent Filings. During the term of this Cooperation Agreement and the
Distribution Agreement, Paravax shall consult with Bayer as to all
patent filings and other patent actions related to the Canine
Heartworm Vaccine. Paravax and Bayer shall make such patent filings,
and take such other actions with respect to patent filings, as they
jointly determine are appropriate, using counsel selected by Paravax
and consented to by Bayer, which consent will not be unreasonably
withheld.
10.3. Patent Enforcement. During the term of the Distribution Agreement,
Bayer shall have the right to bring actions to enforce any patent
rights held by Paravax with respect to the Canine Heartworm Vaccine
against infringement in the countries in the Territory in which Bayer
has the right to distribute the Canine Heartworm Vaccine pursuant to
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<PAGE> 13
the Distribution Agreement. Paravax shall provide such assistance and
cooperation in connection with such enforcement actions as Bayer
shall reasonably request. In the event that Bayer elects not to
enforce any such patent rights, Paravax may, but is not obligated to,
bring actions with respect to such infringement, and Bayer shall
provide such assistance and cooperation in connection with such
actions as Paravax shall reasonably request. Bayer shall not settle
or compromise any such action which it brings to enforce any patent
with respect to the Canine Heartworm Vaccine without Paravax's
consent, which consent will not be unreasonably withheld. Where such
an enforcement action has been brought by Bayer, Bayer shall maintain
the litigation at its own expense and shall keep any judgment and
award arising from such action. Where such an enforcement action has
been brought by Paravax, Paravax shall maintain the litigation at its
own expense and shall keep any judgments and awards arising from such
action.
ARTICLE 11. TERM AND TERMINATION
11.1. Term. The term of this Agreement shall commence on the date first set
forth above and shall end on the earlier of the date upon which this
Agreement is terminated pursuant to the provisions of this Article 11
or upon the completion of the Research Program.
11.2. Bayer Termination. Bayer shall have the right to terminate this
Agreement upon any anniversary of the date hereof, beginning with the
second such anniversary (but not before payment of the twenty-four
month lump sum payment due pursuant to Section 3.3 hereof), upon
written notice given not less than 90 days prior to such anniversary.
In the event that Bayer elects to so terminate this Agreement,
Paravax shall repay all amounts paid by Bayer pursuant to this
Agreement at a rate of [
] of any
vaccine for the prevention of canine heartworm infection developed by
Paravax based on the work conducted pursuant to the Research Program
during the term of this Agreement. Paravax's obligation to make such
payments to Bayer shall not commence until after the completion of
the second full calendar year in which such a vaccine has been
marketed in the Territory, and such payments shall only be made with
respect to Net Sales of such vaccine which take place after the
completion of such second full calendar year.
11.3. Termination for Breach. Either party shall have the right to terminate
this Agreement upon written notice if
(a) the other party is in breach of any material provision of
this Agreement and such breach has not been remedied within
30 days after written notice of such breach has been given;
or
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<PAGE> 14
(b) the other party enters into liquidation, whether compulsory
or voluntary, or has a receiver appointed as to all or any
part of its assets, or takes or suffers any similar action
in consequence of debt.
11.4. Paravax Acquisition. Bayer shall have the right to terminate this
Agreement upon written notice to Paravax given within ninety (90)
days of any acquisition of Paravax by a third party, whether by
merger or sale or other transfer of a substantial majority of the
assets of Paravax. In the event that Bayer elects to so terminate
this Agreement, Bayer shall, upon the request of Paravax, provide
reasonable assistance to aid Paravax in satisfying its contractual
obligations with respect to the supply of vaccines for the prevention
of canine heartworm infection for sale outside of the Territory.
11.5. Paravax Termination. Paravax shall not have the right to unilaterally
terminate this Agreement; provided, however, that in the event that
Paravax determines that it is unlikely that the Research Program can
be successfully completed, Paravax and Bayer shall negotiate an
appropriate termination of this Agreement.
ARTICLE 12. CONFIDENTIALITY
12.1. Confidential Information. It is agreed that during the term of this
Agreement Paravax and Bayer may each disclose certain Confidential
Information to the other for purposes of furthering or evaluating
progress under this Agreement. The term "Confidential Information"
for these purposes shall include all technical, business, financial,
or marketing information which one party (the "Disclosing Party")
discloses to the other party (the "Receiving Party"), except any
portion of such information which:
a. is now or later made known to the public through no default by
the Receiving Party of its obligations under this Agreement;
b. the Receiving Party can show was in its possession prior to
disclosure by the Disclosing Party;
c. is rightfully received by the Receiving Party from a third party
without any accompanying secrecy obligation; or
d. is independently developed by the Receiving Party by persons who
neither had access to Confidential Information of the Disclosing
Party nor received direction from persons who had access to
Confidential Information of the Disclosing Party.
12.2. Confidentiality Obligation. A Receiving Party agrees to hold in
confidence and not
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<PAGE> 15
disclose to any third parties any of the Confidential Information of
the Disclosing Party without the prior consent of the Disclosing
Party; provided, however, that to the extent required in order to
obtain regulatory approval, a Receiving Party may disclose such
Confidential Information to the appropriate regulatory authorities. A
Receiving Party agrees to limit any disclosure of the Confidential
Information only to those of its employees and outside professional
advisors who have a need to know and who are bound by confidentiality
obligations, and to advise such persons of the Receiving Party's
obligations under this Agreement. A Receiving Party further agrees to
use Confidential Information received from the other party only for
purposes of furthering or evaluating progress under this Agreement.
Any tangible materials that contain any Confidential Information
shall be returned to the Disclosing Party promptly upon request, and
any portions of any memoranda, reports or documents created by the
Receiving Party which contain any Confidential Information shall be
destroyed upon the request of the Disclosing Party; provided,
however, that the Receiving Party may keep a single copy of all such
tangible materials for purposes of demonstrating compliance with the
provisions of this Agreement.
12.3. Confidentiality of Agreement. In addition, neither party will disclose
to any third party, other than with the prior written consent of the
other party, the terms and conditions of this Agreement, except as
may be required by applicable law, regulation or court order. The
provisions of this Article 12 shall survive any termination of this
Agreement for a period of ten (10) years.
ARTICLE 13. MISCELLANEOUS
13.1. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the assigns of Paravax and Bayer; however,
neither Paravax nor Bayer shall be entitled to assign its rights and
obligations under this Agreement without the express written consent
of the other. Notwithstanding the immediately preceding, such consent
shall not be required for an assignment of the rights and obligations
of Paravax or Bayer to a wholly owned subsidiary or which takes place
as part of an acquisition of Paravax, whether by merger or sale or
other transfer of substantially all of the assets of Paravax;
provided, however, that nothing in this Section 13.1 shall be deemed
to limit the rights of Bayer pursuant to the provisions of Section
11.4 hereof.
13.2. Relationship of Parties. Nothing in this Agreement shall constitute
or be deemed to constitute a partnership between the parties. The
relationship between Bayer and Paravax shall be strictly that of
sponsor and researcher. Bayer, its officers, agents and employees,
shall under no circumstances be considered the agents, employees or
representatives of Paravax, and Paravax, its officers, agents and
employees, shall under no circumstances be considered the agents,
employees or representatives of Bayer. Bayer shall not have the right
to enter into any contracts or binding commitments in the name of or
on behalf of Paravax in any respect whatsoever, and
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<PAGE> 16
Paravax shall not have the right to enter into any contracts or
binding commitments in the name of or on behalf of Bayer in any
respect whatsoever.
13.3. Notices. Notices required hereunder shall be deemed properly given
upon hand delivery (including professional courier such as Federal
Express) to the addresses set forth below, or to such other address
as a party shall have given notice of in accordance herewith.
Paravax: Paravax, Inc.
2301 Research Boulevard, Suite 110
Fort Collins, CO 80526
Attn: President
Bayer: Bayer AG
Geschaftsbereich Veterinar
VT-F/Leitung
D-51368 Leverkusen
Germany
Attn: Prof. Dr. H. Thomas
13.4. Force Majeure. Neither party shall be liable for any failure to
perform any of its obligations hereunder (other than the payment of
money) which results from act of God, the elements, fire, flood,
component shortages, force majeure, riot, insurrection, industrial
dispute, accident, war, embargoes, legal restrictions or any other
cause beyond the control of such party.
13.5. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Kansas, without regard to
its provisions concerning the applicability of the laws of other
jurisdictions.
13.6. Arbitration. Should any dispute, controversy or difference of opinion
arise between the parties hereto out of or in relation to or in
connection with this Agreement, or the breach thereof, the parties
shall first endeavor to reach an amicable resolution thereof. Should
the parties fail to reach such an amicable resolution, any such
dispute, controversy or difference of opinion shall be resolved by
arbitration in accordance with the arbitration rules of the
International Chamber of Commerce, then in force, by one or more
arbitrators appointed in accordance with such rules. Any such
arbitration shall be held in Kansas City, Missouri if requested by
Bayer, and in Leverkusen, Germany if requested by Paravax, and all
proceedings shall be held in the English language. Any award rendered
shall be final and binding upon the parties. Judgement upon the award
may be entered in any court having jurisdiction, or application may
be made to such court for judicial acceptance of the award and/or an
order of enforcement as the case may be.
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<PAGE> 17
13.7. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
13.8. Entire Agreement. This Agreement sets forth the entire agreement and
understanding between the parties as to the subject matter hereof and
may only be amended by a writing signed by both parties.
13.9. Titles and Headings. The titles or headings, articles, sections or
paragraphs set forth in this Agreement have been inserted merely to
facilitate reference and shall have no bearing upon the
interpretation of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on their behalf as of the date first set forth above.
PARAVAX, INC.
By /s/ DAVID F. CAIN
---------------------
Title President
------------------
BAYER AG
By /s/ H. THOMAS
---------------------
Title Head of Research
------------------
BG Animal Health
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<PAGE> 18
CANINE HEARTWORM VACCINE RESEARCH & DEVELOPMENT PLAN: EXHIBIT A
[
]
1
<PAGE> 19
[
]
2
<PAGE> 20
[
]
3
<PAGE> 21
EXHIBIT B
TO
CANINE HEARTWORM COOPERATION AGREEMENT
UNITED STATES OF AMERICA
CANINE HEARTWORM VACCINE TIMETABLE
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Year 1 Year 2 Year 3
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PHASE 1
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TASK
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CANINE HEARTWORM VACCINE
PHASE I/II MILESTONES AND PAYMENTS
<TABLE>
<CAPTION>
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Milestones Mos. PAYMENT BY
($000 OMITTED)
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Performance(1) Milestones(2)
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<S> <C> <C> <C>
UPFRONT 0 0 600
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[
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1 Payment upon completion of the time (month) listed if performance level
is acceptable.
2 Payment upon successful achievement of milestone, independent of time.
3 Payment upon fulfilling criteria of Milestone 6.
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Exhibit B
to
Canine Heartworm Cooperation Agreement
United States of America
<PAGE> 1
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION]
EXHIBIT 10.3
FELINE TOXOPLASMOSIS COOPERATION AGREEMENT
THIS AGREEMENT, is entered into as of June 10, 1994 between Paravax, Inc. ,
2301 Research Boulevard, Suite 110, Fort Collins, Colorado ("Paravax") and
Bayer AG, D-51368 Leverkusen, Federal Republic of Germany ("Bayer").
Whereas Paravax is engaged in the research and development of a
vaccine for the prevention of feline toxoplasmosis (Toxoplasma gondii);
Whereas Bayer is interested in providing Paravax with certain funds to
support such research and development and to fund a portion of the research and
development expenses which Paravax has incurred prior to the date of this
Agreement; and
Whereas in exchange for providing such research and development
funding, Paravax is willing to grant to Bayer options to obtain certain rights
with respect to such feline toxoplasmosis vaccine;
N o w t h e r e f o r e:
The parties hereto agree as follows:
ARTICLE 1. OVERVIEW
1.1. Overview. This Feline Toxoplasmosis Cooperation Agreement (this
"Agreement" or this "Cooperation Agreement") is intended to set forth
the parameters pursuant to which Bayer and Paravax intend to develop,
manufacture and market a vaccine for the prevention of feline
toxoplasmosis (Toxoplasma gondii). During the initial phases of the
Cooperation Agreement, the primary goal shall be the development and
preliminary testing of a vaccine for the prevention of feline
toxoplasmosis. As set forth in ARTICLE 3. RESEARCH AND DEVELOPMENT,
Paravax will undertake the primary responsibility for attempting to
develop and preliminarily testing such a vaccine, and Bayer shall
offer Paravax such technical and scientific assistance in this
endeavor as Bayer deems desirable and appropriate. Bayer will also
provide funding to allow Paravax to perform such research and
development and preliminary testing activities. The primary goal of
the next stage of the Cooperation Agreement will be to conduct the
clinical testing necessary to determine and optimize the safety and
efficacy of the vaccine and to obtain the regulatory approvals
required to allow its manufacture and marketing. As set forth in
ARTICLE 4. CLINICAL TRIALS, Bayer shall determine the scope and nature
of such clinical testing, and Bayer and Paravax shall jointly
determine how to allocate responsibility for conducting such clinical
testing and obtaining such regulatory approvals. Bayer shall provide
the funding necessary to allow Paravax to conduct its portion of these
responsibilities. As set forth in ARTICLE 5. OPTION AND LICENSE, Bayer
shall have the option at any time to obtain a license to the
technology which Paravax develops pursuant to this Agreement, for
certain uses and subject to certain conditions and the payment of
certain royalties. As set forth in ARTICLE 6.
<PAGE> 2
MANUFACTURE OF TOXOPLASMOSIS VACCINE, to the extent that upon the
completion of Phase II of the Research Program Paravax has in place a
manufacturing facility that is approved by the appropriate regulatory
authorities, Paravax shall be entitled to manufacture the
Toxoplasmosis Vaccine, and to the extent that Paravax does not have
such a facility in place, or chooses not to so manufacture the
Toxoplasmosis Vaccine, Bayer shall manufacture, or have manufactured,
the Toxoplasmosis Vaccine for sale in the Territory and shall
manufacture Toxoplasmosis Vaccine for Paravax as required for sale
outside the Territory. As set forth in ARTICLE 7. DISTRIBUTION RIGHTS,
upon completion of the development and testing of a safe and
efficacious Toxoplasmosis Vaccine, Bayer shall have the right to enter
into a Distribution Agreement which shall allow Bayer to distribute
the vaccine throughout the world, with certain exceptions.
ARTICLE 2. DEFINITIONS
For purposes of this Agreement, the terms set forth below shall be
deemed to have the meanings indicated:
2.1. Distribution Agreement shall mean the Toxoplasmosis Vaccine
Distribution Agreement referred to in Section 7.1 hereof.
2.2. Manufacturing Agreement shall mean the Toxoplasmosis Vaccine
Manufacturing Agreement referred to in Section 6.2 hereof.
2.3. Paravax Technology shall mean all intellectual property of Paravax as
of date of this Agreement and any intellectual property of Paravax
developed during the term of this Agreement, to the extent related to
the research, development, manufacture or sale of a recombinant live
vector vaccine for the prevention of feline toxoplasmosis, including
but not limited to all patents and patent applications with respect to
such intellectual property.
2.4. Net Sales shall mean gross receipts from independent, unrelated
parties in bona fide arm's length transactions, less the following
deductions: (a) trade and/or quantity discounts actually allowed and
taken in such amounts as are customary in the trade; (b) commissions
paid or allowed to independent brokers and agents; (c) sales and other
excise taxes and duties paid, to the extent separately stated on an
invoice; and (d) amounts paid to cover transportation costs, to the
extent separately stated on an invoice.
2.5 Research Program shall mean the research program for the development
of a vaccine for the prevention of feline toxoplasmosis as set forth
on Exhibit A hereto, as amended by the parties pursuant to the terms
of this Agreement.
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2.6. Territory shall mean the entire world, with the exception of Japan and
Southeast Asia (which shall be deemed to include Korea, Thailand,
Singapore, Taiwan, China, Hong Kong, Malaysia, Indonesia, and the
Philippines).
2.7. Toxoplasmosis Vaccine shall mean a recombinant live vector vaccine for
the prevention of feline toxoplasmosis (Toxoplasma gondii) developed
during the term of this Agreement pursuant to the Research Program.
ARTICLE 3. RESEARCH AND DEVELOPMENT
3.1. Phases of the Research Program. The Toxoplasmosis Research Program is
divided into four Phases, as described on Exhibit A hereto, which will
be referred to in this Agreement as Phases I through IV. Phases I and
II of the Research Program are primarily concerned with the initial
research and development and preliminary testing of the Toxoplasmosis
Vaccine. Phases III and IV of the Research Program are primarily
concerned with the conduct of the clinical testing necessary to
determine and optimize the safety and efficacy of the vaccine and to
obtain the regulatory approvals required to allow its manufacture and
marketing, and their performance is addressed in Article 4 of this
Agreement.
3.2. Paravax Responsibility. Phases I and II. Paravax shall have primary
responsibility for performing Phases I and II of the Research Program.
Bayer shall offer Paravax such technical, scientific and other
assistance and cooperation for this undertaking as Bayer deems
appropriate. Paravax shall use diligent efforts to conduct Phases I
and II of the Research Program, with such modifications, additions and
deletions as Bayer and Paravax shall reasonably agree upon. Paravax
will provide Bayer with reports on a quarterly basis with respect to
its progress as to the Research Program. At semiannual intervals,
these reports will contain significant detail, and Paravax will host
semi-annual meetings, as requested by Bayer, to update Bayer personnel
as to its progress and plans with respect to the Research Program.
Paravax will use diligent efforts to promptly replace any significant
personnel who depart from Paravax while working on the Research
Program with appropriate personnel who meet reasonable criteria agreed
to with Bayer.
3.3. Research and Development Funding. Upon the execution of this
Agreement, Bayer shall pay to Paravax a lump sum payment of
US$[ ]. In addition, eight months, sixteen months and twenty-four
months after the date of this Agreement Bayer shall pay to Paravax
further lump sum payments of US$[ ] each. The total of such lump
sum payments, US$[ ], shall be deemed to be funding for a
portion of the research and development expenditures which Paravax has
undertaken prior to the date of this Agreement. Bayer shall also make
an initial advance research and development milestone payment of
US$[ ] to Paravax upon the execution of this Agreement. Bayer
shall make further research and development funding payments to
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Paravax as set forth on Exhibit A hereto upon completion of the
milestones through the end of Phase II of the Research Program
indicated on Exhibit A hereto. The specific dollar amounts set forth
herein and on Exhibit A hereto are intended to be net of any
withholding required upon transfer of funds to Paravax.
3.4. Unexpected Expenses. To the extent that the expense of completing the
Research Program greatly exceeds that contemplated by Paravax at the
time this Agreement was entered into, whether due to a change in
regulatory requirements or other change in circumstance, Paravax and
Bayer shall negotiate in good faith to reach agreement upon a
reasonable level of additional research and development funding to be
provided by Bayer in order to allow Paravax to complete the Research
Program; provided, however, that Bayer shall continue to be entitled
to terminate this Agreement pursuant to the provisions of Section 11.2
hereof. The parties agree that Paravax shall not be entitled to any
additional research and development funding simply by reason of the
fact that the research and development takes longer than Paravax
originally contemplated due to delays that are customary for research
and development such as the Research Program.
3.5. Bayer Technology. It is contemplated by the parties that Bayer may
from time to time, in its discretion, offer Paravax access to certain
Bayer proprietary technology which would assist in the development
and/or manufacture of the Toxoplasmosis Vaccine. In the event that
Bayer is willing to offer access to such technology to Paravax, the
parties will negotiate in good faith to reach agreement upon
reasonable terms and conditions upon which Paravax may make use of
such technology for the development and/or manufacture of the
Toxoplasmosis Vaccine.
3.6. Additional Antigens. Bayer and/or Paravax may from time to time wish
to consider adding additional non-toxoplasmosis antigens to the
Toxoplasmosis Vaccine being developed pursuant to this Agreement. In
such event, the parties shall cooperatively discuss the costs and
benefits of adding such additional antigens and shall negotiate in
good faith to reach agreement concerning the wisdom of adding such
additional antigens, how to perform the necessary research and
development and how this Agreement shall be appropriately amended.
3.7. Full Cooperation. Bayer and Paravax agree to cooperate fully during
the term of this Agreement to attempt in good faith to accomplish and
enhance the performance of the Research Program, including, among
other things, keeping each other fully informed of any possible
ancillary technology which would improve the Toxoplasmosis Vaccine,
such as live vaccine vector technology, which one or the other has, or
might be able to obtain, access to, to the extent they are entitled to
do so.
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ARTICLE 4. CLINICAL TRIALS
4.1. Phase III and IV of the Research Program. Phase III and IV of the
Research Program are primarily concerned with optimizing the safety,
efficacy and manufacturing of the Toxoplasmosis Vaccine and obtaining
the regulatory approvals required to allow its manufacture and
marketing. It is agreed that, as Bayer has greater regulatory
experience than Paravax and as Bayer will have responsibility for
marketing the Toxoplasmosis Vaccine, Bayer will be responsible for
designing the regulatory program, including clinical trial protocols,
to obtain the required regulatory approvals. Bayer shall complete such
design of the regulatory program prior to the completion of Phase II
of the Research Program, so that no delay exists between the
completion of Phase II of the Research Program and the commencement of
Phase Ill of the Research Program. Once such a regulatory program has
been designed, Paravax and Bayer shall jointly determine how to
allocate responsibility for conducting Phases III and IV of the
Research Program in order to complete such Phases in the most
efficient and expeditious manner. To the extent that Paravax is to
undertake responsibility for conducting portions of Phases III and IV
of the Research Program, Bayer shall provide Paravax in a timely
manner with an amount of funding which is sufficient to allow Paravax
to reasonably conduct and complete such portions of the Research
Program, including amounts necessary to conduct the clinical trials
and obtain the regulatory approvals contemplated. Paravax agrees that
it shall use diligent efforts to conduct all formal clinical trials in
a manner which is satisfactory for regulatory approval, as directed by
Bayer.
ARTICLE 5. OPTION AND LICENSE
5.1. Interim License. During the term of this Agreement, Bayer shall have a
license to use all Paravax Technology, including all results obtained
during the Research Program, and all biological materials created
during the Research Program, for purposes of assisting and evaluating
the conduct of the Research Program, including designing and
conducting the regulatory program referred to in Article 4 hereof, and
preparing for and conducting preliminary manufacturing of the
Toxoplasmosis Vaccine and for all other purposes which are consistent
with the provisions of this Cooperation Agreement.
5.2. Option. For a period of 180 days after a termination of this
Agreement, Bayer shall have an option to acquire a license to use all
Paravax Technology to the extent set forth below. The rights to be
granted pursuant to such license shall differ depending upon the
circumstances under which such option is exercised, as set forth
below.
5.3. Exercise upon Completion. In the event that this Agreement terminates
upon completion of the Research Program, as set forth in Section 11.1
hereof, Bayer shall obtain an exclusive license to use the Paravax
Technology to manufacture
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Toxoplasmosis Vaccine for sale in the Territory. Such license shall
terminate upon a termination of the Distribution Agreement at the
election of Bayer or by reason of a material breach by Bayer. During
the term of such license, Paravax shall not grant any other party a
license to use the Paravax Technology for the manufacture of any
recombinant vaccine for the prevention of feline toxoplasmosis for
sale in the territory, and Paravax will not use the Paravax Technology
for the manufacture of any recombinant vaccine for the prevention of
feline toxoplasmosis for sale in the Territory, except for sale
through Bayer pursuant to the Distribution Agreement. Bayer shall also
be entitled to obtain various nonexclusive licenses to use the Paravax
Technology for purposes other than a vaccine for the prevention of
feline toxoplasmosis, to the extent Paravax is contractually permitted
to grant such licenses. In the event that Bayer elects to obtain such
a license, Paravax and Bayer shall negotiate in good faith a
reasonable royalty rate and other reasonable terms and conditions for
such license.
5.4. Exercise upon Premature Termination caused by Paravax. In the event
that Bayer exercises its option to obtain a license to the Paravax
Technology upon the termination of this Agreement pursuant to Section
11.3 hereof as a result of a breach by Paravax, or upon the
termination of this Agreement by Bayer at its election pursuant to
Section 11.4 hereof as a result of an acquisition of Paravax, Bayer
shall obtain an exclusive license to use all of the Paravax Technology
to manufacture and sell vaccines for the prevention of feline
toxoplasmosis in the Territory. In such event, Paravax will not use
the Paravax Technology to manufacture and/or sell any recombinant
vaccine for the prevention of feline toxoplasmosis in the Territory
and will not grant any other party a license to use the Paravax
Technology to manufacture and/or sell any recombinant vaccine for the
prevention of feline toxoplasmosis in the Territory; provided,
however, that Paravax shall be entitled to use the Paravax Technology
in the Territory to manufacture, or have manufactured, a vaccine for
the prevention of feline toxoplasmosis for sale outside of the
Territory. Bayer shall also be entitled to obtain various nonexclusive
licenses to use the Paravax Technology for purposes other than a
vaccine for the prevention of feline toxoplasmosis, to the extent
Paravax is contractually permitted to grant such licenses. In the
event that Bayer elects to obtain such a license, Paravax and Bayer
shall negotiate in good faith a reasonable royalty rate and other
reasonable terms and conditions for such license.
5.5. Exercise upon Premature Termination caused by Baver. In the event that
Bayer terminates this Agreement at its election pursuant to Section
11.2 hereof, Bayer shall be entitled to obtain various nonexclusive
licenses to use the Paravax Technology for other than a vaccine for
the prevention of feline toxoplasmosis, to the extent Paravax is
contractually permitted to grant such licenses. In the event that
Bayer elects to obtain such a license, Paravax and Bayer shall
negotiate in good faith a reasonable royalty rate and other reasonable
terms and conditions for such license.
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5.6. Royalty Rates. The license granted to Bayer pursuant to Section 5.1
hereof shall be royalty free. A license with respect to Toxoplasmosis
Vaccine granted to Bayer pursuant to Section 5.3 hereof shall provide
for the payment of royalties to Paravax of [ ]% of Net Sales of
Toxoplasmosis Vaccine, other than Toxoplasmosis Vaccine which is sold
by Paravax to Bayer pursuant to the Distribution Agreement. A license
with respect to a vaccine for the prevention of feline toxoplasmosis
granted to Bayer pursuant to Section 5.4 hereof shall provide for the
payment of royalties to Paravax of [ ]% of Net Sales of any such feline
toxoplasmosis vaccine. Bayer's obligation to pay any such royalties
shall terminate upon the later of (i) the expiration of all of the
licensed patents, or (ii) ten years from the first commercial sale of
a licensed product by or on behalf of Bayer. In the event that any
royalty and/or license fee is required to be paid to any third party
with respect to the use, manufacture or sale of Toxoplasmosis Vaccine,
other than any amounts which Paravax is contractually obligated to pay
as of the date of this Agreement, such expense shall be borne equally
by Paravax and Bayer. Paravax and Bayer shall jointly decide to
undertake any contractual commitment to pay any such license fee or
royalty with respect to the manufacture or sale of Toxoplasmosis
Vaccine. Paravax shall be solely responsible to bear the cost of any
license fee or royalty which Paravax is contractually obligated to pay
as of the date of this Agreement.
5.7. License Agreements. At any time, upon the request of Bayer, Bayer and
Paravax shall negotiate in good faith the form of the license
agreement for any license to be granted to Bayer pursuant to this
Article 5. Such license agreement shall contain the substantive terms
described in this Article 5, together with such other reasonable and
customary terms as the parties shall agree upon. Such license
agreement shall be subject to appropriate decreases in royalties upon
the expiration of patents. Such license agreement shall also provide
for Paravax to provide Bayer with reasonable assistance and
documentation in order to facilitate Bayer's permitted use of the
Paravax Technology.
ARTICLE 6. MANUFACTURE OF TOXOPLASMOSIS VACCINE
6.1. Manufacturing Source. To the extent that upon the completion of Phase
II of the Research Program Paravax owns, or leases pursuant to a long
term lease, a manufacturing facility which has been approved by the
United States Department of Agriculture or, if applicable, the United
States Food and Drug Administration which allows Paravax to produce
Toxoplasmosis Vaccine for which regulatory approval or clearance for
sale can be obtained in a specific country in the Territory, the
parties shall proceed as though Paravax shall manufacture the
Toxoplasmosis Vaccine for distribution in that country by Bayer
pursuant to the Distribution Agreement. To the extent that upon the
completion of Phase II of the Research Program Paravax does not have
such an approved manufacturing facility which allows it to produce
Toxoplasmosis Vaccine for which regulatory approval or clearance for
sale can be
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obtained in a specific country, the parties shall proceed as though
Bayer shall manufacture the Toxoplasmosis Vaccine for distribution in
that country by Bayer pursuant to the Distribution Agreement. Paravax
may elect to forego or cease manufacture of Toxoplasmosis Vaccine at
any time, provided that Paravax gives Bayer adequate notice to allow
Bayer, or a third party, to prepare for the manufacturing requirements
of producing the Toxoplasmosis Vaccine for, as applicable, Phases III
and IV of the Research Program and/or manufacture for commercial sale.
After the commencement of Phase III of the Research Program, Paravax
shall have no right to regain from Bayer the right to manufacture the
Toxoplasmosis Vaccine; however, Bayer agrees that it shall favorably
consider any such request made by Paravax. In the event that Paravax
elects to forego or cease manufacture of the Toxoplasmosis Vaccine,
Bayer shall be entitled to manufacture all of Bayer's requirements for
Toxoplasmosis Vaccine pursuant to the license described in Section 5.3
above.
6.2. Manufacturing Agreement. In the event that Paravax does not
manufacture any Toxoplasmosis Vaccine, as described in Section 6.1
hereof, Bayer and Paravax shall enter into a Manufacturing Agreement
pursuant to which Bayer shall manufacture, or have manufactured, the
Toxoplasmosis Vaccine for Paravax for sale outside of the Territory
and sell such Toxoplasmosis Vaccine to Paravax at a reasonable price
to be agreed upon by Paravax and Bayer. Such Manufacturing Agreement
shall include such other reasonable and customary terms as the parties
shall agree upon, consistent with the terms of this Cooperation
Agreement.
ARTICLE 7. DISTRIBUTION RIGHTS
7.1. Distribution Agreement. Upon Bayer's decision to file for regulatory
approvals for a Toxoplasmosis Vaccine, Bayer and Paravax shall enter
into a Toxoplasmosis Vaccine Distribution Agreement. Such Distribution
Agreement shall include the substantive terms described in Articles 7,
8, 9 and 10 of this Cooperation Agreement, together with such other
reasonable and customary terms as the parties shall agree upon,
consistent with the terms of this Cooperation Agreement. The term of
such Distribution Agreement shall be perpetual, subject to termination
by Bayer at its election or termination by Bayer or Paravax as a
result of a breach by the other party.
7.2. Grant of Rights. During the term of the Distribution Agreement, Bayer
and its affiliated companies shall have the exclusive right to
distribute Toxoplasmosis Vaccine in the Territory. Bayer and its
affiliated companies shall be entitled to distribute the Toxoplasmosis
Vaccine both directly and through distributors. Bayer shall use
diligent efforts during the term of the Distribution Agreement to
promote, market, distribute and sell Toxoplasmosis Vaccine in the
countries in the Territory listed on Exhibit B hereto. Bayer shall
have no obligation to promote, market, distribute or ell Toxoplasmosis
Vaccine in any portion of the Territory in which it is not
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commercially reasonable to do so.
7.3. Competing Products. Other than Toxoplasmosis Vaccine, and any other
vaccine licensed from and/or developed by Paravax, Bayer shall not
directly, or through any subsidiary or affiliated corporation, sell in
the Territory any vaccine for the prevention of feline toxoplasmosis
during the term of the Distribution Agreement. Bayer also agrees that
neither it nor any subsidiary or affiliated corporation shall directly
or indirectly solicit sales of Toxoplasmosis Vaccine for use in any
animal other than domestic felines.
7.4. Additional Territories. In the event that a Paravax relationship for
the distribution of Toxoplasmosis Vaccine with an existing partner
terminates as to any portion of the world not included in the
Territory, Paravax agrees that, before entering into a relationship
with any new partner for the distribution of the Toxoplasmosis Vaccine
in such portion of the world, it will first offer Bayer the option to
obtain distribution rights for the Toxoplasmosis Vaccine in that
portion of the world upon reasonable terms and conditions and will
negotiate in good faith with Bayer with respect to such reasonable
terms and conditions if Bayer is interested in obtaining such rights.
ARTICLE 8. PURCHASE OF TOXOPLASMOSIS VACCINE
8.1. Purchase Obligation. To the extent that Paravax is entitled to be the
manufacturing source for Toxoplasmosis Vaccine in some or all of the
Territory, pursuant to the provisions of Section 6.1 hereof, the
Distribution Agreement shall provide that Bayer will purchase from
Paravax all quantities of Toxoplasmosis Vaccine to be sold by it or on
behalf of it pursuant to the Distribution Agreement in such portions
of the Territory. Bayer's obligation to purchase Toxoplasmosis Vaccine
from Paravax shall terminate in the event that Paravax consistently
fails to provide in a timely manner the Toxoplasmosis Vaccine which
Bayer orders pursuant to the terms of the Distribution Agreement or in
the event that Paravax elects to cease or forego manufacture of the
Toxoplasmosis Vaccine pursuant to Section 6.1 hereof. To the extent
that Paravax manufactures Toxoplasmosis Vaccine, the terms set forth
in this Article 8 shall be incorporated in the Distribution Agreement
for purposes of Bayer's purchases of such Toxoplasmosis Vaccine.
8.2. Transfer Price. The per dose price at which Bayer shall purchase
Toxoplasmosis Vaccine from Paravax pursuant to the Distribution
Agreement shall be equal to the sum of (i) [
], (ii)
[ ], and (iii) [
]. To the extent that Paravax and Bayer are unable to agree upon
the price at which [ ] would manufacture the Toxoplasmosis
Vaccine, Paravax and Bayer shall agree upon [
]
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[
] for the manufacture
of the Toxoplasmosis Vaccine in those quantities which Bayer
reasonably expects to purchase Toxoplasmosis Vaccine in the upcoming
year. Upon [
] for purposes of the calculation of the transfer price payable
to Paravax. In addition, Paravax and Bayer will discuss increases to
this price in good faith on a yearly basis in order to compensate
Paravax for increases in the costs of raw materials, labor and other
manufacturing expenses.
8.3. Shipment. All prices and shipments shall be F.C.A. Paravax's Fort
Collins, Colorado location, and risk of loss or damage shall pass to
Bayer on delivery to a common carrier. Bayer shall pay, or reimburse
Paravax for, the amount of any sales, use, excise or similar taxes and
all expenses of clearing customs and duties associated with importing
or exporting the Toxoplasmosis Vaccine purchased from Paravax for sale
by or on behalf of Bayer within the Territory.
8.4. Packaging. Bayer shall supply the art work and language for all
labels, packaging, product inserts and related items. Bayer shall bear
any expense, including discarded materials, resulting from any change
in such packaging, labeling, inserts or art work requested by Bayer.
Bayer shall market the Toxoplasmosis Vaccine using Bayer's tradenames,
trademarks, logos and trade dress; however, to the extent the
Toxoplasmosis Vaccine is manufactured by Paravax, Bayer's name as
distributor and Paravax's name as manufacturer shall receive equal
prominence in the descriptive materials.
8.5. Forecasts and Purchase Orders. In order to assist Paravax in planning
its production schedule for the Toxoplasmosis Vaccine, Bayer shall, no
later than last day of each calendar quarter, provide Paravax with a
good faith forecast of the Toxoplasmosis Vaccine that Bayer expects to
purchase during each of the following four calendar quarters. The
amounts so forecast for the immediately following two quarters shall
be deemed to be a noncancellable order for delivery during such
quarter; provided, however, that Bayer shall not be obligated to
purchase more than 75 % of the amount so forecast for the second such
quarter. Any additional amounts to be purchased by Bayer shall be
purchased by written purchase order submitted to Paravax. Paravax
shall not be obligated to accept any purchase order which provides for
delivery in less than 90 days from the date of its receipt. Paravax
shall be entitled to establish economically reasonable minimum
quantities for individual deliveries in light of production expenses.
8.6 Payment. Payment for Toxoplasmosis Vaccine shall be due in full thirty
(30) days from the date of receipt of invoice, which shall be on or
after the date of shipment.
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Accounts outstanding more than thirty (30) days will be subject to a
monthly charge at the rate of one and one half percent (1.5 %) per
month, or the maximum permitted by law, whichever is less.
8.7. Warranty. Paravax will warrant that the Toxoplasmosis Vaccine supplied
by Paravax will be free from defects in manufacturing and workmanship,
and will conform to agreed upon standards and specifications, during
the shelf life indicated by Paravax for such Toxoplasmosis Vaccine
(the "Warranty Period"), provided that the Toxoplasmosis Vaccine is
maintained under the storage conditions defined by Paravax. Any
Toxoplasmosis Vaccine which is found to be defective during the
Warranty Period may be returned for replacement. Bayer agrees to
report to Paravax any suspected product defect or customer complaint.
Paravax shall have the right to decide to recall any or all of the
Toxoplasmosis Vaccine, and Bayer agrees to comply with any recall
procedures for such Toxoplasmosis Vaccine decided on by Paravax. There
shall be no remedies for defective Toxoplasmosis Vaccine other than
those expressly set forth herein, and Paravax will make no other
warranties of any kind, express or implied, with respect to
Toxoplasmosis Vaccine. Paravax will, however, bear any producer
liability to third parties with respect to any Toxoplasmosis Vaccine
manufactured by Paravax, to the extent imposed by applicable law.
ARTICLE 9. PATENT INDEMNIFICATION
9.1. Infringement Defense. Paravax and Bayer will jointly defend any claim,
suit or proceeding brought against Bayer and/or Paravax to the extent
it is based upon a claim that the Toxoplasmosis Vaccine sold by Bayer
or on behalf of Bayer pursuant to the Distribution Agreement infringes
upon any patent or trade secret rights of any third party. Bayer and
Paravax agree that they shall promptly notify the other in writing of
any such claim or action and give the other full information and
assistance in connection therewith. Paravax and Bayer shall jointly
control the defense of any such claim or action and the settlement or
compromise of any such claim or action. Paravax and Bayer will jointly
pay all damages, costs and expenses paid in settlement or finally
awarded to third parties against Bayer and/or Paravax for such claim
or in such action. If the Toxoplasmosis Vaccine is, or in Paravax' s
or Bayer's opinion might be, held to infringe as set forth above,
Paravax and Bayer shall jointly determine whether to replace or modify
such Toxoplasmosis Vaccine so as to avoid infringement, or procure the
right for Bayer and Paravax to continue the manufacture, use and
resale of such Product. Paravax and Bayer shall also jointly determine
how the expense of any replacement, modification or procurement of
rights shall be borne by Paravax and Bayer. If neither of such
alternatives is commercially reasonable, any infringing Toxoplasmosis
Vaccine held by Bayer and purchased from Paravax shall be returned to
Paravax and Paravax's sole liability, in addition to its obligation to
pay damages, costs and expenses as set forth above, shall be to refund
the amounts paid for such returned Toxoplasmosis Vaccine by Bayer, and
Paravax shall have no further
-11-
<PAGE> 12
obligation to supply Toxoplasmosis Vaccine to Bayer pursuant to the
Distribution Agreement.
9.2. Limitation. Paravax will have no liability for any claim of
infringement arising as a result of Bayer's use of the Toxoplasmosis
Vaccine in combination with any items not supplied by Paravax, any
modification of the Toxoplasmosis Vaccine by Bayer or third parties,
or, in the event that Bayer manufactures the Toxoplasmosis Vaccine,
any manufacturing process used by Bayer. THE FOREGOING STATES THE
ENTIRE LIABILITY OF PARAVAX TO BAYER OR ANY PURCHASER OR USER OF
TOXOPLASMOSIS VACCINE CONCERNING INFRINGEMENT OF INTELLECTUAL PROPERTY
RIGHTS, INCLUDING BUT NOT LIMITED TO, PATENT AND TRADE SECRET RIGHTS.
ARTICLE 10. PATENTS
10.1. Ownership of Inventions. As between the parties, all rights to
inventions or discoveries invented or discovered jointly by Paravax
and Bayer under this Cooperation Agreement shall be jointly owned.
Each party shall have the right to use such inventions and discoveries
for such purposes as it shall deem appropriate, upon agreement with
the other party as to appropriate and reasonable compensation for uses
other than those contemplated by this Agreement; provided, however,
that to the extent set forth in the Distribution Agreement, Bayer
shall have the sole right to distribute Toxoplasmosis Vaccine in the
Territory. As between the parties, all rights to inventions or
discoveries invented or discovered solely by Paravax under this
Cooperation Agreement shall belong to Paravax. Bayer shall have no
rights with respect to such inventions or discoveries other than the
rights to enter into the license agreements and the Distribution
Agreement, as set forth herein. As between the parties, all rights to
inventions or discoveries invented or discovered solely by Bayer under
this Cooperation Agreement shall belong to Bayer.
10.2. Patent Filings. During the term of this Cooperation Agreement and the
Distribution Agreement, Paravax shall consult with Bayer as to all
patent filings and other patent actions related to the Toxoplasmosis
Vaccine. Paravax and Bayer shall make such patent filings, and take
such other actions with respect to patent filings, as they jointly
determine are appropriate, using counsel selected by Paravax and
consented to by Bayer, which consent will not be unreasonably
withheld.
10.3. Patent Enforcement. During the term of the Distribution Agreement,
Bayer shall have the right to bring actions to enforce any patent
rights held by Paravax with respect to the Toxoplasmosis Vaccine
against infringement in the countries in the Territory in which Bayer
has the right to distribute the Toxoplasmosis Vaccine pursuant to the
Distribution Agreement. Paravax shall provide such assistance and
cooperation in connection with such enforcement actions as Bayer shall
reasonably request. In the
-12-
<PAGE> 13
event that Bayer elects not to enforce any such patent rights, Paravax
may, but is not obligated to, bring actions with respect to such
infringement, and Bayer shall provide such assistance and cooperation
in connection with such actions as Paravax shall reasonably request.
Bayer shall not settle or compromise any such action which it brings
to enforce any patent with respect to the Toxoplasmosis Vaccine
without Paravax's consent, which consent will not be unreasonably
withheld. Where such an enforcement action has been brought by Bayer,
Bayer shall maintain the litigation at its own expense and shall keep
any judgment and award arising from such action. Where such an
enforcement action has been brought by Paravax, Paravax shall maintain
the litigation at its own expense and shall keep any judgments and
awards arising from such action.
ARTICLE 11. TERM AND TERMINATION
11.1. Term. The term of this Agreement shall commence on the date first set
forth above and shall end on the earlier of the date upon which this
Agreement is terminated pursuant to the provisions of this Article 11
or upon the completion of the Research Program.
11.2. Bayer Termination. Bayer shall have the right to terminate this
Agreement upon any anniversary of the date hereof, beginning with the
second such anniversary (but not before payment of the twenty-four
month lump sum payment due pursuant to Section 3.3 hereof), upon
written notice given not less than 90 days prior to such anniversary.
In the event that Bayer elects to so terminate this Agreement, Paravax
shall repay all amounts paid by Bayer pursuant to this Agreement at a
rate of [
], of any vaccine for the
prevention of feline toxoplasmosis developed by Paravax based on the
work conducted pursuant to the Research Program during the term of
this Agreement. Paravax's obligation to make such payments to Bayer
shall not commence until after the completion of the second full
calendar year in which such a vaccine has been marketed in the
Territory, and such payments shall only be made with respect to Net
Sales of such vaccine which take place after the completion of such
second full calendar year.
11.3. Termination for Breach. Either party shall have the right to terminate
this Agreement upon written notice if
(a) the other party is in breach of any material provision of
this Agreement and such breach has not been remedied within
30 days after written notice of such breach has been given;
or
(b) the other party enters into liquidation, whether compulsory
or voluntary, or has a receiver appointed as to all or any
part of its assets, or takes or suffers
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<PAGE> 14
any similar action in consequence of debt.
11.4. Paravax Acquisition. Bayer shall have the right to terminate this
Agreement upon written notice to Paravax given within ninety (90) days
of any acquisition of Paravax by a third party, whether by merger or
sale or other transfer of a substantial majority of the assets of
Paravax. In the event that Bayer elects to so terminate this
Agreement, Bayer shall, upon the request of Paravax, provide
reasonable assistance to aid Paravax in satisfying its contractual
obligations with respect to the supply of vaccines for the prevention
of feline toxoplasmosis for sale outside of the Territory.
11.5. Paravax Termination. Paravax shall not have the right to unilaterally
terminate this Agreement; provided, however, that in the event that
Paravax determines that it is unlikely that the Research Program can
be successfully completed, Paravax and Bayer shall negotiate an
appropriate termination of this Agreement.
ARTICLE 12. CONFIDENTIALITY
12.1. Confidential Information. It is agreed that during the term of this
Agreement Paravax and Bayer may each disclose certain Confidential
Information to the other for purposes of furthering or evaluating
progress under this Agreement. The term "Confidential Information" for
these purposes shall include all technical, business, financial, or
marketing information which one party (the "Disclosing Party")
discloses to the other party (the "Receiving Party"), except any
portion of such information which:
a. is now or later made known to the public through no
default by the Receiving Party of its obligations
under this Agreement;
b. the Receiving Party can show was in its possession
prior to disclosure by the Disclosing Party;
c. is rightfully received by the Receiving Party from a
third party without any accompanying secrecy
obligation; or
d. is independently developed by the Receiving Party by
persons who neither had access to Confidential
Information of the Disclosing Party nor received
direction from persons who had access to Confidential
Information of the Disclosing Party.
12.2. Confidentiality Obligation. A Receiving Party agrees to hold in
confidence and not disclose to any third parties any of the
Confidential Information of the Disclosing Party without the prior
consent of the Disclosing Party; provided, however, that to the extent
required in order to obtain regulatory approval, a Receiving Party may
-14-
<PAGE> 15
disclose such Confidential Information to the appropriate regulatory
authorities. A Receiving Party agrees to limit any disclosure of the
Confidential Information only to those of its employees and outside
professional advisors who have a need to know and who are bound by
confidentiality obligations, and to advise such persons of the
Receiving Party's obligations under this Agreement. A Receiving Party
further agrees to use Confidential Information received from the other
party only for purposes of furthering or evaluating progress under
this Agreement. Any tangible materials that contain any Confidential
Information shall be returned to the Disclosing Party promptly upon
request, and any portions of any memoranda, reports or documents
created by the Receiving Party which contain any Confidential
Information shall be destroyed upon the request of the Disclosing
Party; provided, however, that the Receiving Party may keep a single
copy of all such tangible materials for purposes of demonstrating
compliance with the provisions of this Agreement.
12.3. Confidentiality of Agreement. In addition, neither party will disclose
to any third party, other than with the prior written consent of the
other party, the terms and conditions of this Agreement, except as may
be required by applicable law, regulation or court order. The
provisions of this Article 12 shall survive any termination of this
Agreement for a period of ten (10) years.
ARTICLE 13. MISCELLANEOUS
13.1. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the assigns of Paravax and Bayer; however,
neither Paravax nor Bayer shall be entitled to assign its rights and
obligations under this Agreement without the express written consent
of the other. Notwithstanding the immediately preceding, such consent
shall not be required for an assignment of the rights and obligations
of Paravax or Bayer to a wholly owned subsidiary or which takes place
as part of an acquisition of Paravax, whether by merger or sale or
other transfer of substantially all of the assets of Paravax;
provided, however, that nothing in this Section 13.1 shall be deemed
to limit the rights of Bayer pursuant to the provisions of Section
11.4 hereof.
13.2. Relationship of Parties. Nothing in this Agreement shall constitute or
be deemed to constitute a partnership between the parties. The
relationship between Bayer and Paravax shall be strictly that of
sponsor and researcher. Bayer, its officers, agents and employees,
shall under no circumstances be considered the agents, employees or
representatives of Paravax, and Paravax, its officers, agents and
employees, shall under no circumstances be considered the agents,
employees or representatives of Bayer. Bayer shall not have the right
to enter into any contracts or binding commitments in the name of or
on behalf of Paravax in any respect whatsoever, and Paravax shall not
have the right to enter into any contracts or binding commitments in
the name of or on behalf of Bayer in any respect whatsoever.
-15-
<PAGE> 16
13.3. Notices. Notices required hereunder shall be deemed properly given
upon hand delivery (including professional courier such as Federal
Express) to the addresses set forth below, or to such other address as
a party shall have given notice of in accordance herewith.
Paravax: Paravax, Inc.
2301 Research Boulevard, Suite 110
Fort Collins, CO 80526
Attn: President
Bayer: Bayer AG
Geschaftsbereich Veterinar
VT-F/Leitung
D-51368 Leverkusen
Germany
Attn: Prof. Dr. H. Thomas
13.4. Force Majeure. Neither party shall be liable for any failure to
perform any of its obligations hereunder (other than the payment of
money) which results from act of God, the elements, fire, flood,
component shortages, force majeure, riot, insurrection, industrial
dispute, accident, war, embargoes, legal restrictions or any other
cause beyond the control of such party.
13.5. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Kansas, without regard to its
provisions concerning the applicability of the laws of other
jurisdictions.
13.6. Arbitration. Should any dispute, controversy or difference of opinion
arise between the parties hereto out of or in relation to or in
connection with this Agreement, or the breach thereof, the parties
shall first endeavor to reach an amicable resolution thereof. Should
the parties fail to reach such an amicable resolution, any such
dispute, controversy or difference of opinion shall be resolved by
arbitration in accordance with the arbitration rules of the
International Chamber of Commerce, then in force, by one or more
arbitrators appointed in accordance with such rules. Any such
arbitration shall be held in Kansas City, Missouri if requested by
Bayer, and in Leverkusen, Germany if requested by Paravax, and all
proceedings shall be held in the English language. Any award rendered
shall be final and binding upon the parties. Judgement upon the award
may be entered in any court having jurisdiction, or application may be
made to such court for judicial acceptance of the award and/or an
order of enforcement as the case may be.
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<PAGE> 17
13.7. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
13.8. Entire Agreement. This Agreement sets forth the entire agreement and
understanding between the parties as to the subject matter hereof and
may only be amended by a writing signed by both parties.
13.9. Titles and Headings. The titles or headings, articles, sections or
paragraphs set forth in this Agreement have been inserted merely to
facilitate reference and shall have no bearing upon the interpretation
of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on their behalf as of the date first set forth above.
PARAVAX, INC.
By /s/ DAVID F. CAIN
--------------------------
Title: President
----------------------
BAYER AG
By /s/ H. THOMAS
-----------------------
Title: Head of Research
-----------------------
BG Animal Health
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<PAGE> 18
FELINE TOXOPLASMOSIS VACCINE RESEARCH & DEVELOPMENT PLAN : EXHIBIT A
[
]
1
<PAGE> 19
[
]
2
<PAGE> 20
[
]
3
<PAGE> 21
Feline Recombinant Toxoplasmosis Vaccine Timetable
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PHASE 1 Year 1 Year 2 Year 3 Year 4
==================================================================================================================
TASK
==================================================================================================================
<S> <C> <C> <C> <C> <C>
[
]
</TABLE>
<PAGE> 22
FELINE RECOMBINANT TOXOPLASMOSIS VACCINE
PHASE I/II MILESTONES AND PAYMENTS
<TABLE>
<CAPTION>
===================================================================================================================
MILESTONES MOS. PAYMENT BY
($000 OMITTED)
- -------------------------------------------------------------------------------------------------------------------
Performance(1) Milestones(2)
===================================================================================================================
===================================================================================================================
<S> <C> <C> <C> <C>
[
]
</TABLE>
(1) Payment upon completion of the time (month) listed if performance level
is acceptable.
(2) Payment upon successful achievement of milestone, independent of time.
(3) Payment upon fulfilling criteria of Milestone 5.
(4) As identified above in this exhibit.
<PAGE> 23
Exhibit B
to
Feline Toxoplasmosis Cooperation Agreement
United States of America
Federal Republic of Germany
United Kingdom
France
<PAGE> 1
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION]
EXHIBIT 10.4
AMENDMENT NO. 1 TO
PRODUCT SUPPLY AND LICENSE AGREEMENT
This Amendment is effective as of the date given below and
modifies the Product Supply and License Agreement (the Agreement) of May 1,
1995 by and between Paravax, Inc. a corporation of the state of California with
offices at 1825 Sharp Point Road, Fort Collins Colorado 80525 (PARAVAX ) and
Atrix Laboratories, Inc., a corporation of the state of Delaware, with offices
at 2579 Midpoint Drive, Fort Collins, CO 80525 (ATRIX).
PARAVAX and ATRIX state that Section 2.4 Minimums of the
Agreement now reads in certain part:
The minimum purchase shall be determined by the number of Units
actually delivered by SELLER and paid for by BUYER and the twelve
month period (herinafter Anniversary Period) shall run from
anniversary to anniversary of the first sale date.
PARAVAX and ATRIX agree that pursuant to section 13.1 of the Agreement, this
certain part of Section 2.4 shall be amended to read:
The minimum annual purchase shall be determined by the number of
Units paid for by BUYER but shall be subject to reduction for that
year only by the number of units ordered by BUYER and accepted by
SELLER but not delivered by SELLER as requested by BUYER, and the
twelve month period (herinafter Anniversary Period) shall run from
anniversary to anniversary of the first sale date.
- --------------------------------------------------------------------------------
AMENDMENT NO. 1
-1-
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this agreement to
be signed by the duly authorized officers as of the date hereinbelow written.
PARAVAX, INC. ATRIX LABORATORIES, INC.
BY: /S/ FRED M. SCHWARZER BY: /s/ CHARLES P. COX
---------------------- --------------------------
Title: President Title: VP Product Development
------------------- ------------------------
Dated: June 23, 1993 Dated: 9 June 1995
------------------- ------------------------
- -------------------------------------------------------------------------------
AMENDMENT NO. 1
-2-
<PAGE> 3
PRODUCT SUPPLY AND LICENSE AGREEMENT
This Agreement is entered into as of April 28, 1995 by and between
Atrix Laboratories, Inc., a Delaware corporation having a place of business at
2579 Midpoint Drive, Fort Collins, Colorado 80525 ("SELLER") and Paravax, Inc.
a California corporation having a place of business at 1825 Sharp Point Drive,
Fort Collins, Colorado 80525 ("BUYER").
RECITALS
A. SELLER has developed a proprietary, patented method for
delivering antibiotics in an injected, slow release medium for the treatment of
periodontal disease in humans.
B. BUYER is in the business of developing and marketing
therapeutic and diagnostic products for the animal health market, and desires
to obtain an exclusive license from SELLER to purchase the periodontal product
from SELLER and to use and sell the product in the animal health market for
periodontal applications.
C. In order to penetrate the animal health market, SELLER
desires to sell products to BUYER, pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises in this
Agreement, the parties agree as follows:
1. DEFINITIONS
1.1 "Affiliate" shall mean any company, corporation, or business in
which BUYER owns or controls at least fifty percent (50%) ownership interest or
which owns or controls such an interest in BUYER.
1.2 "Clinical Units" means Product for BUYER's use in the initial
clinical trials. Clinical Units may not be repackaged in new dosage sizes and a
"Clinical Unit" will consist of 0.5 mL in a 1.25 mL syringe.
1.3 "Effective Date" shall mean the date on which this Agreement has
been signed by authorized representatives of both parties. This date shall be
inserted in the opening paragraph of this Agreement.
1.4 "Improvement" shall mean any improvement to the Licensed
Technology developed by or for SELLER during the term of this Agreement and
which has potential application to the Product for the Licensed Field so long
as the Unit, as modified by the improvement, falls within the scope of the
claims of the patents listed in Exhibit A.
<PAGE> 4
1.5 "Licensed Field" shall mean the treatment of periodontal disease
in non-human companion animals.
1.6 "Licensed Product" means a Product manufactured by or for BUYER
under Section 8 below which at the time of manufacture, use or sale is covered
in the country of such manufacture, use or sale, by any pending or issued valid
claim for the Patent Rights and optionally is based upon Licensed Technology.
For the purposes of this Agreement, an "issued valid claim" shall mean a claim
of an unexpired patent which shall not have been withdrawn, canceled, or
disclaimed, nor held invalid by a court of competent jurisdiction in any
unappealed or unappealable decision in the country where the Licensed Product
is made, used or sold by BUYER or its Affiliates.
1.7 "Licensed Technology" means the SELLER's know-how relating to
the formulation and manufacture of the Product.
1.8 "Manufacturing Documentation" means all manufacturing
documentation, including bill of materials, designs, drawings, lists of
tooling, quality assurance protocols and other test materials, reasonably
necessary to enable BUYER to manufacture the Product and consisting of the
items listed on Exhibit C.
1.9 "Net Sales" shall mean the actual gross receipts from sales of
Licensed Products less the following deductions actually paid or allowed by
BUYER: quantity and cash discounts normal and customary in the trade; sales,
use, and other similar taxes; amounts repaid or credited by reason of rejection
or return, and transportation or delivery charges. Free samples, marketing
costs however denominated, and promotion costs and fees shall not be included
within the deductions used to calculate Net Sales from the gross receipts. In
the event an invoice price is determined in a foreign currency, Net Sales shall
be the equivalent in U.S. Dollars in accordance with the official foreign
currency rate of exchange on the date payment of the invoice is received.
1.10 "Patent Rights" shall mean rights and claims in and to the
inventions described in, and rights covered by, issued United States patents
and patent applications listed in Exhibit B attached to this Agreement and made
a part hereof, including all continuations, continuations-in- part, divisions
and renewals thereof, and foreign counterparts thereof, which will
automatically be deemed incorporated in and added to this Agreement and shall
periodically be added to Exhibit A. If SELLER shall file or obtain any patent
applications or patents with respect to Improvements which BUYER chooses to
incorporate into any Products under section 2.3, then such applications and
patents shall be automatically deemed incorporated in and added to this
Agreement to the same extent as provided herein for the items originally
included on Exhibit A.
2
<PAGE> 5
1.11 "Product" means units of the SELLER's ATRIGEL'" drug delivery
system product made of [ ] with
doxycycline antibiotic to be sold to BUYER by SELLER hereunder, packaged in the
dosage quantity specified by BUYER as provided in Section 3 below and otherwise
conforming to the technical specifications attached as Exhibit B, and includes
any Improvements, which BUYER chooses under Section 2.3 to incorporate into the
Product. The term "Product" shall include Clinical Units, unless the context
specifically requires otherwise.
1.12 "Unit(s)" means a separate sealed, moisture resistant package
containing one 1.25 mL syringe containing 1 mL of [
], one 1.25 mL syringe containing the required dose of
doxycycline (as indicated on Exhibit B) and one cannula.
2. GRANT OF LICENSE
2.1 Grant of Rights to Licensed Technology. SELLER hereby grants to
BUYER an exclusive, worldwide right during the term of this Agreement under the
Licensed Technology to purchase Products from SELLER and to use and sell
Products in the Licensed Field. BUYER shall have no right to sublicense the
rights granted hereunder, provided that BUYER may enter into agreements (which
may be called licenses) to sell Products through customary distribution
channels, including corporate partners and private label arrangements. Except
for the contingent rights granted under Section 8 below, no right is granted to
manufacture or have manufactured Products using the Licensed Technology. No
right is granted under this Agreement to use any of SELLER's trademarks.
2.2 License Fee. For the license granted under Section 2.1
above, BUYER will pay to SELLER a one-time non-refundable license fee in the
amount of [ ] within two (2) business days of the Effective Date. Upon
payment in full of this license fee, the license granted under Section 2.1
above shall be fully paid.
2.3 Right to Improvements. SELLER shall disclose to BUYER any
Improvements. Such disclosure shall be made as promptly as possible and in any
event no later than the date SELLER first incorporates such Improvement into
its own products, or first conducts clinical trials with respect to such
Improvement. BUYER shall have the right, but not the obligation, to elect to
have such Improvement made part of the Products that it purchases hereunder.
Upon BUYER's election, such Improvement shall be included as part of the
Product and the Licensed Technology and shall be subject to all of the same
rights and obligations under this Agreement. To the extent that Improvements
are elected by BUYER for incorporation into Products, Buyer agrees to reimburse
SELLER for all work of any nature which is needed to make such
3
<PAGE> 6
incorporation and obtain governmental regulatory approval for such
incorporation, such work including but not limited to developmental work,
formulation work, pilot manufacturing studies, clinical studies, regulatory
documentation, good manufacturing practices qualification, validation and the
like.
2.4 Minimums. BUYER agrees that it will purchase from SELLER the
following annual minimum quantities of Product during the life of this
Agreement: (1) from the date of execution of this Agreement to the second
anniversary of the first sale date of a Licensed Product, BUYER shall [
] (2) From the second anniversary of the
first sale date of a Licensed Product until the expiration of this Agreement
under section 12.1 or its termination under sections 12.2 and 12.3, BUYER shall
purchase a minimum of [ ] Units per twelve month
period from SELLER. The minimum purchase shall be determined by the number of
Units actually delivered by SELLER and paid for by BUYER and the twelve month
period (hereinafter Anniversary Period) shall run from anniversary to
anniversary of the first sale date. The actual number of Units paid for by
Buyer in any one Anniversary Period shall be credited against the Anniversary
Period purchase minimum. No excess of actual Units over [ ] purchased by
BUYER in any one anniversary Period shall be credited against any purchase
minimum of succeeding Anniversary Periods. In the event that BUYER fails to
purchase the minimum number of Units in any one Anniversary Period: (a) this
Agreement will immediately convert to a non-exclusive license in all respects;
(b) the contingent manufacturing license under Article 8 shall be cancelled;
and (c) SELLER shall have the immediate right to sell Units to third parties
and shall have the right to co-own, use, cite and rely upon all of BUYER's
governmental regulatory documentation concerning approval of Units in
connection with sales by SELLER but SELLER shall have no right to convey any
rights to such regulatory documentation to any third party.
3. FORMULATION AND GOVERNMENT APPROVALS
3.1 Dosage and Formulation. SELLER and BUYER acknowledge that the
Product as currently formulated by SELLER (0.5 mL material in a 1.25 mL
syringe) may not be optimal for applications in the Licensed Field.
Accordingly, SELLER agrees to take all actions necessary to reformulate the
Products, and any Improvements that BUYER elects to use, such that a Unit of
Product is defined as provided in section 1.12. SELLER will package ten of such
Units per box. SELLER agrees that it will begin the manufacture of the Units of
Product within such time as to provide Units of the Product to BUYER by
December 31, 1995. BUYER agrees to pay SELLER a fixed total of $[ ] on the
4
<PAGE> 7
schedule indicated below to compensate SELLER for its costs in (a)
reformulating the Products in this dosage, except that incorporation of
Improvements under section 2.3 and additional toxicology studies requested by
the FDA or other regulatory authorities shall not be included within the fixed
total of this section 3.1, (b) revising its manufacturing processes and
ordering appropriate tooling, and (c) performing all stability testing and
other testing necessary for submission to the FDA for approval. This fee will
be paid [ ] within two (2) business days of execution of this Agreement,
[ ] on December 31, 1995 and $[ ] on July 31, 1996. If this Agreement is
terminated prior to July 31, 1996 for any reason, BUYER will pay a portion of
any unpaid amount of this fee pro rated through the date of termination that
will at least be sufficient to cover SELLER's costs, labor and supplies or will
pay an amount up to any unpaid portion of the $[ ] that is sufficient to
cover all of SELLER's costs, labor, supplies as shown by SELLER's written
documentation, whichever is greater.
3.2 Government Approvals. BUYER shall be solely responsible for
obtaining at its own expense all government approvals required for sale of
Products in the Licensed Field any jurisdiction. BUYER shall be solely
responsible for conducting any clinical trials needed for such approvals.
3.3 Manufacturing and Other Documentation. SELLER shall cooperate in
good faith to give BUYER any information in SELLER's possession that would be
useful to BUYER in such clinical trials or government filings. In particular,
SELLER will at its own expense prepare a package of documentation regarding
SELLER's compliance with FDA Good Manufacturing Practices that relates to the
Products being sold to BUYER and that complies with FDA regulations. The
package will consist at least of the documentation specified on Exhibit C.
SELLER will update this package promptly to reflect any changes in the
Product's manufacturing process or any changes in FDA requirements. SELLER
agrees to provide this package to BUYER as reasonably requested by BUYER.
3.4 No Modification of Products. Except for modifications mandated by
any governmental regulatory authority, SELLER agrees that it will not modify
the Products in any manner, including changes in materials, dosage size or
manufacturing processes, and especially including any changes that would
require notification to any filing or a new filing with any governmental
agencies, without first obtaining the consent of the BUYER, which consent shall
not be unreasonably withheld. If BUYER refuses to give such consent, then
irrespective of BUYER's basis for the refusal, SELLER shall have the option
either to make the modification and equally share with BUYER the governmental
agency filing cost for the modification up to a total for SELLER of ten
thousand dollars
5
<PAGE> 8
($10,000.00), or to give BUYER the right to manufacture with
all obligations as provided under Article 8.7.
4. TERMS OF PURCHASE
4.1 Terms. All purchases of Products or Units by BUYER shall be
made according to the terms of this Agreement.
4.2 Price and Payment. SELLER shall sell Products to BUYER at the
prices indicated on Exhibit D. All prices are exclusive of taxes, duties,
shipping and similar charges and fees, which will be paid by BUYER. BUYER shall
pay all invoices in full within thirty (30) days of the invoice date or the
shipping date, whichever is later.
4.3 Purchase Orders. All purchases of Products shall be by written
purchase order from BUYER submitted no more than once a month to SELLER.
BUYER's purchase order shall conform with the forecast made by BUYER under
section 4.4. Any purchase orders submitted by BUYER shall be subject to
acceptance as to quantities and delivery dates by an authorized representative
of SELLER at SELLER's principal offices. Any order not rejected within three
(3) business days shall be deemed accepted. Once so accepted, SELLER shall use
its reasonable efforts to meet the delivery dates and quantities set forth on
such purchase order.
4.4 Forecasts.
(a) No later than the tenth day of each month after the
Effective Date, BUYER will provide SELLER with a twelve month rolling forecast
(each, a "Product Forecast") which will state: (a) the number of each type of
Product which BUYER forecasts it will order in each month, and (b) the month in
which BUYER forecasts it will request delivery. SELLER's lead time for Products
is eight (8) weeks, and the forecasted delivery date for each order will
conform to such lead time requirements. BUYER will be bound by each of its then
current Product Forecasts, but only as follows:
(i) All forecasts within the first two months of
the then current Product Forecast are firm and may not be decreased in any
subsequent Product Forecast, although with respect to the second month BUYER
may increase the number of any particular Product to be delivered in that
second month by up to twenty-five percent (25%).
(ii) For the third through the seventh months of
the Product Forecast, BUYER may increase or decrease by no more than 33% of the
average of all previous months' orders the number of any particular type of
Products it would order. For the eighth through the twelfth months of the
Product Forecast, BUYER
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may freely increase or decrease the number of any particular type of Products
it would order.
(b) Any changes in forecast greater than those allowed by
Section 4.4(a) (i) and (ii) require the written consent of SELLER and shall not
be cause for SELLER failure under section 8.1 irrespective of whether or not
SELLER accepts such changes or delivers such greater numbers of Units. Any
decrease in the number of units to be purchased, including any failure to
deliver a purchase order for the number of units which BUYER is obligated to
purchase under this Section 4.4(a) (i), shall be treated as a cancellation
under Section 4.5 below.
4.5 Cancellation and Rescheduling
(a) BUYER may cancel items to be delivered under a purchase
order, provided that BUYER will be required to pay SELLER an amount equal to
[ ] of the purchase price for cancellations effected
within thirty (30) days of SELLER's scheduled delivery and [ ]
of the purchase price for any cancellation effected more than thirty (30) days
but less than sixty (60) days from SELLER's scheduled delivery.
4.6 Tax Resale Certificate. BUYER represents that it holds and agrees
to provide to SELLER a valid resale exemption certificate issued by each tax
jurisdiction in which such certificate is required as a condition of the
avoidance of sales or use taxes with respect to the sale of Products under this
Agreement.
5. OWNERSHIP; PROPRIETARY RIGHTS NOTICES; INTELLECTUAL PROPERTY
INDEMNIFICATION
5.1 Ownership of Intellectual Property. BUYER acknowledges that SELLER
is and shall remain the sole owner of all intellectual property rights in the
Products and Licensed Technology, and this Agreement only grants BUYER a
limited right to use and distribute Products and Licensed Technology as
described in this Agreement.
5.2 Proprietary Rights Notice. BUYER agrees that it shall not
remove or deface any proprietary rights notices affixed to any Products or
their packaging.
5.3 Intellectual Property Indemnification. SELLER shall defend and
indemnify BUYER against any claim that any Licensed Products furnished and used
as provided under Article 2 of this Agreement or manufactured by BUYER as
provided under Article 8 of this Agreement infringes a patent owned by a third
party, and shall pay any costs and damages incurred by BUYER in such action,
including reasonable attorneys' fees, up to one-half of the
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<PAGE> 10
amounts paid to SELLER by BUYER for purchase of Licensed Product and for
royalties on Net Sales of Licensed Product if applicable. The amounts paid to
SELLER which are used to calculate this indemnity shall not include fees under
section 3.1 or fees or reimbursements for work done by SELLER for BUYER or on
BUYER's behalf. This obligation is contingent upon (i) BUYER notifying SELLER
promptly in writing of such claim, (ii) BUYER giving SELLER sole control of the
defense and all related settlement negotiations, (iii) BUYER providing SELLER
with all assistance and information necessary for the defense, (iv) SELLER
reaching a final adjudication without recourse to appeal or reaching a final
settlement between SELLER and the third party patent holder and (v) if
applicable, BUYER manufacturing the Licensed Product according to the
manufacturing specifications and selling a Licensed Product formulated
according to the Product Specifications provided to BUYER by SELLER
respectively under sections 8.2 and Exhibit B, or BUYER manufacturing the
Licensed Product according to changed manufacturing specifications and selling
a Licensed Product formulated according to changed Licensed Product
specifications, provided that the changes do not at least in part cause the
original non-infringing manufacturing specification or Licensed Product to
become infringing of the third party patent. If any Licensed Product is held to
infringe by a court of competent jurisdiction and the adjudication is final and
without recourse, or SELLER believes it may infringe, SELLER shall at its sole
option either (A) modify such Purchased Product to be non- infringing, or (B)
obtain a license for BUYER to continue using the Product. SELLER shall have no
obligation hereunder for the modification of the Licensed Products, the
manufacturing specifications or combination, operation or use of the Licensed
Products with materials not furnished by SELLER if such infringement would have
been avoided without such modification or combination.
5.4 Further Indemnifications. BUYER shall defend and indemnify SELLER
against any claim associated with Licensed Product and arising out of assertion
of strict liability or product liability based upon but not limited to failure
to warn, failure to instruct or other BUYER activity required in connection
with the Product or by a regulatory authority, or based upon adulteration of
Products sold by BUYER. SELLER shall defend and indemnify BUYER against any
claim associated with Licensed Product that SELLER has manufactured and which
claim is based upon a manufacturing defect or contamination for which SELLER is
responsible.
5.5 Entire Liability. THE FOREGOING STATES THE ENTIRE LIABILITY
OF THE PARTIES TO EACH OTHER OR ANY PURCHASER OF PRODUCTS CONCERNING
INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS, INCLUDING BUT NOT LIMITED TO,
PATENT, COPYRIGHT AND TRADE SECRET RIGHTS.
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6. LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY
THIRD PARTY FOR COSTS OF PROCUREMENT OF SUBSTITUTE PRODUCTS OR SERVICES, LOST
PROFITS, LOSS OF GOODWILL, OR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR
INCIDENTAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING IN
ANY WAY OUT OF THE LICENSE OR SALE OF, OR AGREEMENT TO LICENSE OR SELL,
PRODUCTS OR SERVICES TO BUYER. THIS LIMITATION SHALL APPLY EVEN IF A PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND NOTWITHSTANDING ANY
FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
7. LIMITED WARRANTY
7.1 Limited Warranty from SELLER to BUYER.
(a) SELLER warrants to BUYER that the Products (i) will
conform to their applicable specifications, (ii) will be manufactured in
accordance with all applicable governmental statutes and regulations, and (iii)
for a period of one (1) year from the date of shipment from SELLER will be free
from defects in materials and workmanship. Upon failure of any unit of Product
to comply with the above warranties, SELLER will promptly replace such unit
with a unit that does comply or, if unable to replace it, promptly refund in
cash to BUYER the amount paid by BUYER for such unit.
(b) Warranties for Products will not apply to defects
resulting from improper or inadequate handling or storage of Products by BUYER.
(c) THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER
WARRANTIES EITHER EXPRESS OR IMPLIED INCLUDING WITHOUT LIMITATION IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
8. CONTINGENT MANUFACTURING RIGHTS
8.1 Grant of Contingent Manufacturing License. This contingent right
to manufacture shall expire upon the second anniversary of the date of first
sale of the Licensed Product. During that period and following the specified
time periods associated with the following SELLER failures, BUYER shall give
SELLER a twenty (20) day notice of SELLER's failure, and SELLER shall have
sixty (60) days in which to substantially cure such failure, those Seller
failures being: (a) SELLER is unwilling over any consecutive six (6) week
period to accept BUYER purchase orders complying with this Agreement; (b)
SELLER is unwilling over any consecutive 6 week period to commit to delivery
within thirty (30) days of purchase order delivery dates requested in
compliance with this Agreement; (c) SELLER is unable over any
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<PAGE> 12
consecutive 6 week period to make delivery of Licensed Products as required by
any accepted purchase orders within thirty (30) days of the delivery dates
accepted by SELLER, or (d) is unable to supply Products that meet all of the
warranties specified in Section 7.1 above as determined by an independent,
private testing agency selected by SELLER, the costs of which shall be borne by
SELLER in the event of warranty failure and borne by BUYER in the event of
warranty compliance. If SELLER does not substantially cure such SELLER failure
within the designated cure period, then at SELLER's sole option, SELLER may
designate a third party to manufacture the Product for delivery to BUYER under
the terms and conditions of this agreement, or may designate that BUYER shall
have the right to manufacture or have manufactured the Licensed Products,
subject to the terms of this Section 8. In the event that SELLER selects BUYER
to manufacture, BUYER shall also have the right (but not the obligation) to
cancel without penalty any outstanding purchase orders and to discontinue
purchasing Products from SELLER. SELLER shall exercise this right of selection
by delivering written notice to BUYER within twenty (20) days after the
expiration of the cure period without a substantial cure by SELLER.
8.2 Transfer of Manufacturing Documentation. Within three (3) business
days after receipt of SELLER's written notice selecting BUYER to manufacture,
SELLER and BUYER shall meet to discuss in good faith an orderly transfer of all
Manufacturing Documentation. SELLER shall use its best efforts to deliver a
complete set of such Manufacturing Documentation to BUYER within ten (10)
business days after such meeting, and shall cooperate in good faith with all
other reasonable requests from BUYER for assistance relating to the start up of
SELLER's manufacturing of Products.
8.3 Scope of License. Effective upon SELLER's notice under Section
8.1, the license granted under Section 2.1 shall be amended to include the
right to manufacture or have manufactured the Licensed Products.
8.4 Royalties and Minimum. Upon the selection of BUYER to manufacture
and BUYER's assumption of such manufacture under section 8.1, BUYER will pay to
SELLER a royalty of [ ] ([ ]) of Net Sales of
Products manufactured and sold by BUYER. Upon BUYER's assumption of such
manufacture, BUYER shall be required to pay a minimum twelve month royalty to
SELLER as prescribed in section 8.5. The amount of this minimum royalty shall
be equal to [ ]% times [ ] Units times the sale price charged by BUYER for
the Units. The minimum twelve month royalty (hereinafter Manufacturing
Anniversary Period) shall be due for each twelve month period beginning on the
second anniversary of the date of assumption of manufacture of Licensed Product
by BUYER. The royalties for Products actually sold by
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<PAGE> 13
BUYER in any one Manufacturing Anniversary Period shall be credited against the
Manufacturing Anniversary Period minimum royalty. No excess actual royalty over
the minimum paid by BUYER in any one Manufacturing Anniversary Period shall be
credited against a minimum royalty due in any succeeding Manufacturing
Anniversary Period. In the event that BUYER fails to pay the minimum royalty in
any one Manufacturing Anniversary Period: (a) this agreement will immediately
convert to a non-exclusive license in all respects; (b) SELLER shall have the
immediate right to manufacture, use, and sell Units and license third parties
to manufacture, use, and sell Units; and (c) SELLER shall have the right to
co-own, use, cite and rely upon all of BUYER's governmental regulatory
documentation concerning approval of Units in connection with sales by SELLER
but SELLER shall have no right to convey any rights to such regulatory
documentation to any third party.
8.5 Payment of Royalties and Reports. Within thirty (30) days after
the end of the first calendar quarter in which BUYER has any Net Sales, and
within thirty (30) days after the end of each following calendar quarter, BUYER
shall make a written report to SELLER setting forth the total Net Sales during
such calendar quarter. At the time each such report is made, BUYER shall pay to
SELLER the royalties payable hereunder with respect to such period, if any.
All payments made hereunder shall be in United States dollars.
8.6 Audit Rights. BUYER shall keep full, true and accurate records
regarding Net Sales in sufficient detail to permit the calculation of royalties
payable to SELLER. These records shall be available upon written request to
SELLER no more frequently than three times per calendar year for inspection at
a reasonable time during regular business hours by an independent certified
public accountant to whom BUYER has no reasonable objection for the purpose of
verifying royalty statements and payments made by BUYER under this Agreement.
This accountant shall not disclose to SELLER any information other than the
quantities and payments required to be reported hereunder. In the event that an
inspection by such accountant discloses an underpayment in excess of five
percent (5%), BUYER shall pay the cost of such inspection otherwise, SELLER
shall pay for such inspection.
8.7 Non-contingent Right to Manufacture. At any time following the
second anniversary of the date of first sale of the Licensed Product, BUYER
shall have a right, without cause, to assume the manufacture of the Licensed
Product and SELLER shall have a right, without cause, to require the BUYER to
assume such manufacture. Irrespective of the party exercising this right, upon
assumption of manufacture by BUYER, BUYER may manufacture Licensed Product for
itself and for its distribution partners or have the Licensed Product
manufactured by a third party for the
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benefit of BUYER and BUYER's distribution partners. This right may be exercised
by the exercising party giving the non-exercising party a one hundred eighty
(180) day notice of intent to exercise the right to manufacture. If either
party exercises this right under section 8.7, the terms of sections 8.2, 8.4,
8.5 and 8.6 shall apply, the terms of section 8.3 shall apply except that
obligation for the Manufacturing Anniversary Period minimum royalty shall begin
immediately upon the exercise of the right to manufacture under this section
8.7 and the terms of section 2.4, Article 4 and the indemnities and warranties
relating to BUYER's purchase of Licensed Product from SELLER shall be canceled.
All other Articles and terms of this Agreement shall remain in force.
9. PATENT FILINGS AND MAINTENANCE
SELLER shall be responsible for prosecuting and maintaining the patent
applications and patents included in the Patent Rights, including any new
applications filed with respect to any Improvements, at its own expense. If
SELLER should unreasonably refuse to prosecute or pay the maintenance fees with
respect to any of the U.S. patents or patent applications included in the
Patent Rights, BUYER shall be entitled to do so and to deduct from future
payments due to SELLER hereunder, whether for Product purchases or royalties,
fifty percent (50%) of all patent prosecution and maintenance fees and expenses
so paid by BUYER.
10. INFRINGEMENT LITIGATION
10.1 Right to Bring Suit. During the term of this Agreement, BUYER
shall promptly notify SELLER in the event BUYER learns of any instance
reasonably believed to constitute infringement of the Patent Rights in the
Licensed Field. SELLER have the first right to bring actions to protect and
enforce its rights in the Patent Rights in the Licensed Field against third
party infringers, and BUYER shall provide such assistance and cooperation in
connection with such actions as SELLER shall reasonably request and at SELLER's
cost and expense. In the event that SELLER elects not to enforce its rights in
the Patent Rights in the Licensed Field against an infringer, BUYER may, but is
not obligated to, bring actions with respect to such infringement of the Patent
Rights in the Licensed Field, and SELLER shall provide such assistance and
cooperation in connection with such actions as BUYER shall reasonably request.
10.2 Expenses and Proceeds of Litigation. Where an action has been
brought by SELLER, SELLER shall maintain the litigation at its own expense and
shall keep any judgments and awards arising from such action. Where an action
has been brought by BUYER, BUYER shall maintain the litigation at its own
expense and shall be entitled to keep any judgments and awards arising from
such action.
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11. CONFIDENTIALITY
Each party agrees, both during the term of this Agreement and for a
period of five years thereafter, to hold all information given to it by the
other party that is identified as confidential (the "Confidential
Information"), in confidence, and not to make the Confidential Information
available in any form to any third party or to use the Confidential Information
for any purpose other than the purposes described in this Agreement. Each party
agrees to take all reasonable steps to ensure that Confidential Information is
not disclosed or distributed by its employees or agents in violation of this
Agreement, including limiting disclosure to employees or other persons who have
a need to know and who have signed appropriate confidentiality agreements. This
restriction on disclosure shall not apply to the extent that any Confidential
Information (a) is or becomes a part of the public domain through no act or
omission of the receiving party; (b) was in the receiving party's lawful
possession prior to the disclosure and had not been obtained by the receiving
party from the disclosing party; or (c) is lawfully disclosed to the receiving
party by a third party without restriction on disclosure.
12. TERM AND TERMINATION
12.1 Term. This Agreement and the rights granted hereunder shall
become effective on the Effective Date and shall continue in effect for twenty
(20) years thereafter, unless terminated earlier as provided in this Agreement;
provided, however, that if upon expiration of this Agreement BUYER shall be
entitled to the additional licenses granted under Section 8 above, this
Agreement shall continue in effect until the last to expire of any patents
included in the Patent Rights.
12.2 Termination for Breach. This Agreement may be terminated by
either party immediately if the other party commits any material breach of this
Agreement which has not been remedied within sixty (60) days of written notice
thereof.
12.3 Termination for Convenience. BUYER may terminate this
Agreement at any time upon sixty (60) days written notice to SELLER.
12.4 Effect of Termination Upon expiration or termination of
this Agreement for any reason,
(a) All rights and licenses granted to BUYER under this
Agreement shall immediately terminate; and
(b) BUYER shall either return all copies of the Licensed
Technology to SELLER or deliver a signed verification
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<PAGE> 16
within thirty (30) days of termination that all copies of the Licensed
Technology have been destroyed.
Termination shall not effect BUYER's obligations under any accepted purchase
orders outstanding at the date of termination; provided that, upon a
termination by BUYER for SELLER's default, BUYER may cancel any outstanding
orders without penalty.
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13. GENERAL PROVISIONS
13.1 Entire Agreement. All previous agreements and arrangements (if
any) made by the parties and relating to the subject matter hereof are hereby
superseded and this Agreement, including its exhibits, embodies the entire
understanding of the parties, there being no promises, terms, conditions or
obligations, oral or written, express or implied, other than those contained
herein. This Agreement may only be amended by a written document signed by
authorized representatives of both parties.
13.2 Notice. Any notice required to be given hereunder shall be in
writing and may be given by facsimile transmission to the facsimile number for
such party set forth below or personal delivery (including by professional
courier) at, or mailing (by first class receipted prepaid mail) to, the address
of the party contained in this Agreement, or such other facsimile number or
address as such party may have notified the other of pursuant to this Section.
In the case of facsimile transmission or personal delivery, such notice shall
be deemed to have been given upon the date of such transmission or delivery. In
the case of mailing, such notice shall be deemed to have been given seven days
after such mailing.
13.3 Choice of Law and Venue. This Agreement shall be governed by and
construed in accordance with the laws of the United States and the State of
Colorado, without regard to its provisions concerning the applicability of the
laws of other jurisdictions. Any suit hereunder shall be brought in the federal
or state courts in the districts which include Fort Collins, Colorado and the
parties hereby agree and submit to the personal jurisdiction and venue thereof.
13.4 Relationship of the Parties Nothing in this Agreement shall
constitute or be deemed to constitute a joint venture or partnership between
the parties. The relationship between SELLER and BUYER shall be that of seller
and buyer and of independent contractors.
13.5 Transfer and Assignment. BUYER may not assign or sublicense any
of its rights or obligations hereunder to any person, including any Affiliate,
without the prior written consent of SELLER, provided, however, that BUYER may
assign this Agreement without SELLER's consent in connection with the sale, by
merger of otherwise, of substantially all of BUYER's business relating to the
Products. Subject to the foregoing, this Agreement shall accrue to the benefit
of and be binding upon the successors and assigns of the parties.
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<PAGE> 18
13.6 Force Majeure. Neither party shall be liable for any failure to
perform any of its obligations hereunder (other than the payment of money)
which results from act of God, the elements, fire, flood, component shortages,
force majeure, riot, insurrection, industrial dispute, accident, war,
embargoes, legal restrictions or any other cause beyond the reasonable control
of the party, provided, however, that if such inability extends for more than
ninety (90) days, the other party shall have the right to terminate this
Agreement immediately upon written notice.
13.7 Severability. If any provision in this Agreement is found or
held to be invalid or unenforceable, then the meaning of said provision shall
be construed, to the extent feasible, so as to render the provision
enforceable, and if no feasible interpretation would save such provision, it
shall be severed from the remainder of this Agreement which shall remain in
full force and effect unless the severed provision is essential and material to
the rights or benefits received by either Party. In such event, the parties
shall use their best efforts to negotiate, in good faith, a substitute, valid
and enforceable provision or agreement which most nearly effects their intent
in entering into this Agreement.
13.8 No Waiver. No waiver of any term or condition of this Agreement
shall be valid or binding on a party unless the same has been mutually assented
to in writing by both parties. The failure of a party to enforce at any time
any of the provisions 0 this Agreement, or the failure to require at any time
performance by the other party of any of the provisions of this Agreement,
shall in no way be construed to be a present or future waiver of such
provisions, nor in any way affect the ability of a party to enforce each and
every such provision thereafter.
13.9 Disputes. The parties agree to enter into a corporate mediation
agreement according to the current Center for Public Resources Model Procedure
for Mediation of Business Disputes, Center for Public Resources, 366 Madison
Avenue, New York, New York. If a dispute between the parties arises, the
aggrieved party shall give a thirty (30) day notice of the dispute to the other
party. Following the 30 day notice period, the parties with their counsel shall
meet twice to attempt to resolve the dispute. The meeting sites shall alternate
between the parties headquarters and shall be held during a thirty (30) day
period following the notice period. If the parties fail to resolve the dispute
then they shall select a mediator having at least iS years experience in the
field of pharmaceutical licensing, or if they are unable to select such a
mediator, then the parties shall request the American Arbitration Association
at 1660 Lincoln St. Denver Colorado to select such a mediator. The mediator
shall conduct a mediation of the dispute according to the then current CPR
Model Procedure for Mediation of Business Disputes. The outcome of the
mediation shall be non-binding upon the parties
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but the parties agree to conduct the mediation first before resorting to any
other legal approach for solution of the dispute.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written by their duly authorized representatives.
ATRIX LABORATORIES, INC. PARAVAX, INC.
By /s/JOHN E. URHEIM By /s/FRED M. SCHWARZER
------------------------- ----------------------------
Name John E. Urheim Name Fred M. Schwarzer
----------------------- -------------------------
Title Vice Chairman & CEO Title President
---------------------- -------------------------
Facsimile (970) 482-9735 Facsimile (970) 493-7333
----------------- --------------------
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EXHIBIT A
Patents and Patent Application
[
]
<PAGE> 21
[
]
<PAGE> 22
EXHIBIT B
Product Description & Characteristics
[
]
Packaging of Multiple "Units"
It is anticipated that 10 Individual Units will be packaged in a chip-board
carton that will bear appropriate identification, lot number, expiry date, etc.
as required by applicable law(s).
Shelf Life of "Units"
It is anticipated that packaged Units will have a marketable shelf life of at
least one year.
<PAGE> 23
EXHIBIT C
Manufacturing Information for FDA Review
[
]
<PAGE> 24
[
]
<PAGE> 25
[
]
<PAGE> 26
[
]
<PAGE> 27
EXHIBIT D
Prices
[
]
<PAGE> 28
[
]
<PAGE> 1
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION]
EXHIBIT 10.5
SCREENING AND DEVELOPMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the 12th day of April, 1996 by and
between HESKA CORPORATION, 1825 Sharp Point Drive, Fort Collins, C0 80525, USA
(hereinafter referred to as "Heska") and CIBA-GEIGY LIMITED, 4002 Basle,
Switzerland (hereinafter referred to as "Ciba").
---------------------
WHEREAS, Heska as a consequence of its efforts on the discovery and development
of unique biological products for the diagnosis, prevention and treatment of
parasitic, viral and bacterial infections in dogs, cats and horses owns and
continuously develops molecular targets and tools; and
WHEREAS, Ciba is interested for possible commercialization worldwide to use
Heska's existing and future molecular targets and tools to screen for
pharmaceutical candidates for companion and food animals and for food animal
vaccine applications; and
WHEREAS, it is in the interest of both parties to make use of Heska's tools and
targets and Ciba's screening and development capacity in view of an exclusive
commercialization of pharmaceuticals by Ciba in the field of food animals and a
co-exclusive commercialization in the field of parasite control in companion
animals and for food animal vaccines.
NOW THEREFORE, the parties agree as follows:
ARTICLE I - DEFINITIONS
1.1 "Companion Animals" means dogs, cats and horses.
1.2 "Food Animals" means cattle, sheep, pigs, poultry and fish.
1.3 "Tools and Targets" means any tangible materials and patentable
information relating to such biological materials discovered and
developed by Heska prior to December 31, 2005, including, but not
limited to, genes, proteins, antibodies, cells and cell lines,
vectors, and methods for the manufacture or use of the foregoing.
Tools and Targets shall not, however, include (a) any substantially
developed food animal vaccines acquired by Heska from third parties as
part of its business development activities (e.g., Diamond bovine
vaccines); (b) any materials or technology licensed to Heska by third
parties under agreements which don't allow Heska to grant a
sub-license to Ciba; (c) any materials or technology acquired by Heska
as part of its business development activities to the extent such
materials or technology are subject to agreements that existed
<PAGE> 2
-2-
prior to the acquisition by Heska; or (d) any food animal vaccine
products developed by Heska after Ciba has elected not to participate
in such development pursuant to the Right of First Refusal Agreement
of even date herewith.
1.4 "Field" means drug based (or pharmaceutical) parasite control in
Companion Animals and any commercial application in Food Animals
including vaccines.
1.5 "Products" means marketable products for use in the Field developed or
obtained by screening using Tools and Targets.
1.6 "Net Sales Value" means gross invoice value of sales made by Ciba or a
Subsidiary of Ciba to third parties of Products less credits for
returned goods, discounts and/or rebates and sales taxes as audited by
Ciba's independent auditors.
1.7 "Subsidiary" means any company or entity at least fifty percent (50%)
of whose voting stock is owned or directly or indirectly controlled.
1.8 "Territory" means all countries of the world.
1.9 "Co-exclusive" means exclusive for Ciba save the right retained by
Heska to be exercised on its own or by a Subsidiary of Heska provided,
however, that with regard to screening activities entering into a
collaboration with a third party is not excluded.
ARTICLE 2 - DISCLOSURE OF TOOLS AND TARGETS AND GRANT OF RIGHTS TO CIBA
2.1 A science committee with equal representation of both parties shall
discuss status and potential applications of Tools and Targets and
review joint R+D activities, if any, at six-monthly intervals. The
discussions shall be as open as possible from both sides in order to
maximally exploit synergies and complementarities. Ciba
representatives shall be permitted to examine relevant Heska
laboratory notebooks and primary data upon request. The science
committee shall be provided with a comprehensive update on
intellectual property matters with respect to the Field.
2.2 The parties shall discuss possibilities of joint research and/or
development activities using Tools and Targets in the Field. Joint
research projects shall be agreed on and managed by the science
committee which will determine scope and objectives, establish
milestones and decide on funding. Joint development projects shall be
proposed by the science committee and decided on by the appropriate
management bodies of both parties based on agreements to be negotiated
on a case by case basis.
<PAGE> 3
-3-
2.3 If and to the extent the parties are not able to agree upon within a
reasonable time frame on joint programs, Ciba shall have
a) the exclusive right to use Tools and Targets to develop drug based
(pharmaceutical) Products for Food Animals and
b) shall have the co-exclusive right to use Tools and Targets to
develop Products in the areas of drug based (pharmaceutical)
parasite control in Companion Animals and vaccines for Food
Animals.
ARTICLE 3 - DEVELOPMENT PROGRAM AND PATENTS
3.1 Unless agreed otherwise between the parties in connection with a joint
screening and development effort Ciba shall at its cost conduct such a
program necessary in Ciba's opinion to develop a candidate based on a
Tool and/or Target towards a commercial Product.
3.2 If Heska has not applied for a patent protecting Tools and Targets
and/or Products Heska will upon Ciba's notification that it will begin
with the Development Program file respective patent applications in
the countries specified by Ciba. If Heska does not wish to file a
patent in the said countries Ciba will be granted the right to do so
under reasonable terms and conditions to be agreed upon.
3.3 Should a patentable invention result from Ciba's screening and
development work hereunder, Ciba shall apply for patents as it deems
appropriate.
3.4 Should a patentable invention result from joint research and/or
development activities or as a direct result of discussions between
scientists of both parties, the science committee shall decide on
filing, ownership and funding of respective patent applications.
3.5 Neither party shall during the term of this Agreement let lapse any
patent relating to Tools and Targets and/or Products without first
offering to the other party the opportunity to acquire such patent.
ARTICLE 4 - COMMERCIALIZATIONLROYALTIES
4.1 Heska will, upon Ciba's request, grant to Ciba all licenses to Heska
technology necessary for Ciba to commercialize any Products developed
under this Agreement. Such licenses shall be exclusive with regard to
Food Animals (except vaccines) and shall be co-exclusive in the areas
of parasite control in Companion Animals and Food Animal vaccines.
Such licenses shall be granted for the Territory and shall extend for
for the lifetime of such Products. Ciba will, upon Heska's request,
grant to Heska all licenses to Ciba technology necessary for Heska to
commercialize any Products developed in a joint research and
development effort; the parties shall agree upon the respective
<PAGE> 4
-4-
license fee (on Net Sales Value basis) in good faith.
4.2 In consideration for the rights granted under this Agreement Ciba
shall pay royalties of [ ] percent of Net Sales Value reached in Food
Animals and [ ] percent of Net Sales Value reached in the areas of
parasite control in Companion Animals. The royalty shall be paid by
Ciba for countries with patent protection for Molecular Tools and/or
Target and/or Products until expiration of the respective patent owned
by Heska or Ciba. For countries without patent protection the
consideration shall by paid for a period of ten (10) years from the
date of the first commercial sale of the Products in the Territory.
4.3 The parties will submit reports within 60 days of the end of each
calendar quarter showing Net Sales during such quarter and the payment
that will be due to the other party pursuant to paragraphs 4.1 and 4.2
with respect to such quarter. All such payments pursuant to
paragraphs 4.1 and 4.2 shall become due and payable once a year on
February 15 for the preceding calendar year.
4.4 The party (or, if applicable, both parties) owing royalties to the
other shall keep reasonable records containing the information for the
compensation of Net Sales figures. The party (or, if applicable, both
parties) entitled to royalties, at its own expense, shall have the
right to nominate an independent auditor, satisfactory and acceptable
to the other party, who shall have access, during normal business
hours, to such of the other party's records necessary to determine the
accuracy of quarterly Net Sales reports.
ARTICLE 5 - SECRECY
Both parties undertake to treat all technical and commercial information which
they receive from the other party hereunder as strictly secret, except for the
purposes of this Agreement. This secrecy obligation shall remain in force
until December 31, 2010 but does not apply to information which:
a) was known and can be proven by documentary evidence to be known to the
receiving party prior to disclosure by the other party; or
b) is or becomes through no fault of the receiving party public knowledge
or literature; or
c) is obtained by the receiving party from a third party as a matter of
right.
ARTICLE 6 - TERM AND TERMINATION
6.1 This Agreement shall become effective upon its execution by both
parties and shall remain in force until December 31, 2005 and
thereafter during the lifetime of any Product in development or being
sold by Ciba at the time of termination.
6.2 If either party fails to perform or fulfil any substantial obligation
hereunder and if such party fails to remedy any such failure within
sixty (60) days after written notice specifying particulars thereof
from the other party, then the latter party
<PAGE> 5
-5-
shall have the right to terminate this Agreement by giving written
notice of termination at any time within thirty (30) days after said
sixty (60) days period.
ARTICLE 7 - ASSIGNMENT I NOVARTIS TRANSACTION
This Agreement and all rights and obligations hereunder are personal to
the parties hereto and may not be assigned without the express prior
written consent of the other; provided, however, that Ciba may assign all
of its rights and obligations hereunder, without the prior consent of
Heska, in connection with the merger of Ciba-Geigy Limited and Sandoz
Limited, and the formation of a new entity, Novartis.
ARTICLE 8 - GOVERNING LAW AND ARBITRATION
8.1 This Agreement shall be governed by and interpreted in accordance
with the laws of Switzerland.
8.2 All disputes arising in connection with the present Agreement
shall be finally settled under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by one or
more arbitrators appointed in accordance with the said Rules. The
arbitration will be held in Zurich.
Basle, Fort Collins,
CIBA-GEIGY LIMITED HESKA CORPORATION
/s/ H.B. GURTLER /s/ DR. P. KORNICKER /s/ FRED M. SCHWARZER
H.B. GURTLER Division Counsel President and C.E.O.
President Animal
Health Division
<PAGE> 1
EXHIBIT 10.6
RIGHT OF FIRST REFUSAL AGREEMENT
THIS AGREEMENT is made and entered into as of the 12th day of April 1996, by
and between HESKA CORPORATION, 1825 Sharp Point Drive, Fort Collins, Colorado
80525, USA (hereinafter referred to as "Heska") and CIBA-GEIGY LIMITED, 4002
Basle, Switzerland (hereinafter referred to as "Ciba").
WHEREAS, simultaneously with the execution of this Agreement, (i) Ciba is
purchasing an aggregate of 3,000,000 shares of the Series F Preferred Stock of
Heska, (ii) Ciba and Heska are entering into Marketing Agreements pursuant to
which Ciba will obtain certain rights to market certain of Heska's products,
and (iii) Ciba and Heska are entering into a Screening and Development
Agreement pursuant to which Ciba will have certain rights to use molecular
targets and tools discovered by Heska for screening purposes and to develop
certain products resulting from such screening.
WHEREAS, in addition to the foregoing agreements, Heska has agreed to grant
Ciba a right of first refusal on certain corporate partnerships as described
more fully below.
NOW THEREFORE, the parties agree as follows:
ARTICLE 1 - RIGHTS GRANTED
1.1 Subject to the other provisions of this Agreement and to the
obligations of Heska pursuant to its current agreements with Bayer AG
and Eisai Corp., Ltd., prior to licensing to any third party any
products or technology developed or acquired by Heska for companion
animal or food animal applications, Heska shall first offer such
rights to Ciba. Ciba shall indicate within 30 days of such offer
whether it is interested in discussing a possible agreement with Heska
concerning such products or technology. If Ciba indicates it is not
interested, Heska may thereafter license such products or technology
to one or more third parties on terms acceptable to Heska. If Ciba
indicates it is interested, Ciba and Heska shall discuss the possible
opportunity and attempt to reach a mutually satisfactory agreement.
If Ciba and Heska are unable to reach such an agreement within a 1 20
day period following Ciba's indication of interest, Heska may
thereafter license such products or technology to one or more third
parties, provided that the terms concluded with such third parties,
considered as a whole, are not materially more favorable to such third
parties than the terms last offered by Heska to Ciba.
1.2 Notwithstanding Section 1.1, Heska shall not be restricted from
entering into agreements with Third Party Distributors to distribute
products under Heska's trademark or trade name without compliance with
Section 1.1. "Third Party Distributors" shall mean entities engaged
primarily in the
<PAGE> 2
business of distributing finished products without performing
substantial development or manufacturing thereon.
1.3 Ciba has previously indicated to Heska that it is not interested in
the bovine vaccine products and technology under development at
Diamond Animal Health, Inc., and accordingly Heska may license any
such products or technology (in their present state or as they may be
further developed) without compliance with Section 1.1.
1.4 To the extent that the rights of Bayer AG under its current agreements
with Heska with respect to the canine heartworm vaccine are terminated
for any reason, and provided that USDA prelicensing serials with
respect to such vaccine are completed on or before December 31, 2005,
then to the extent of such termination such product shall be added as
a "Product" under Section 1.1 of each of the Marketing Agreements
dated the date hereof between Heska and Ciba (collectively, the
"Marketing Agreements") concerning distribution of flea control
vaccine and feline heartworm control vaccines both within the U.S. and
outside the U.S.
ARTICLE 2 - TERM
2.1 Heska's obligations under Article 1 (other than Section 1.4) shall
terminate as to licenses granted by Heska after December 31, 2005.
2.2 Heska's obligations under Section 1.4 shall terminate as to each
Marketing Agreement upon termination of such Marketing Agreement.
ARTICLE 3 - MISCELLANEOUS
3.1 All notices and other communications required or permitted hereunder
shall be in writing and shall be personally delivered, mailed by
certified or registered mail, postage prepaid, or delivered by
overnight delivery or express courier, addressed to the parties at
their addresses shown below, or at such other address as a party shall
hereafter furnish to the other in writing. All notices that are
mailed shall be deemed delivered five (5) days after deposit in the
United States mail.
3.2 This Agreement and all rights and obligations hereunder are personal
to the parties hereto and may not be assigned without the express
prior written consent of the other; provided, however, that Ciba may
assign all of its rights and obligations hereunder, without the prior
consent of Heska, in connection with the merger of Ciba-Geigy Limited
and Sandoz Limited, and the formation of a new entity, Novartis.
-2-
<PAGE> 3
3.3 This Agreement shall be governed by and construed under the laws of
the State of California, without regard to the conflict of laws
provisions thereof.
3.4 This Agreement may be executed in two counterparts, each of which
shall be deemed an original, but both of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
HESKA CORPORATION
By: /s/ FRED M. SCHWARZER
-----------------------------------
Title: President
--------------------------------
Address: 1825 Sharp Point Drive
Fort Collins, CO 80525
Attention: President
ClBA-GElGY, LIMITED, a Swiss corporation
By: /s/ H.B. GURTLER
-----------------------------------
Title: President Animal Health Division
--------------------------------
By: /s/ DR. P. KORNICKER
-----------------------------------
Title: Division Counsel
--------------------------------
Address: 4002 Basle, Switzerland
-3-
<PAGE> 1
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION]
EXHIBIT 10.7
MARKETING AGREEMENT
- --------------------------------------------------------------------------------
THIS AGREEMENT, made and entered into as of the 12th day of April, 1996 by and
between HESKA CORPORATION, 1825 Sharp Point Drive, Fort Collins, C0 80525, USA
(hereinafter referred to as "Heska") and CIBA-GEIGY LIMITED, 4002 Basle,
Switzerland (hereinafter referred to as "Ciba").
---------------------
WHEREAS, Heska's efforts are primarily focused on developing unique animal
health products for dogs, cats and horses and inter alia is implementing
research projects aiming for flea control and feline heartworm control
vaccines; and
WHEREAS, Ciba has established a marketing presence and sales organization and
is selling with great success flea control and heartworm control products for
companion animals; and
WHEREAS, Ciba is interested in the distribution of Heska future flea control
and feline heartworm vaccines and Heska wishes to benefit from Ciba's marketing
expertise, organization and product launch expenditure.
NOW THEREFORE, the parties agree as follows:
ARTICLE I - DEFINITIONS
1.1 "Product" means any flea control vaccine and feline heartworm control
vaccine developed by Heska as to which USDA prelicensing serials are
completed on or before December 31, 2005.
1.2 "Territory" means all countries of the world except the United States
of America.
1.3 "Net Sales" means gross invoice price charged by a party or its
Subsidiaries to unaffiliated third parties for sales of Products less
sales commissions paid to agents, credits for returned goods,
discounts and/or rebates and sales taxes.
1.4 "Subsidiary" means any company or entity at least fifty percent (50%)
of whose voting stock is owned or directly or indirectly controlled.
1.5 "Co-exclusive" means exclusive for Ciba save the right retained by
Heska to be exercised on its own or by a Subsidiary of Heska.
<PAGE> 2
-2-
ARTICLE 2 - RIGHTS GRANTED
2.1 Subject to rights granted by Heska to the Japanese company Eisai,
Heska hereby grants to Ciba co-exclusive rights to make, use and sell
all Products in the Territory. These rights include the right to
sublicense to Ciba's Subsidiaries.
2.2 Ciba and Heska shall each have the right to market Products under
their respective labels and tradenames and shall be free to determine
sales prices. Each party may distribute Products in the Territory
using third party distributors provided that the Products are marketed
under that party's label and tradename.
ARTICLE 3 - MANUFACTURING
3.1 In the event Ciba wishes to have Heska manufacture Products, Heska
shall do so under terms and conditions to be agreed upon pursuant to
paragraph 3.2 hereof.
3.2 Ciba shall pay to Heska [
]
ARTICLE 4 - CONSIDERATION
4.1 Ciba shall pay to Heska [ ] percent ([ ]%) of Ciba's Net Sales
in the Territory.
4.2 Heska shall pay to Ciba [ ] ([ ]%) of Heska's Net Sales in the
Territory.
4.3 The parties will submit reports within 60 days of the end of each
calendar quarter showing Net Sales during such quarter and the payment
that will be due to the other party pursuant to paragraphs 4.1 and 4.2
with respect to such quarter. All such payments pursuant to
paragraphs 4.1 and 4.2 shall become due and payable once a year on
February IS for the preceding calendar year.
4.4 Both parties shall keep reasonable records containing the information
for the compensation of Net Sales figures. Each party, at its own
expense, shall have the right to nominate an independent auditor,
satisfactory and acceptable to the other party, who shall have access,
during normal business hours, to such of the other party's records
necessary to determine the accuracy of quarterly Net Sales reports.
ARTICLE 5 - PRODUCT DEVELOPMENT AND REGISTRATION
5.1 Heska shall bear and pay all research and development expenses of
Products and all development and registration expenses with respect to
such countries in the Territory in which Heska chooses to register
Products.
<PAGE> 3
-3-
5.2 As to countries where Heska does not have the capacity to, or does not
choose to, register Products, Ciba may elect to do so, in which case
it may deduct its out-of-pocket direct expenses of such registration
from any future payments due pursuant to paragraph 4.1 hereof.
ARTICLE 6 - SELECTION OF DISTRIBUTION PARTNER
With regard to such countries of the Territory in which neither Ciba nor Heska
intends to market Products directly or through their respective Subsidiaries
the parties shall jointly agree upon the distribution strategy/partner for the
Products to be sold in such country.
ARTICLE 7 - TERM AND TERMINATION
7.1 This Agreement shall become effective upon its execution by both
parties and shall remain in force until the later of December 31, 2010
or for as long as Ciba is selling Products in the Territory. If,
after selling a Product in the Territory, Ciba should permanently
cease sales of that Product in any country in the Territory without
intending to market or sell the Product in the future (an "Abandoned
Product"), then the obligations of the parties under this Agreement
with respect to the Abandoned Product in that country shall terminate;
provided however, that if Ciba sells or intends to market or sell
another Product in that country which would constitute an alternative
flea control vaccine or feline heartworm control vaccine Product, then
the obligations of the parties under this Agreement with respect to
the Abandoned Product shall remain in full force and effect.
7.2 If either party fails to perform or fulfil any substantial obligation
hereunder and if such party fails to remedy any such failure within
sixty (60) days after written notice specifying particulars thereof
from the other party, then the latter party shall have the right to
terminate this Agreement by giving written notice of termination at
any time within thirty (30) days after said sixty (60) days period.
ARTICLE 8 - ASSIGNMENT I NOVARTIS TRANSACTION
This Agreement and all rights and obligations hereunder are personal to the
parties hereto and may not be assigned without the express prior written
consent of the other; provided, however, that Ciba may assign all of its rights
and obligations hereunder, without the prior consent of Heska, in connection
with the merger of Ciba-Geigy Limited and Sandoz Limited, and the formation of
a new entity, Novartis.
ARTICLE 9 - GOVERNING LAW AND ARBITRATION
9.1 This Agreement shall be governed by and interpreted in accordance with
the laws of Switzerland.
<PAGE> 4
-4-
9.2 All disputes arising in connection with the present Agreement shall be
finally settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by one or more arbitrators appointed
in accordance with the said Rules. The arbitration will be held in
Zurich.
Basle, Fort Collins,
CIBA-GEIGY LIMITED HESKA CORPORATION
By:/s/ H.B. GURTLER By: /s/ FRED M. SCHWARZER
------------------------------ -------------------------
H.B. GURTLER Fred M. Schwarzer
President Animal Health Division President and C.E.O.
By: /s/ DR. P. KORNICKER
------------------------------
Dr. P. Kornicker
Division Counsel
<PAGE> 1
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION]
EXHIBIT 10.8
MARKETING AGREEMENT
THIS AGREEMENT, made and entered into as the 12th day of April, 1996 by
and between Heska Corporation (hereinafter referred to as "Heska") and
Ciba-Geigy Corporation (hereinafter referred to as "Ciba").
-------------------
WHEREAS, Heska's efforts are primarily focused on developing unique animal
health products for dogs, cats and horses and inter alia is implementing
research projects aiming for flea control and feline heartworm control
vaccines; and
WHEREAS, Ciba has established a marketing presence and sales organization
and is selling with great success flea control and heartworm control products
for companion animals; and
WHEREAS, Ciba is interested in the distribution of Heska future flea
control and feline heartworm vaccines and Heska wishes to benefit from Ciba's
marketing expertise, organization and product launch expenditure.
NOW, THEREFORE, the parties agree as follows:
Article 1 - Definitions
1.1 "Product" means any flea control vaccine or feline heartworm control
vaccine developed by Heska as to which USDA prelicensing serials are
completed on or before December 31, 2005.
1.2 "Territory" means the United States of America.
1.3 "Net Sales" means the gross invoice amount billed by a party for the sale
of Products to non-affiliated third parties, less sales commissions paid
to agents, credits for returned goods, discounts and/or rebates and sales
taxes.
1.4 "Subsidiary" means any company or entity at least fifty percent (50%) of
whose voting stock is owned or directly or indirectly controlled by a
party.
1.5 "Co-exclusive" means exclusive for Ciba save the right retained by Heska
to be exercised on its own or by a Subsidiary of Heska.
Article 2 - Rights Granted
2.1 Heska hereby grants to Ciba the co-exclusive right and license to make,
have made, use and sell all Products in the Territory. Neither Heska
nor its Subsidiaries shall authorize or enable a third party to make,
have made, use or sell any flea control vaccine or feline heartworm
control vaccine developed by Heska in the Territory except as a supplier
exclusively to Heska.
<PAGE> 2
2.2 Ciba and Heska shall each have the right to market Products under their
respective labels and trade names and shall be free to determine the
prices and other terms and conditions of sale of the Products; provided
that Ciba and Heska shall sell Products directly to veterinarians and to
veterinary clinics and not through third party distributors who purchase
Products for their own account.
ARTICLE 3 -- MANUFACTURING
3.1 Within its discretion, Ciba may manufacture Products or may have Heska
or a third party manufacture Products for Ciba.
3.2 In the event Ciba wishes to have Heska manufacture Products, Heska shall
do so under terms and conditions to be agreed upon by the parties; among
other things, Ciba shall agree to pay to Heska [
]
ARTICLE 4 -- CONSIDERATION
4.1 Ciba shall pay to Heska [ ] percent ([ ]%) of Ciba's Net Sales.
4.2 Heska shall pay to Ciba [ ] ([ ]%) of Heska's Net Sales.
4.3 The parties will submit reports within 60 days of the end of each
calendar quarter showing Net Sales during such quarter and the payment
that will be due to the other party pursuant to Paragraphs 4.1 and 4.2
with respect to such quarter. All such payments pursuant to Paragraphs
4.1 and 4.2 shall become due and payable once a year on February 15 for
sales during the preceding calendar year.
4.4 Both parties shall keep reasonable records containing the information
for the computation of Net Sales figures. Each party, at its own
expense, shall have the right to nominate an independent auditor,
satisfactory and acceptable to the other party, who shall have access,
during normal business hours, to such of the other party's records
necessary to determine the accuracy of yearly Net Sales reports.
ARTICLE 5 -- PRODUCT DEVELOPMENT AND REGISTRATION
5.1 Heska shall bear and pay all research and development expenses of
Products and all development and regulatory expenses if Heska chooses to
register Products in the Territory.
5.2 If Heska does not have the capacity to, or does not choose to, register
Products in the Territory, Ciba may elect to do so, in which case Ciba
may deduct its out-of-pocket direct expenses of such registration from
any future payments due pursuant to Paragraph 4.1 hereof.
-2-
<PAGE> 3
ARTICLE 6 -- SELECTION OF DISTRIBUTION PARTNER
If neither Ciba nor Heska intends to market Products directly to veterinarians
and to veterinary clinics or to veterinarians and to veterinary clinics through
their respective Subsidiaries in the Territory the parties shall jointly agree
upon the distribution strategy/partner for the Products to be sold in the
Territory.
ARTICLE 7 -- TERM AND TERMINATION
7.1 This Agreement shall become effective upon its execution by both
parties and shall remain in force until the later of December 31, 2010 or for
as long as Ciba is selling Products in the Territory. If, after selling a
Product in the Territory, Ciba should permanently cease sales of that Product
in the Territory without intending to market or sell the Product in the future
(an "Abandoned Product"), then the obligations of the parties under this
Agreement with respect to the Abandoned Product in the Territory shall
terminate; provided, however, that if Ciba sells or intends to market or sell
another Product in the Territory which would constitute an alternative flea
control vaccine or feline heartworm control vaccine Product, then the
obligations of the parties under this Agreement with respect to the Abandoned
Product shall remain in full force and effect.
7.2 If either party fails to perform or fulfill any substantial obligation
hereunder and if such party fails to remedy any such failure within sixty (60)
days after written notice specifying particulars thereof from the other party,
then the latter party shall have the right to terminate this Agreement by
giving written notice of termination at any time within (30) days after said
sixty (60) days period.
ARTICLE 8 -- MISCELLANEOUS
8.1 All notices required or permitted hereunder shall be given in writing
and sent by facsimile transmission, or mailed postage prepaid by first class
certified or registered mail, or sent by a nationally recognized express
courier service, or hand delivered at the following addresses:
Animal Health Division
Ciba-Geigy Corporation
Post Office Box 18300
Greensboro, NC 27419
Attention: President
With a copy to: Legal Department
Heska Corporation
1825 Sharp Point Drive
Fort Collins, CO 80525
Attention: Chief Executive Officer
-3-
<PAGE> 4
Any notice, if mailed properly addressed, postage prepaid, shall be
deemed made three (3) days after the date of mailing as indicated on the
certified or registered mail receipt, or on the next business day if
sent by express courier service or on the date of delivery or
transmission if hand delivered or sent by facsimile transmission.
8.2 This Agreement and all rights and obligations hereunder are personal to
the parties hereto and may not be assigned without the express prior
written consent of the other; provided, however, that Ciba may assign
all of its rights and obligations hereunder, without the prior consent
of Heska, in connection with the merger of Ciba-Geigy Limited and Sandoz
Limited, and the formation of a new entity, Novartis.
8.3 This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York as though made and to be fully
performed in said State.
8.4 If any one or more of the provisions of this Agreement shall be held to
be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions hereof shall not in any way
be affected or impaired thereby. In the event any provision shall be
held invalid, illegal or unenforceable the parties shall use best
efforts to substitute a valid, legal and enforceable provisions which,
insofar as possible, implements the purposes hereof.
8.5 This Agreement constitutes the entire understanding between the parties
relating to the subject matter thereof, and no amendment or modification
to this Agreement shall be valid or binding upon the parties unless made
in writing and signed by the representatives of such parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the day and year
indicated above.
Ciba-Geigy Corporation Heska Corporation
By: /s/ T. P. McGOWAN By: /s/ FRED M. SCHWARZER
--------------------------------- --------------------------
President, Animal Health Division
Title: President Title: President and
Chief Executive Officer
-4-
<PAGE> 1
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION]
EXHIBIT 10.9
December 31, 1993
MANUFACTURING AND SUPPLY AGREEMENT
This Manufacturing and Supply Agreement ("Agreement") is made and entered into
as of December 31, 1993 between and among Diamond Animal Health, Inc. ("DAH"),
Agrion Corporation ("Agrion"), Diamond Scientific Co. ("Diamond Scientific")
and Miles Inc. ("Miles").
WITNESSETH:
WHEREAS, on the date hereof Miles and DAH have entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") pursuant to which Miles has sold to
DAH one hundred percent (100%) of the issued and outstanding stock of Agrion;
WHEREAS, Diamond Scientific is a wholly-owned subsidiary of Agrion and is a
manufacturer of biological and pharmaceutical animal health care products and
operates a manufacturing facility with licenses from the USDA;
WHEREAS, pursuant to the Stock Purchase Agreement, DAH, Diamond Scientific and
Miles have agreed to enter into this Agreement, whereby Diamond Scientific will
manufacture and supply to Miles certain biological veterinary products,
including those identified on Exhibit A hereto.
NOW, THEREFORE, the parties hereby agree as follows:
I. DEFINITIONS.
1.1 General. All capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to them in the Stock Purchase
Agreement. In addition, the following terms shall have the meanings set forth
below:
1.2 "Affiliate" shall mean, with respect to any party, an entity controlling,
controlled by or under common control with, such party. The concept of
"control," as used in this definition means the power, whether by stock
ownership or otherwise, to direct at least fifty-one percent (51%) of the
voting power of the relevant entity.
1.3 "Plant" shall mean the Diamond Scientific animal health care manufacturing
facility located in Des Moines, Iowa, and the research facility located in
Carlisle, Iowa.
1.4 "Products" shall mean those biological veterinary products identified on
Exhibit A hereto, and for which there is an USDA/APHIS approved Outline of
Production in place on December 31, 1993 (but also including BRSV VAC F3LP,
Horizon X, Compass 4 and Compass 9).
1.5 "New Products" shall mean biological veterinary products that (i) are
manufactured pursuant to specifications agreed upon by Miles and Diamond
Scientific, (ii) require a new or revised Outline
of Production or license from the USDA (except for BRSV VAC F3LP, Horizon X,
Compass 4 and Compass 9, which are considered to be Products), and (iii) are
manufactured for Miles at the request of Miles and incorporate research to
which Miles has contributed after the date of this Agreement.
1.6 "Specifications" shall mean, as the context may require, either one or both
of the following, which have been mutually agreed upon by the parties: (i)
certified appropriate quantitative and qualitative particulars for all raw
materials including active and non-active
<PAGE> 2
excipients that are used to prepare all components represented in and by final
Products or New Products or Purchase Commitment Products, and (ii) a filed and
approved USDA Outline of Production describing in detail the manufacturing
process applicable for each Product or New Product or Purchase Commitment
Product, and the testing and release criteria applicable to each Product or New
Product or Purchase Commitment Product.
1.7 "Net Sales" shall mean the gross sales price invoiced or charged
purchasers, less any of the following: (a) sales or excise taxes paid directly
or indirectly by Diamond Scientific; (b) any shipping costs separately itemized
by Diamond Scientific; and (c) normal and customary trade discounts, returns
and allowances.
1.8 "Outline of Production" means an APHIS approved document which delineates
(i) all of the manufacturing steps which have been evaluated and confirmed (via
testing) for a product and (ii) defines all release testing criteria required
and/or developed by the firm to release satisfactory product to the market,
approval of which is required prior to issuance of a USDA product license.
1.9 "Purchase Commitment Products" shall mean Products and those biological
veterinary products whose transfer prices apply against Miles' minimum annual
purchase commitment as provided in Section 5.2.
II. MANUFACTURE AND SALE OF PRODUCTS.
2.1 Purchase and Sale. For each calendar year during the term of this Agreement
commencing with calendar year 1994 and subject to the provisions hereof, Miles
agrees to place orders with Diamond Scientific for Products for shipment within
such calendar year, at an annual aggregate cost of not less than [
] (such amount to be calculated in
accordance with Article IV hereof and subject to reduction as described
therein); it being understood that in the event Miles shall fail to place
orders for shipment of Products within any calendar year aggregating at least
[ ] (or an amount reduced
pursuant to Section 4.2), then Miles nevertheless shall be obligated to make
payment to Diamond Scientific as described in Section 5.1 hereof. In the event
this Agreement is not renewed at the expiration of its initial term, then
Diamond Scientific and Miles agree that the provisions of this section 2.1
shall be deemed to apply to the first half of calendar year 1996, but the
amount of [ ] shall be
substituted for each reference to [
]. Diamond Scientific agrees to manufacture and supply Products as
provided herein. Diamond Scientific shall have no obligation to manufacture and
supply any New Product or any Purchase Commitment Product (other than Products)
to Miles unless the sale and purchase thereof is mutually agreed upon by the
parties. Moreover, Diamond Scientific shall not be obligated to manufacture and
supply Products in any given calendar year having an aggregate transfer price
of greater than [ ] unless otherwise agreed by
Diamond Scientific. The parties acknowledge that purchase orders relating to
shipments of Products during the first five (5) months of the calendar year
1994 have previously been delivered by Miles and accepted by Diamond
Scientific.
2.2 Production Arrangement. During the term of this Agreement, Diamond
Scientific shall finish all labor, equipment, facilities, raw materials (except
as may otherwise be agreed between the parties in connection with any split
manufacturing arrangements) and packaging materials necessary to manufacture
the Products, New Products, or Purchase Commitment Products (collectively,
"Contract Products") in accordance with the Specifications. Diamond Scientific
shall also analyze for quality control, store and package the Contract Products
in accordance with USDA/APHIS regulations and shall ship the
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<PAGE> 3
Contract Products in accordance with instructions from Miles. Miles shall
furnish the necessary specifications for labeling to Diamond Scientific, which
labeling shall be affixed by Diamond Scientific as provided in Article XI
hereof.
2.3 Orders. Each purchase order hereunder delivered from forecasts specified in
Sections 3.1 and 3.2 from Miles for the Products shall specify the desired
quantities and the delivery dates therefor and shall be submitted to Diamond
Scientific at least five (5) months prior to the requested delivery date unless
Diamond Scientific agrees to accept the order on shorter notice. Each purchase
order shall be binding upon Miles upon written acknowledgment by Diamond
Scientific. A purchase order may be amended or modified following written
acknowledgment only with the written consent of Diamond Scientific. Revisions
to specified filling, labeling or packaging configurations may be made by Miles
not later than two (2) months prior to the specified delivery date unless
otherwise agreed by Diamond Scientific. Miles will endeavor to order Products
and New Products in standard batch sizes as shown on Exhibit B. If specified
order amounts for Products and New Products would result in a batch which is
thirty percent (30%) below the relevant standard batch size, Miles will be
notified and at Miles' option (i) the parties will mutually agree to an
increased transfer price for the ordered Products and New Products; (ii) Miles
will agree to take the entire standard batch size of the ordered Products and
New Products, or (iii) Miles may submit a revised purchase order for a quantity
of Products and New Products within the permitted parameters.
2.4 Non-exclusive Purchase Obligation. It is hereby understood and agreed that
Miles shall have no obligation to purchase Products or New Products solely from
Diamond Scientific, but instead shall be free to place orders for Products or
New Products with other suppliers in Miles' sole discretion.
2.5 Non-Competition Agreement. It is hereby understood and agreed that DAH,
Agrion and Diamond Scientific, or any Affiliate thereof, will not, directly or
indirectly, during the period beginning on the date of this Agreement and
ending on December 31, 1995 use, manufacture, supply, market or sell to
customers other than Miles, or Affiliates of Miles, any biological veterinary
product containing any one or more of the antigens used in the manufacture of
the Products or New Products. Notwithstanding the foregoing, Diamond Scientific
may (i) manufacture or use the Products or New Products for research purposes
and (ii) manufacture any new biological product described in the next sentence
prior to January 1, 1996 to be held for inventory, provided such new products
may be marketed and sold only after January 1, 1996 subject to the provisions
of the next sentence. On or after January 1, 1996, DAH, Agrion or Diamond
Scientific, or any Affiliate thereof, may use, manufacture, supply, market or
sell to customers other than Miles, or Affiliates of Miles, the Bovine Products
(as defined in the Bovine Technology Agreement described in Section 2.6) and
any new biological product whose application is for the prevention of bovine
disease and which contains one or more of the antigens used in the manufacture
of the Bovine Products, provided that during the period commencing on January
1, 1996 and ending on December 31, 1998, Diamond Scientific agrees to pay to
Miles a fee of [ ] of Net Sales of Bovine Products
or such new biological products sold anywhere in the Western Hemisphere or
Europe, which fee shall be payable quarterly by the 15th day following quarter
end. Diamond Scientific shall prepare and submit with each quarterly payment a
report supporting the calculation of the fee, which shall be subject to audit
in accordance with Section 10.2.
2.6. Technology Agreements. In accordance with a certain Non- Bovine Technology
Agreement between Miles and DAH of even date herewith (collectively, the
"Technology Agreements"), Miles has licensed designated technology to Diamond
Scientific solely for the purpose of allowing Diamond Scientific to manufacture
Non-Bovine Products
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<PAGE> 4
designated therein under this Agreement. In accordance with a certain
Non-Bovine Technology Agreement and Bovine Technology Agreement, both between
Miles and DAH of even date herewith, Diamond Scientific has agreed during the
periods therein described to assist Miles, or firms designated by Miles, to
obtain a sublicense from the USDA of Diamond Scientific's USDA licenses to
permit Miles, its Affiliates, or third-party suppliers to manufacture
designated Products or New Products on Miles' behalf. In accordance with the
Bovine Technology Agreement, Miles has deeded and conveyed designated
technology relating to Bovine Products to DAH, and Diamond Scientific has
agreed to grant a perpetual, transferable, non-exclusive license in designated
technology to Miles to manufacture Bovine Products designated therein. Diamond
Scientific agrees that upon termination of this Agreement it will take steps
requested by Miles in order to terminate Diamond Scientific's USDA license
rights to manufacture the Non-Bovine Products designated in the Non-Bovine
Technology Agreement. The provisions of the Technology Agreements described in
this Section 2.6 shall apply with full force and effect to the subject matter
hereof that are governed thereby and they are incorporated by reference herein.
In the event of any conflict between the Technology Agreements and this
Agreement, the provisions of the Technology Agreements shall control.
2.7 Warranties. Diamond Scientific warrants to Miles that (i) Contract Products
shall be manufactured in accordance with the applicable Specifications, and
(ii) all raw materials supplied by Diamond Scientific shall comply with
USDA/APHIS standards and all applicable Specifications and shall be free of any
defect, and fit for the use or purpose for which they are supplied. Diamond
Scientific makes no warranty that the Products are (or that any Contract
Product will be) merchantable or fit for any particular purpose. Diamond
Scientific makes no representations and extends no warranties of any kind with
respect to use, sale, or other disposition by Miles or its vendees or other
transferees of any Contract Products. The warranties in this Section 2.7 are
expressly made in lieu of any and all other warranties, provided this sentence
shall not be construed to limit any identification obligation of Diamond
Scientific under Section 9.1(a). It is further agreed that the specifications
for products or any new products that Diamond Scientific may manufacture or
sell to customers other than Miles or Affiliates of Miles may differ from the
Specifications for the same Products or Contract Products sold to Miles or
Affiliates of Miles.
2.8 EU Compliance. Diamond Scientific may prior to January 1, 1996, for the
sole purpose of European Unity compliance, initiate procedures that would
enable a third party to manufacture Bovine Products on behalf of Diamond
Scientific on or after January 1, 1996, subject to the provisions of Section
2.5.
2.9 Contract Manufacture. Miles acknowledges that Diamond Scientific may at any
time manufacture animal health care products having any application for other
manufacturers, suppliers or vendees using the third party's licenses and/or
technology.
III. FORECASTS.
3.1 First Year Forecast. Within fifteen (15) days after the date hereof, Miles
shall submit to Diamond Scientific a written forecast of the quantities and
types of Products that Miles anticipates it will order from Diamond Scientific
hereunder during each of the first twelve (12) months of this Agreement.
3.2 Rolling Monthly Forecast. Commencing with the month of February, 1994, and
each month thereafter, Miles will submit to Diamond Scientific within fifteen
(15) business days after the first day of each month written estimates of the
quantities of the Products
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<PAGE> 5
that Miles anticipates it will order from Diamond Scientific during each of the
succeeding twelve (12) months.
3.3 Non-binding Estimates. The forecasts provided by Miles to Diamond
Scientific hereunder shall not be deemed binding commitments on the part of
Miles to order Products or New Products in the quantities specified therein,
but are solely for the purpose of enabling Diamond Scientific to more
effectively schedule the use of its facilities.
3.4 Status Reports. Diamond Scientific shall furnish a monthly order status
report to Miles not later than the 15th calendar day of each month.
IV. CALCULATION OF MILES' PURCHASE COMMITMENT.
4.1 Products Pricing. Transfer prices for each Product set forth on Exhibit A
hereto shall be in effect for Products having specified delivery dates prior to
April 1, 1995. Transfer pricing to be in effect for the Products to be
delivered during the period commencing April 1, 1995 and ending on June 30,
1996 and during subsequent twelve (12) month periods commencing July 1, 1996
and each July 1 thereafter shall be negotiated by the parties in good faith,
taking into account such factors as, but not limited to, cost changes, volume
changes and plant utilization. In the event revised transfer prices are not
agreed upon, then the transfer price previously agreed upon shall remain in
effect until the parties reach agreement thereon.
4.2 Savings Resulting from Process Improvements. Process improvements that
result in New Products as defined herein and that are attributable in whole or
in part to research that has been paid for by Miles shall entitle Miles to a
corresponding reduction in the transfer price of such products mutually agreed
to between Miles and Diamond Scientific negotiated by the parties in good
faith. The aggregate reduction to which Miles is entitled hereunder in a
calendar year shall apply toward satisfaction of Miles' [
] minimum annual purchase commitment for
such calendar year. The portion of any such reduction to which Miles is
entitled in an calendar month shall be set off against the monthly payments due
from Miles to Diamond Scientific pursuant to Section 5.1 hereof.
4.3 Delay Fee. In the event of a failure by Diamond Scientific to deliver (i)
at least seventy percent (70%) during the calendar year 1994 or (ii) at least
eighty percent (80%) during each subsequent calendar year, of the value of
Purchase Commitment Products (calculated on the basis of the transfer prices
times the quantity ordered) ordered by Miles within thirty (30) days following
the specified delivery date ("Minimum Delivery Amount"), Miles shall be
entitled, on the 31st day, to an amount from Diamond Scientific equal to ten
percent (10%) of the difference between the Minimum Delivery Amount and the
value of the Purchase Commitment Products actually delivered. Such amount shall
be set off against the next monthly payment due from Miles to Diamond
Scientific pursuant to Section 5.1 hereof. The delay fee described in this
Section 4.3 shall not be applicable during any month in which Miles has
suspended payments pursuant to Section 4.4.
4.4 Suspension of Monthly Payments. In the event of a failure by Diamond
Scientific to deliver Purchase Commitment Products on their specified delivery
date or dates having a value (calculated on the basis of the transfer prices
times the quantities ordered) equal to or greater than [
], then Miles shall be entitled to suspend further
monthly payments otherwise due under Section 5.1 until such time that the value
of the Purchase Commitment Products that have not been delivered by their
specified delivery dates shall have been reduced to an amount of less than [
] at which time, all suspended
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<PAGE> 6
monthly payments shall be paid to Diamond Scientific. DAH agrees to ship oldest
orders first unless otherwise directed by Miles.
4.5 Termination of Monthly Payments. In the event a Material Default (as
defined below) shall have occurred under the Lease of even date between Miles
and DAH, Miles shall be entitled to terminate further monthly payments
otherwise due under Section 5.1. From and after the date of such termination,
payment terms for Contract Products shall be net twenty (20) days. Miles shall
be entitled to a reimbursement from Diamond Scientific of the amount by which
the monthly payments theretofore made by Miles during the preceding twelve (12)
months exceeds the aggregate transfer price of Purchase Commitment Products
theretofore delivered by Diamond Scientific during such twelve (12) month
period. The reimbursement amount shall be payable by Diamond Scientific in
equal monthly payments over a twelve (12) month period following the date of
such termination. As used in this section, the term "Material Default" means
that (i) an "Event of Default" (as defined in the Lease) on the part of DAH
shall have occurred and be continuing, and (ii) the damages caused to Miles by
reason of such Event of Default shall equal or exceed $100,000.
V. PAYMENT TERMS.
5.1 Monthly Payments. Payment to Diamond Scientific for Products and any other
agreed upon Purchase Commitment Products scheduled for delivery during the term
of this Agreement shall be made by Miles in equal monthly installments, on the
first business day of each month during the term hereof in advance, commencing
on January 3, 1994. The amount of each monthly installment shall be [
] subject, however, to reduction by set-off pursuant
to Sections 4.2 and 4.3 hereof. If during any calendar year Diamond Scientific
shall have delivered to Miles a total of [
] worth of Purchase Commitment Products based on the
transfer prices therefor), then any additional Purchase Commitment Products
having an aggregate transfer price up to [
] and a specified delivery date during such calendar year shall have a
purchase price equal to their unit transfer prices less a fifteen percent
discount and the payment terms for such additional Purchase Commitment Products
shall be net twenty (20) days. The amount of $[ ] described above shall be
increased by the amount Miles shall be entitled to credit against its minimum
annual purchase commitment pursuant to Section 4.2. Products scheduled for
delivery after the expiration of this Agreement shall be net twenty (20) days.
5.2 New Product Payments. The purchase by Miles from Diamond Scientific of any
biological veterinary products that contain one or more antigens used in the
manufacture of the Products (regardless whether such products fit within the
definition of "New Products") shall apply against the [
] minimum purchase commitment described in Section
5.1, and the transfer prices thereof shall be negotiated by the parties in good
faith. The purchase by Miles from Diamond Scientific of any biological
veterinary products that do not contain any of the antigens used in the
manufacture of the Products (regardless whether such products fit within the
definition of "New Products") shall not apply against the [
] minimum purchase commitment described in
Section 5.1 during the first twelve (12) months that they are specified for
delivery (but any such products that are specified for delivery thereafter
shall apply against the minimum purchase commitment). The purchase price of
biological veterinary products that do not contain any of the antigens used in
the manufacture of the Products will be negotiated in good faith by the parties
and the payment terms for such biological veterinary products shall be net
twenty (20) days.
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<PAGE> 7
VI. DELIVERY AND TITLE.
6.1 Delivery. Diamond Scientific shall ship Contract Products at Miles' expense
in accordance with Miles' instructions. Miles shall make direct payment to the
common carrier for shipping costs. For purposes of this Agreement, delivery of
any Contract Products by Diamond Scientific shall be deemed to have taken
place, and (except as provided in Section 6.2 hereof) title to such Contract
Products shall pass to Miles, upon delivery by Diamond Scientific F.O.B. Des
Moines to the common carrier selected by Miles for delivery to a designated
Miles warehouse or warehouses. Diamond Scientific will endeavor to ship
Contract Products having the longest possible dating. Unless approved by Miles
prior to shipment, Diamond Scientific agrees that Products will have a dating
at time of shipment of not less than the minimum shown on Exhibit C; provided
that in the event retesting is required for a Product, the minimum dating
otherwise required shall be reduced by a period of sixty (60) days. With
respect to Contract Products that are available for delivery on the date
specified in the order and not picked up by the common carrier within thirty
(30) days following the date specified on the purchase order, Diamond
scientific shall charge a warehousing fee of one percent (1%) per month of the
aggregate prices of the relevant Contract Products.
6.2 Title in the Event of Split Manufacturing.
(a) In the event that Miles orders Contract Products from Diamond
Scientific that will be manufactured using raw materials supplied by
Miles, title to all such raw materials shall at all times remain in
Miles. However, Diamond Scientific shall assume all liability for any
casualty loss from destruction while such raw materials are in its
custody. Miles will provide proper documentation (i.e. copy of USDA/APHIS
Form 2008) to Diamond Scientific for all materials owned by Miles and
transferred to Diamond Scientific for further manufacturing to assure
their quality and acceptability to Diamond Scientific quality assurance.
Miles warrants to Diamond Scientific that all raw materials supplied by
Miles shall comply with USDA/APHIS standards and all applicable
Specifications and shall be free of any defect, and fit for the use or
purpose for which they are supplied;
b) In the event Miles orders products in process from Diamond Scientific
for finishing by Miles, title to all such products in process shall
transfer to Miles upon delivery. Diamond Scientific will provide proper
documentation (i.e. copy of USDA/APHIS Form 2008) to Miles for all
materials owned by Diamond Scientific and transferred to Miles for
further manufacturing to assure their quality and acceptability to Miles
quality assurance. Diamond Scientific warrants to Miles that all products
in process supplied by Diamond Scientific shall comply with USDA/APHIS
standards and all applicable Specifications and shall be free of any
defect, and fit for the use or purpose for which they are supplied.
VII. TERM AND TERMINATION.
7.1 Term. The term of this Agreement, unless it is earlier terminated pursuant
to Section 7.2 hereof, shall be thirty (30) months, and shall automatically
renew on July 1, 1996, for an eighteen (18) month term and automatically
thereafter on an annual basis unless either Miles or Diamond Scientific gives
the other eighteen (18) months prior written notice that it does not wish to
renew this Agreement.
7.2 Termination. Without prejudice to any rights or remedies otherwise
available to the parties hereto, each of Miles and Diamond Scientific shall
have the right to terminate this
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<PAGE> 8
Agreement prior to expiration of its term by giving the other party written
notice thereof only in the event:
(a) the other party fails to perform or violates any provision of this
Agreement in any material respect other than a failure of Diamond
Scientific to make delivery of any Contract Products hereunder, and such
failure or violation continues unremedied for a period of thirty (30)
days after the date the non-defaulting party gives notice to the
defaulting party of such failure or violation hereunder;
(b) Diamond Scientific shall fail to deliver Purchase Commitment Products
to Miles so as to entitle Miles to suspend monthly payments pursuant to
Section 4.4 and such failure shall continue unremedied for an additional
period of ninety (90) days from the date Miles was permitted to suspend
its monthly payments; provided that Diamond Scientific shall have had at
least one hundred fifty (150) days following the specified delivery date
in which to cure any late delivery caused by product failure;
(c) the other party (or, in the case of Diamond Scientific, either DAH,
Agrion or Diamond Scientific) is declared insolvent or bankrupt by a
court of competent jurisdiction, or a voluntary petition in bankruptcy is
filed against such party in any court of competent jurisdiction and is
not terminated within 90 days, or a receiver is appointed for such party
or such party makes an assignment for the benefit of creditors; or
(d) DAH shall be in default under the Promissory Note referred to in
Section 5.05 of the Stock Purchase Agreement relating to the purchase of
the Inventory (as defined therein), such default shall not be cured or
waived within the period of grace, if any, applicable thereto and Miles
shall have given notice of acceleration thereof to Diamond Scientific.
7.3 Conduct in the Event of Termination. Upon termination of this Agreement for
any reason (whether due to breach or otherwise), Diamond Scientific shall
furnish to Miles a complete inventory of all stock on hand of the raw
materials, if any, provided by Miles, the work in progress for the manufacture
of the Contract Products, and the Contract Products manufactured for Miles
hereunder. Without limitation to the remedies otherwise available to the
parties, unless otherwise agreed to between the parties, the parties shall act
as follows as soon as practicable:
(a) If this Agreement is terminated due to breach by Diamond
Scientific, Miles shall be entitled to reimbursement from Diamond
Scientific the amount by which the monthly payments theretofore made by
Miles during the preceding twelve (12) months exceeds the aggregate
transfer price of Purchase Commitment Products theretofore delivered by
Diamond Scientific during such twelve (12) month period;
(b) Products and New Products manufactured on or prior to the date of
termination pursuant to orders from Miles shall be delivered by Diamond
Scientific to Miles as promptly as practicable, and Miles shall pay
Diamond Scientific therefor within ten (10) days of delivery; provided,
however, that except if this Agreement is terminated due to breach by
Miles, the amount otherwise payable to Diamond Scientific shall be set off
against the amount owed by Diamond Scientific pursuant to (a) above; and
(c) All raw materials and labeling furnished by Miles shall be
returned to Miles at Miles' expense (or if this Agreement is terminated
due to breach by Diamond Scientific, at its expense) not less than ten
(10) business days after the date of termination.
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<PAGE> 9
7.4 The expiration or termination of this Agreement shall not operate to
release any party from any liability incurred prior to or upon termination
hereof.
VIII. CONFIDENTIALITY.
8.1 Protection of Information. DAH, Diamond Scientific, Agrion and Miles shall
treat as confidential all information provided hereunder (including without
limitation information related to Specifications, forecasts, production yields
and pricing) in accordance with the confidentiality provisions of the
Technology Agreements and they shall take such precautions with respect to such
information as they normally take with regard to their own proprietary
information to prevent disclosure to third parties, and such disclosure shall
be made only as provided in the Technology Agreements.
8.2 Use of Information. All information and materials (including materials made
from Miles- provided materials and materials made in accordance with Miles
information) required to be kept confidential pursuant to the Technology
Agreements shall be used by DAH, Diamond Scientific and Agrion only pursuant to
and in accordance with this Agreement and the Technology Agreements. All
information and materials (including materials made in accordance with Diamond
Scientific information) required to be kept confidential pursuant to the
Technology Agreements shall be used by Miles only pursuant to and in accordance
with this Agreement and the Technology Agreements.
IX. INDEMNIFICATION, INSURANCE AND REGULATORY MATTERS.
9.1 Indemnification.
(a) DAH, Agrion and Diamond Scientific each hereby agrees to defend,
indemnify and hold Miles, its Affiliates and their respective officers,
directors, agents and employees harmless from and against, and DAH, Agrion
and Diamond Scientific each agrees that Miles will not defend, indemnify
or hold DAH, Agrion and Diamond Scientific harmless from or against any
loss, claim, action, damage, expense or liability (including defense costs
and attorneys fees and the costs of any recall) arising out of or related
to (i) DAH's, Agrion's or Diamond Scientific's failure to manufacture
Contract Products in accordance with the Specifications, (ii) the
negligence or reckless or willful misconduct of DAH, Agrion, Diamond
Scientific or their respective officers, directors, agents or employees;
(iii) any breach or default by Diamond Scientific of this Agreement; (iv)
any liability arising out of any defect in raw materials supplied by
Diamond Scientific or if they are not fit for the particular use or
purpose for which they were supplied; (v) any liability arising out of the
removal or disposal of hazardous waste generated in connection with the
manufacture of the Contract Products following the date of this Agreement,
other than merthiolate; (vi) any alleged patent infringement in respect to
raw materials Diamond Scientific supplies; (vii) any liability, whether
for bodily injury, property damages, consequential damages or otherwise,
arising out of the defective manufacturing of Contract Products by Diamond
Scientific; or (viii) any liability arising from the contamination of a
Contract Product (excluding field contamination). Notwithstanding the
foregoing, in the event a Contract Product fails by reason of stability
within its approved dating, the sole liability of Diamond Scientific shall
be to reimburse Miles the transfer price of such failed product that
remains in the distribution channels.
(b) Miles hereby agrees to defend, indemnify and hold DAH, Agrion and
Diamond Scientific, its Affiliates and their respective officers,
directors, agents and employees harmless from and against the loss, claim,
action, damage, expense liability (including defense costs and attorney
fees and the costs of any recall, arising out of or related to (i)
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<PAGE> 10
the sale to or use by any person or entity of any of the Contract
Products manufactured by Diamond Scientific in compliance with the
Specifications (except as described in (a)(viii) above, (ii) any alleged
patent or trademark infringement in respect to Products or New Products or
raw materials Miles supplies, (iii) any breach or default by Miles of this
Agreement, or (iv) arising out of or related to the negligence or reckless
or willful misconduct of Miles or its officers, directors, agents or
employees. Miles agrees that Diamond Scientific will not defend, indemnify
and hold Miles harmless from losses, judgments, claims, actions, damages,
expenses, defense costs or attorney's fees arising out of or relating to
the sale or use by any person or entity of any of the Contract Products
manufactured by Diamond Scientific pursuant to the Specifications, which
arise out of, concern or relate to:
1) any design defect or other defect in the Specifications;
2) any liability arising out of any express warranty by or for Miles,
its officers, directors, agents, employees or its distributors of
Contract Products unauthorized by Diamond Scientific in writing;
3) any liability arising out of any failure by Miles to warn product
distributors, purchasers, consumers or users of any hazards or
dangerous conditions which related to, concern or result from the
Contract Products;
4) any liability arising out of professional services performed by
Miles, its officers, directors, agents, employees or its
distributors, unless such liability results from the defective
manufacturing of the Contract Products by Diamond Scientific;
5) any liability for bodily injury or property damage arising out of
labeling, relabeling, repackaging or use as a container, part or
ingredient in any other thing or substance by or for Miles, its
officers, directors, agents, employees, or its distributors of said
Contract Products, unless such labeling, relabeling, repackaging or
use has been expressly authorized in writing by Diamond Scientific;
6) any liability arising out of any implied warranty of
merchantability or fitness for a particular use or purpose that
Miles, its officers, directors, agents, employees or its distributors
may extend to third party purchasers of the Contract Products;
7) any bodily injury or damage arising out of any acts of Miles, its
officers, directors, agents, employees, or its distributors of the
Contract Product which changes the condition of the Contract Product
or, if any of the following are customarily performed by the
officers, directors, agents, employees or vendors or distributors of
Miles, any failure to inspect, adjust or service the Contract
Products, whether liability therefor is based on negligence or breach
of warranty;
8) any liability arising out of any defect in raw materials supplied
by Miles or if they are not fit for the particular use or purpose for
which they were supplied;
9) any liability arising out of removal or disposal of merthiolate.
9.2 Indemnification Procedure. Each party of this Agreement shall give
immediate written notice to the other of any and all actions, claims, suits or
proceedings brought against the party giving such notice which relate to or
concern possible payments or obligations under Section 9.1 hereof. In the event
that a party asserts a claim for indemnification pursuant to Section 9.1
hereof, it shall give prompt written notice to the other party. Upon prompt
written acknowledgment by a party that it is obligated to
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<PAGE> 11
indemnify the party or parties hereunder, it shall have the right at its own
expense to defend any action, suit or proceeding brought against the other
party. The indemnified party also shall have the right to participate in such
proceeding and to employ its own counsel in any such case at its expense and,
whether or not the indemnified party elects to so participate, the other party
shall keep it fully informed of any such action, suit or proceeding at all
stages thereof.
9.3 Insurance. Diamond Scientific shall maintain during the term of this
Agreement at its cost and at the request of Miles for a period of five (5)
years thereafter, comprehensive liability insurance and product liability
insurance coverage reasonably acceptable to Miles. Diamond Scientific agrees
that such insurance shall not be canceled or materially altered without the
express written consent of Miles. Diamond Scientific shall provide certificates
of insurance evidencing such coverage to Miles within ten (10) days from the
date hereof and on each anniversary of the insurance policy during the term
hereof.
9.4 Regulatory Matters. Diamond Scientific shall be responsible for
manufacture, processing, packaging and holding of the Contract Products in
compliance with USDA/APHIS standards. Miles shall be responsible for compliance
with USDA/APHIS standards of an raw materials supplied by Miles, Specifications
relating to the Contract Products manufactured for Miles pursuant to this
Agreement, and labeling components. Diamond Scientific shall be responsible for
compliance with USDA/APHIS standards of any raw materials supplied by Diamond
Scientific. Each party shall provide reasonable assistance to the others, at no
charge, if necessary to respond to USDA audits, inspections, inquiries or
requests concerning the Contract Products.
(a) Diamond Scientific shall not make any modifications to the
Specifications, manufacturing processes, suppliers, test methods, sampling
procedures or SOPs for the Contract Products manufactured for Miles
pursuant to this Agreement, without obtaining from Miles, prior written
consent and Diamond Scientific shall notify Miles in the event any such
modifications are mandated by the USDA;
(b) With respect to licenses owned by Miles as designated in the
Technology Agreements, Miles shall have the right at all times to review,
and to make changes that it reasonably deems necessary to, all regulatory
filings and other communications between Diamond Scientific and the USDA
that could affect the Contract Products, and Miles shall be able to
review, prior to their submission, and to make changes that it reasonably
deems necessary to, any regulatory filings relating to the Contract
Products and shall have the right to stop any regulatory submissions if
Miles reasonably deems it advisable to do so for any reason;
(c) Diamond Scientific shall advise Miles in advance of any planned
changes to any regulatory filings or documents, and shall notify Miles
within one (1) Business Day of any adverse finding by the USDA that could
affect the Contract Products, and Miles shall have the right to make,
prevent or modify any such changes if it reasonably deems advisable to do
so;
(d) Diamond Scientific shall allow representatives of Miles to inspect the
Plant and shall notify Miles immediately of any impending USDA inspection;
(e) Diamond Scientific shall inform Miles of its plans to come into
compliance with any USDA requirements and continue to keep Miles informed
of its progress until compliance has been attained;
-11-
<PAGE> 12
(f) Miles shall have the right at any time to purchase samples of Contract
Product components at Diamond Scientific's cost;
(g) Diamond Scientific shall notify Miles immediately in the event of any
of the following: (1) any procedural deviation or test failure noted in
the manufacture of the Contract Products; (2) Diamond Scientific obtains
any information that suggests the Contract Products or any of the raw
materials supplied by Diamond Scientific may not be safe, efficacious or
otherwise not in compliance with applicable laws and regulation or (3) the
failure of the Contract Products or any raw materials supplied by Diamond
Scientific to meet any of the applicable Specifications. Unless otherwise
obligated by law, Diamond Scientific shall consult with Miles before
taking action in connection with any of the above events. Diamond
Scientific shall further agree, at its sole expense, to identify and
correct any Contract Product deficiencies that are related to Diamond
Scientific's performance under this Agreement;
(h) Miles shall notify Diamond Scientific immediately in the event of any
of the following: (1) Miles obtains any information that suggests any of
the raw materials supplied by Miles may not be safe, efficacious or
otherwise not in compliance with applicable laws and regulations; or (2)
Miles obtains any information regarding the failure of the Contract
Products to meet any of the applicable Specifications. Unless otherwise
obligated by law, Miles shall consult with Diamond Scientific before
taking action in connection with any of the above events;
(i) Miles agrees to provide a quarterly report to Diamond Scientific that
delineates any complaints or failures in the field relating to Contract
Products.
X. RECORDS AND AUDITS.
10.1 Records. During the term of this Agreement and for seven (7) years
thereafter, Diamond Scientific shall maintain records of orders received, raw
materials furnished, Contract Products manufactured, work in progress, Contract
Products analyses and quality control tests. Such records shall be kept at the
Plant or such other location as may be designated by Diamond Scientific in
writing. Diamond Scientific shall not destroy any records relating to Contract
Products liability, regulatory compliance or quality assurance without giving
Miles notice and an opportunity to take possession of or copy such records as
Miles may designate.
10.2 Access: Audits. Diamond Scientific shall allow Miles representatives, upon
reasonable notice and at reasonable intervals, to enter the Plant for the
purpose of taking inventories of raw materials (if any) supplied by Miles.
Diamond Scientific shall further allow Miles representatives, upon reasonable
notice and at such intervals as may be reasonably necessary at Miles' expense,
to examine, audit and copy the records mentioned in Section 10.1 during
business hours for product liability, regulatory and quality control purposes,
together with all records relating to fees payable pursuant to Section 2.5.
XI. TRADEMARKS AND LABELING.
11.1 Miles' Trademarks. Diamond Scientific shall affix labeling to the Contract
Products as specified by Miles, which labeling shall bear one or more Miles
trademarks. Nothing contained herein shall give Diamond Scientific, Agrion, DAH
or any of their Affiliates any right to use any Miles trademark except on
Contract Products for Miles or its Affiliates, and neither Diamond Scientific,
Agrion, DAH nor their respective Affiliates shall obtain any right, title or
interest in any Miles trademark by virtue of this Agreement or Diamond
Scientific's performance of services hereunder.
-12-
<PAGE> 13
11.2 Label. The Contract Products labeling shall in addition contain the
notation "Manufactured by Diamond Scientific License 213, distributed by Miles
Inc.," or such similar notation as may be required by Miles and in accordance
with applicable state and federal law. Diamond Scientific will work with its
approved vendors to develop all artwork, plates and label copy and will forward
the billings on to Miles. Miles will be responsible or all costs involved in
label changes, updates, and any other Miles requested changes. Miles will
reimburse Diamond Scientific for all obsolete label stock in inventory that
will not be used up by existing purchase orders, subject to the reimbursement
amount being negotiated in good faith between Miles and Diamond Scientific.
XII. COVENANTS.
12.1 Compliance. Subject to the provisions of the Lease of even date between
Miles and DAH, Diamond Scientific shall comply with any applicable law,
regulation or ordinance applicable to the Plant or the Contract Products,
including but not limited to, federal and state occupational safety and health
laws and federal, state and local waste disposal laws, provided, however, that
Miles shall be responsible for the removal and disposal of any merthiolate at
Miles' cost and expense. Miles shall comply or cause its agents or independent
contractors to comply with any applicable law, regulation or ordinance
applicable to laws governing the transportation of merthiolate.
12.2 Permits. Diamond Scientific shall maintain in effect all required
governmental permits, licenses, orders, applications and approvals regarding
the Contract Products and the use of the Plant to produce such Contract
Products, and Diamond Scientific shall produce Contract Products in the Plant
in accordance with all such permits, licenses, orders, applications and
approvals.
XIII. NOTICES.
13.1 Correspondence. Unless otherwise provided herein, any notice, report or
other correspondence (except orders, estimates and invoices) (hereinafter
collectively referred to as "Correspondence") required or permitted to be given
hereunder shall be mailed by certified mail, postage prepaid, or delivered by
and to the party to whom such Correspondence is required or permitted to be
given hereunder. If mailed, any such Correspondence shall be deemed to have
been given when received, as evidenced by certified receipt. If delivered by
hand, any such Correspondence shall be deemed to have been given when received
by the party to whom such Correspondence is given, as evidenced by written and
dated receipt of the receiving party.
13.2 Addressee. All Correspondence to Miles shall be addressed as follows:
Miles Inc.
Agriculture Division
Animal Health Products
Box 390
Shawnee Mission, Kansas 66201-0390
Attention: Gary Zimmerman
With a copy to:
Gayle E. Parkhill, Esq.
Jones, Day, Reavis & Pogue
1900 Huntington Center
Columbus, Ohio 43215
-13-
<PAGE> 14
All Correspondence to DAH or Diamond Scientific shall be addressed as follows:
Diamond Animal Health, Inc.
2538 S.E. 43rd Street
Des Moines, Iowa 50317
Attention: Louis G. Van Daele
With a copy to:
Steven E. Zumbach
2000 Financial Center
Des Moines, Iowa 50309
Either party may change the address to which any Correspondence to it is to be
addressed by notification to the other party as provided herein.
XIV. MISCELLANEOUS.
14.1 Relationship of Parties. It is not the intent of the parties hereto to
form any partnership or joint venture. Diamond Scientific shall, in relation to
its obligations hereunder, act as an independent contractor.
14.2 Assignment and Delegation. Miles may at its sole discretion and without
the approval of Diamond Scientific:
(a) Assign or transfer its interest or any part thereof under this
Agreement to a third party; or
(b) Designate and cause a third party to perform all or part of its
obligations hereunder, or to have the benefit of all or part of its rights
hereunder.
14.3 Devolution. This Agreement shall not be assignable or transferable by any
of DAH, Agrion or Diamond Scientific, other than by merger into one another,
except with the prior consent in writing of Miles.
Any assignment or transfer in violation of the provisions of this Agreement
shall be void and of no effect and shall constitute a material breach hereof.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective allowable successors and assigns.
14.4 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the substantive laws of the State of Iowa.
14.5 Force Majeure. No party hereto shall be liable to any other in damages
for, nor shall this Agreement be terminable by reason of, any delay or default
in such party's performance hereunder if such delay or default is caused by
conditions beyond such party's reasonable control including, but not limited
to, acts of God, regulation or law or other action of any government or any
agency thereof, war, insurrection, civil commotion, destruction of Production
facilities or materials by earthquake, fire, flood or storm, labor
disturbances, epidemic, or failure of public utilities or common carriers;
provided, however:
(a) upon the occurrence of an event of force majeure that prevents Diamond
Scientific in any material respect from supplying Contract Products to
Miles in accordance with the terms hereof, Miles may suspend its monthly
payment obligations commencing on
-14-
<PAGE> 15
the earlier of (i) the date Diamond Scientific's business interruption
insurance coverage becomes effective or (ii) thirty (30) days after the
occurrence of the event of force majeure, and continuing until such time
as Diamond Scientific is no longer prevented from supplying products to
Miles, and during such time period Miles shall not be authorized to submit
further purchase orders hereunder; and
(b) the occurrence of an event of force majeure that prevents Miles from
performing its obligations under this Agreement or its sale or
distribution of Contract Products shall not suspend or relieve Miles from
its monthly payment obligations under this Agreement following the earlier
of the dates referred to in (a)(i) and (a)(ii) above.
14.6 Captions. The captions in this Agreement are solely for convenience of
reference and shall not be used for purposes of interpreting or construing the
provisions hereof.
14.7 Severability. Should any part or provision of this Agreement be held
unenforceable or in conflict with the applicable laws or regulations of any
jurisdiction, the invalid or unenforceable part or provision shall be replaced
with a provision which accomplishes, to the extent possible, the original
business purpose of such part or provision in a valid and enforceable manner,
and the remainder of this Agreement shall remain binding upon the parties
hereto.
14.8 Waiver. No failure on the part of any party hereto to exercise, and no
delay in exercising, any right, privilege or power hereunder shall operate as a
waiver or relinquishment thereof; nor shall any single or partial exercise by
any party hereto of any right, privilege or power hereunder preclude any other
or further exercise thereof, or the exercise of any other right, privilege or
power.
14.9 Entire Agreement. This Agreement, the Exhibits hereto and the Technology
Agreements referred to herein, shall constitute the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and shall supersede any prior agreements, negotiations, understandings,
representations, statements and writings relating thereto. This Agreement shall
not be amended or modified unless such amendment or modification is made in
writing and executed by a duly authorized officer or agent of each party
hereto.
14.10 Cooperative Conduct of Parties. The parties hereby acknowledge that their
intent is to promote a mutually beneficial commercial relationship during the
term of this Agreement. In the event the performance of any provision of this
Agreement should become impracticable or otherwise impose an undue hardship on
a party, upon request of a party, the parties agree to meet to discuss the
circumstances which gave rise to such impracticability or hardship, and
potential solutions. Each party acknowledges that the impracticability or
hardship of performing a provision of this Agreement shall not excuse
performance thereof.
14.11 Change in Management. During the term of this Agreement, Diamond
Scientific agrees that except with the prior written consent of Miles, it shall
not permit both Louis Van Daele and Connie Phillips to cease to be materially
involved in the day to day operations of Diamond Scientific or its successors.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties have caused this Agreement to be entered into
by their duly authorized representatives, to be effective as of the date first
above written.
DIAMOND ANIMAL HEALTH, INC.
By /s/ LOUIS G. VAN DAELE
------------------------------
Louis G. Van Daele, President
AGRION CORPORATION
By /s/ LOUIS G. VAN DAELE
------------------------------
Louis G. Van Daele, President
DIAMOND SCIENTIFIC CO.
By /s/ LOUIS G. VAN DAELE
------------------------------
Louis G. Van Daele, President
MILES INC.
By /s/ HERMANN R. WERNER
------------------------------
Hermann R. Werner, Executive
Vice President
-16-
<PAGE> 17
EXHIBIT A
DIAMOND ANIMAL HEALTH
CONTRACT PRICING FOR MILES ANIMAL HEALTH
<TABLE>
<CAPTION>
1994 1994
PRODUCT FORECAST CONTRACT CONTRACT
DESCRIPTION QUANTITY PRICE REVENUE
- ----------- -------- ----- -------
<S> <C> <C> <C>
[
BRSV VAC lODS
BRSV VAC 50DS
BRSV VAC 3 10 DS
BRSV VAC 3 50 DS
BRSV VAC 4 5DS
BRSV VAC 4 10DS
BRSV VAC 4 50DS
BRSV VAC 9 5DS
BRSV VAC 9 10 DS
BRSV VAC 9 50 DS
TOTAL BRSV
HORIZON I+VAC 3 10DS
HORIZON l+VAC 3 50DS
HORIZON IV 5DS
HORIZON IV 10DS
HORIZON IV 50DS
HORIZON VII 10DS
HORIZON VII 25DS
HORIZON IX 5DS
HORIZON IX 10DS
HORIZON IX 25DS
TOTAL HORIZON
ECOLI GUARD 10DS
ECOLI GUARD 50DS
NEO VAC 725 DS
CONCORD V 10DS
CONCORD V 50DS
TGE VAC 10D
TGE/ECOLI VAC 4C 10DS
TGE NEO VAC 7 10DS
TOTAL SWINE ]
</TABLE>
Page 1 of 3
<PAGE> 18
EXHIBIT A
DIAMOND ANIMAL HEALTH
CONTRACT FILING FOR MILES ANIMAL HEALTH
<TABLE>
<CAPTION>
1994 1994
PRODUCT FORECAST CONTRACT CONTRACT
DESCRIPTION QUANTITY PRICE REVENUE
- ----------- -------- ----- -------
<S> <C> <C> <C>
[
LEXTRON VAC 10DS
LEXTRON VAC 50DS
LEXTRON VAC 3 10DS
LEXTRON VAC 3 50DS
LEXTRON VAC 4 10DS
LEXTRON VAC 4 50DS
LEXTRON VAC 9 10DS
LEXTRON VAC 9 50DS
LEXTRON CONQUEST 1+3 10DS
LEXTRON CONQUEST 1+3 50DS
LEXTRON CONQUEST IV 10DS
LEXTRON CONQUEST IV 50DS
LEXTRON CONQUEST IX 10DS
LEXTRON CONQUEST IX 25DS
LEXTRON IBR/POMONA 50DS
TOTAL LEXTRON
ECOLI GUARD 10DS CANADA
CONCORD V 10DS CANADA
TGE/ECOLI 10DS CANADA
TGE NEO VAC 7 10DS CANADA
TOTAL SWINE (CANADA)
BRSV VAC 10DS CANADA
BRSV VAC 50DS CANADA
BRSV VAC 3 10DS CANADA
BRSV VAC 3 50DS CANADA
HORIZON IV 10DS CANADA
HORIZON IV 50DS CANADA
HORIZON IX 10DS CANADA
HORIZON IX 25DS CANADA
TOTAL BOVINE (CANADA)
SUBTOTAL ]
**ADDITIONAL PRODUCTS:
BRSV VAC F3LP, RESPACINE BVD,
HORIZON X, COMPASS 4,
COMPASS 9 AND COVENANT
BULK INCLUDING INTERNATIONAL
(LABELED AND UNLABELED) $ [ ]
----------
TOTAL ALL PRODUCTS $[ ]
</TABLE>
BOVINE PRODUCTS ARE THOSE PRODUCTS DESIGNATED IN SECTIONS 1, 2, 4 AND
6 OF THIS EXHIBIT A.
**OUTLINES OF PRODUCTION ARE IN PROCESS.
Page 2 of 3
<PAGE> 19
EXHIBIT A
DIAMOND ANIMAL HEALTH
CONTRACT PRICING FOR BAYER VT EXPORT
<TABLE>
<CAPTION>
LABELED CONTRACT PRICE
- ------- --------------
<S> <C>
LEPTO5 20 ML [
HORIZON IV 20 ML
HORIZON IV 100 ML
HORIZON IX 30 ML
HORIZON IX 75 ML
UNLABELED
- ---------
ECOLI 4C 20 ML
TGE VAC 20 ML
HORIZON II 20 ML
NEO VAC 7 30 ML
BRSV VAC 100 ML
BRSV VAC 20 ML
BRSC VAC 2 20 ML
DILUENT 20 ML ]
</TABLE>
Page 3 of 3
<PAGE> 20
EXHIBIT B
STANDARD BATCH SIZES
<TABLE>
<CAPTION>
Product Batch Size
------- ----------
<S> <C>
Bovine
- ------
BRSV Vac 10ds 7,600
BRSV Vac 50ds 3,520
BRSV Vac 2 5ds 3,600
BRSV Vac 2 10ds 6,900
BRSV Vac 2 25ds 3,600
BRSV Vac 2 50ds 3,600
BRSV Vac 3 l0ds 7,200
BRSV Vac 3 50ds 3,600
BRSV Vac 3 Feedlot l0ds 7,600
BRSV Vac 3 Feedlot 50ds 3,600
BRSV Vac 4 5ds 5,000
BRSV Vac 4 l0ds 7,300
BRSV Vac 4 50ds 3,600
Compass 4 l0ds 10,000
Compass 4 25ds 5,000
Compass 4 50ds 5,000
Compass 9 l0ds 10,000
Compass 9 50ds 6,000
Horizon I l0ds 10,000
Horizon I 50ds 5,600
Horizon II 5ds 3,500
Horizon II l0ds 10,000
Horizon II 50ds 5,600
Horizon VII 5ds 5,000
Horizon VII l0ds 10,000
Horizon VII 25ds 5,000
Horizon VIII 5ds 5,000
Horizon VIII l0ds 10,000
Horizon VIII 25ds 5,000
IBR 50ds 3,600
Lepto 5 5ds 4,800
Lepto 5 l0ds 10,000
Lepto 5 50ds 5,700
Lepto Pomona 50ds 5,700
Respacine BVD 50ds 3,600
Swine
- -----
Concord l0ds 5,000
Concord 50ds 5,000
Ecoli Guard l0ds 10,000
Ecoli Guard 50ds 2,900
NeoVac 7 l0ds 10,000
Neovac 7 25ds 6,000
TGE Vac l0ds 7,600
</TABLE>
<PAGE> 21
EXHIBIT C
Expiration Date Guideline:
* Products released for sale with 24 months dating will be shipped to Miles
with a minimum of 18 months dating remaining.
* Products released for sale with 18 months dating will be shipped to Miles
with a minimum of 14 months dating remaining.
* Products released for sale with 12 months dating will be shipped to Miles
with a minimum of 9 months dating remaining.
* In all cases noted above, there will be a 60 day grace period allowed for
products that require a retest prior to release and shipment.
<PAGE> 22
MANUFACTURING AND SUPPLY AGREEMENT AMENDMENT AND EXTENSION
This Manufacturing and Supply Agreement Amendment and Extension (the
"Agreement") is made and entered into as of September 1, 1995 by and among
DIAMOND ANIMAL HEALTH, INC. ("Diamond"), an Iowa corporation and BAYER
CORPORATION ("Bayer") (formerly known as Miles, Inc.), an Indiana corporation.
WITNESSETH
WHEREAS, Diamond, Agrion Corporation ("Agrion"), Diamond Scientific Co.
("Diamond Scientific"), and Bayer (then known as Miles Inc.) entered into a
Manufacturing and Supply Agreement (the "Agreement") dated as of December 31,
1993 in connection with a certain Stock Purchase Agreement dated as of December
31, 1993 by and between Bayer and Diamond, whereby Bayer sold to Diamond one
hundred percent (100%) of the issued and outstanding stock of Agrion; and
WHEREAS, Agrion and Diamond Scientific were merged into and with Diamond which
is the surviving corporation; and
WHEREAS, the parties have agreed to extend the term of the Agreement to June
30, 1999 and to amend the Agreement on the terms and conditions of this
Amendment.
NOW, THEREFORE, in consideration of the premises and covenants contained
herein, the parties agree to amend the Agreement as follows:
1. ANNUAL PURCHASE COMMITMENT.
BAYER's minimum annual aggregate purchase commitment of [
] is hereby reduced effective
January 1, 1996 to [ ]
<PAGE> 23
[ ]. All references in
Sections 2.1, 4.2 and 5.2 and elsewhere in the Agreement to such
[ ] purchase
commitment shall be deemed changed effective January 1, 1996 to [
].
2. PURCHASE AND SALE
In addition to the amendment described in Paragraph 1 above, Section
2.1 of the Agreement is further amended as follows:
a) The second sentence of Section 2.1 is deleted in its entirety
and the following is substituted in its place:
In the event this Agreement is not renewed at the
expiration of the initial term or any extended term
hereof, then Diamond and Bayer agree that the
provisions of this Section 2.1 shall be deemed to
apply to any partial year in such initial or
extended term, provided that Bayer's annual
aggregate pur chase commitment described above shall
be prorated for any such partial year.
b) The fifth sentence of Section 2.1 is hereby deleted in its
entirety.
2
<PAGE> 24
3. NON-COMPETITION AGREEMENT.
Section 2.5 of the Agreement is hereby deleted in its entirety and the
following is substituted in its place:
It is hereby understood and agreed that Diamond, or
any Affiliate thereof, will not, directly or
indirectly, during the period beginning on the date
of this Agreement and ending on December 31, 1996
use, manufacture, supply, market or sell to
customers other than Bayer, or Affiliates of Bayer,
any biological veterinary product containing any one
or more of the antigens used in the manufacture of
the Products or New Products. Notwithstanding the
foregoing, Diamond may (i) manufacture or use the
Products or New Products for research purposes and
(ii) manufacture any new biological product whose
application is for the prevention of bovine disease
and which contains one or more of the antigens used
in the manufacture of the Bovine Products (as
defined in the Bovine Technology Agreement de
scribed in Section 2.6), prior to January 1, 1997 to
be held for inventory, provided such new products
may be marketed and sold only after January 1, 1997.
3
<PAGE> 25
Notwithstanding the foregoing, on or after July 1,
1996, Diamond, or any Affiliate thereof, may supply,
market or sell to Lextron any bovine Product,
provided that during the period commencing on July
1, 1996 and ending on December 31, 1996, Diamond
agrees to pay to Bayer a fee of [ ]
percent ([ ]%) of Net Sales of bovine Products sold
or supplied to Lextron, except for sales of MLV-IBR
Lepto-P on which no fee will be due. Fees due to
Bayer shall be payable quarterly by the 15th day
following the quarter end. Diamond shall prepare and
submit with each quarterly payment a report
supporting the calculation of the fee, which shall
be subject to audit in accordance with Section 10.2.
4. EU COMPLIANCE .
Section 2.8 of the Agreement is amended by changing the date of
January 1, 1996 to January 1, 1997 in both instances where it appears.
5. PRODUCT PRICING .
a) Exhibit A to the Agreement is hereby deleted in its
entirety and Exhibit A which is attached to this
Amendment is substituted in its place.
4
<PAGE> 26
b) Section 4.1 of the Agreement is deleted in its entirety and in
its place is substituted the following:
Effective as of September 1, 1995, transfer prices
for each Product set forth in Exhibit A hereto shall be in
effect for Products having specified delivery dates prior to
September 1, 1996. Transfer prices to be in effect for the
Products to be delivered during subsequent twelve (12) month
periods commencing September 1, 1996 and each September 1
thereafter shall be negotiated by the parties in good faith,
taking into account such factors as, but not limited to, cost
changes, volume changes and plant utilization. In the event
revised transfer prices are not agreed upon, then the transfer
price previously agreed upon shall remain in effect until the
parties reach agreement thereon.
6. MONTHLY PAYMENTS.
Section 5.1 of the Agreement is deleted in its entirety and the
following is substituted in its place:
Payment to Diamond for Products and any other agreed upon
Purchase Commitment Products scheduled for delivery during the
term of this
5
<PAGE> 27
Agreement shall be made by Bayer in equal monthly
installments on the first business day of each month
during the term hereof in advance, commencing on
January 3, 1994. The amount of each monthly
installment shall be [
] subject, however, to reduction by set-off
pursuant to Sections 4.2 and 4.3 hereof. Com mencing
January 1, 1996, the amount of each monthly
installment shall be reduced to [
] subject, however, to reduction by set-off
pursuant to Sections 4.2 and 4.3 hereof. Products
scheduled for delivery after the expiration of this
Agreement shall be net twenty (20) days.
7. NEW PRODUCT PAYMENTS .
In addition to the amendment to Section 5.2 set forth in Paragraph I
above, Section 5.2 of the Agreement is further amended as follows:
a) The reference to Section 5.1 in the first and second sentences
of Section 5.2 is hereby changed to "Section 2.1".
b) The following sentence is added immediately after the first
sentence of Section 5.2:
6
<PAGE> 28
The purchase by Bayer of non-BRSV containing Bovine Products
shall apply against the annual minimum purchase commitment
described in Section 2.1.
8. TERM AND TERMINATION .
a) Section 7.1 of the Agreement is deleted in its entirety and in
its place is substituted the following:
The term of this Agreement, unless it is earlier terminated
pursuant to Section 7.2 hereof, shall be for a period of five
(5) years and six (6) months, through and including June 30,
1999, and shall automatically renew thereafter on an annual
basis unless either Bayer or Diamond gives the other eighteen
(18) months prior written notice that it does not wish to renew
this Agreement.
b) Section 7.2 of the Agreement is amended by adding "; or" at the
end of subsection (d) and by adding the following at the end of
section 7.2:
(e) Diamond shall be in default under the Promissory Note dated
on or about the date hereof in the original principal
amount of Four Hundred Thousand dollars ($400,000) payable
to Bayer, such default shall not be cured or waived
7
<PAGE> 29
within the period of grace, if any, applicable thereto and
Bayer shall have given notice of acceleration thereof to
Diamond.
10. NAME CHANGE .
All references in the Agreement to Miles shall hereafter be deemed
references to Bayer and all references in the Agreement to Diamond, Agrion
or Diamond Scientific shall hereafter be deemed references to Diamond.
11. DEFINED TERMS .
All capitalized terms not otherwise defined in this Amendment shall have
the same meaning given to them in the Agreement. All references to the
Technology Agreements and the Lease dated as of December 31, 1993 shall be
deemed to mean those documents as amended from time to time.
12. BINDING EFFECT .
This Amendment shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and (in the case of Diamond
permitted) assigns.
13. CONFLICT OF TERMS .
Except as specifically set forth herein, the terms of the Agreement are
unchanged and in full force and effect. In the event of any conflict
between the terms of this Amendment and the terms of the Agreement, the
letter agreement dated August 18, 1995 between the parties or the letter
8
<PAGE> 30
agreement dated September 7, 1995 between the parties, the terms of this
Amendment shall govern.
IN WITNESS WHEREOF, the parties have caused this Amendment to be entered into
by their duly authorized representatives, to be effective as of the date first
above written.
BAYER CORPORATION DIAMOND ANIMAL HEALTH, INC.
AGRICULTURE DIVISION
BY:/s/ GARY R. ZIMMERMAN BY:/s/ LOUIS VAN DAELE
-------------------------- --------------------------
NAME: Gary R. Zimmerman NAME: Louis Van Daele
------------------------ ------------------------
Vice President New
TITLE: Business Development TITLE: President
----------------------- -----------------------
9
<PAGE> 31
EXHIBIT A - FOR MANUFACTURING AND SUPPLY AGREEMENT
DIAMOND AH CONTRACT PRICING FOR BAYER AH
EFFECTIVE SEPTEMBER 1, 1995
<TABLE>
<CAPTION>
MAH DAH
CODE CODE DESCRIPTION COST
<C> <C> <C> <C>
0093 57305 ASPEN CONQUEST 1+VAC 3, 10DS [
0094 57304 ASPEN CONQUEST 1+VAC 3, 50DS
0087 57311 ASPEN IBP-RS VAC, 10DS
0088 57310 ASPEN IBP-RS VAC, 50DS
0089 57309 ASPEN IBP-RS-L5 VAC, 10DS
0090 57308 ASPEN IBP-RS-L5 VAC, 50DS
0085 57312 ASPEN IP-RS VAC, 10DS
0086 57313 ASPEN IP-RS VAC, 50DS
0083 57315 ASPEN RS VAC, 10DS
0084 57314 ASPEN RS VAC, 50DS
1300 57153 BRSV VAC, 10DS
0072 57316 BRSV VAC, 10DS, EXPT-UNLBL
1305 57154 BRSV VAC, 50DS
0071 57320 BRSV VAC, 50DS, EXPT-UNLBL
0073 57269 BRSV VAC 2, 10DS, EXPT-UNLBL
0104 57317 BRSV VAC 2, 50DS, EXPT-UNLBL
1310 57166 BRSV VAC 3, 10DS
1315 57167 BRSV VAC 3, 50DS
1319 57075 BRSV VAC 4, 5DS
1320 57145 BRSV VAC 4, 10DS
0075 57319 BRSV VAC 4, 10DS, EXPT-UNLBL
1325 57146 BRSV VAC 4, 50DS
0077 57318 BRSV VAC, 50DS, EXPT-UNLBL
1326 57076 BRSV VAC 9, 5DS
1329 57078 BRSV VAC 9, 50DS
1327 57077 BRSV VAC 9, 10DS ]
<CAPTION>
MAH DAH
CODE CODE DESCRIPTION COST
0139 57254 BRSV VAC F3LP, 10DS [
0140 57255 BRSV VAC F3LP, 50DS
0103 57221 DILUENT, 100ML, EXPT-UNLBL
0102 57219 DILUENT, 20ML, EXPT-UNLBL
0058 57220 HORIZON 1, 10DS, EXPT-UNLBL
1360 57212 HORIZON 1VAC 3, 10DS
1365 57213 HORIZON 1 VAC 3, 50DS
0059 57170 HORIZON 2, 10DS, EXPT-UNLBL
1341 57144 HORIZON 4, 5DS
1340 57180 HORIZON 4, 10DS
0179 57260 HORIZON 4, 10DS, MEXICO
1345 57181 HORIZON 4, 50DS
0181 57261 HORIZON 4, 50DS, MEXICO
1351 57211 HORIZON 9, 5DS
1350 57176 HORIZON 9, 10DS
0182 57262 HORIZON 9, 10DS, MEXICO
1352 57177 HORIZON 10, 5DS
0183 57263 HORIZON 9, 25DS, MEXICO
0114 57238 HORIZON 10, 5DS
0115 57217 HORIZON 10, 10DS
0261 57354 HORIZON 10, 10DS, MEXICO
0116 57237 HORIZON 10, 25DS
0262 57355 HORIZON 10, 25DS, MEXICO
0052 47143 LEPTO 5, 20ML, EXPT-UNLBL
0155 47150 LEPTO 5, 20ML, MEXICO ]
</TABLE>
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into by and between
PARAVAX, INC., a California corporation with its principal office at 2301
Research Boulevard, Suite 110, Fort Collins, Colorado ("Company") and ROBERT B.
GRIEVE ("Employee"), effective as of January 1, 1994.
W I T N E S S E T H:
Whereas Company desires to employ Employee to act as its Vice Chairman
of the Board of Directors and Vice President, Research and Development in an
at-will capacity; and
Whereas Employee wishes to act as Company's Vice Chairman of the Board
of Directors and Vice President, Research and Development as an employee in an
at-will capacity;
Now, Therefore, in consideration of the mutual covenants and
warranties contained herein, the parties agree as follows:
1. Employment. Company hereby employs Employee as its Vice Chairman
of the Board of Directors and Vice President, Research and Development, and
Employee hereby accepts such employment.
2. Duties and Responsibilities. Employee shall serve as Vice
Chairman of the Board of Directors and Vice President, Research and Development
of Company, with such duties and responsibilities as may be assigned to him
from time to time by the Board of Directors of Company, and with such on-going
daily duties and responsibilities as are typically entailed in the position of
Vice Chairman of the Board of Directors and Vice President, Research and
Development. Employee shall devote his full time and energies to such duties.
3. Compensation. Company shall pay Employee, as compensation for
services rendered under this Agreement, compensation at the rate of $120,000
per year, payable in accordance with the usual and customary payroll practices
of Company. If for any reason during any given year, Employee does not work an
entire year, other than normal vacations as provided hereunder, the
compensation will be prorated to compensate only for the actual time worked.
4. Expenses. Company shall reimburse Employee for his reasonable
out-of-pocket expenses incurred in connection with the business of Company,
upon presentation of appropriate written receipts and reports and subject to
the customary practices of Company.
5. Employee Benefits. During the term of his employment hereunder,
Employee shall be entitled to receive the same benefits that the Board of
Directors establishes generally for the officers and other employees of
Company. These may include from time to time, medical insurance, life
insurance, paid vacation time and medical disability insurance.
6. Termination.
(a) At-Will. This is an at-will employment agreement and does not
bind either of the parties to any specific term or duration.
(i) Employee is free to terminate employment with Company at
any time, for any reason, or for no reason.
(ii) Company is free to terminate the employment of Employee
at any time, for any reason or for no reason, for cause or without cause, and
without any prior notice.
(b) Severance Pay.
(i) Upon involuntary termination of his employment, Employee
will be entitled to severance pay as provided below unless he is terminated for
"cause," as defined below. If Company terminates Employee for "cause,"
Employee will not be entitled to any severance pay and shall only receive pay
and benefits which Employee earned as of the date of termination.
(ii) Definition of "Cause". The parties agree that for the
purposes of this
<PAGE> 2
Employment Agreement, a termination for "cause" will be deemed to have occurred
when Company terminates Employee's employment because of the occurrence of any
of the following events:
(A) Employee shall die, be adjudicated to be mentally
incompetent or become mentally or physically disabled to such an
extent that Employee is unable to perform his duties under this
Employment Agreement for a period of ninety (90) consecutive days;
(B) Company shall discontinue its business (for the purpose
of this provision, a merger, acquisition or sale of Company in which
Company's business is carried on by the surviving entity shall not be
deemed to be a discontinuance of the business of Company);
(C) Employee shall commit any material breach of his
obligations under this Agreement;
(D) Employee shall commit any material breach of any material
fiduciary duty to Company;
(E) Employee shall be convicted of, or enter a plea of nolo
contendere to, any crime involving moral turpitude or dishonesty,
whether a felony or misdemeanor, or any crime which reflects so
negatively on Company to be detrimental to Company's image or
interests;
(F) Employee shall commit repeated insubordination or refusal
to comply with any reasonable request of the Board of Directors of
Company relating to the scope or performance of Employee's duties;
(G) Employee shall possess any illegal drug on Company
premises or Employee shall be under the influence of illegal drugs or
abusing prescription drugs or alcohol while on Company business or on
Company premises; or
(H) Employee shall conduct himself in a manner, which in the
good faith and reasonable determination of the Board of Directors
demonstrated Employee's gross unfitness to serve.
(iii) In the event that severance pay is due to Employee as a
result of the involuntary termination of his employment without "cause" within
three years of the date of this Agreement, Employee will be paid one (1) years'
salary in twelve equal monthly installments, with the first such installment
due 15 days after the date of such termination and with the following eleven
installments due monthly thereafter.
(iv) In the event that severance pay is due to Employee as
a result of the involuntary termination of his employment without "cause" three
or more years after the date of this Agreement, Employee will be paid six (6)
months' salary in six equal monthly installments, with the first such
installment due 15 days after the date of such termination and with the
following five installments due monthly thereafter.
7. Proprietary Information. Employee agrees that he will promptly
execute Company's standard employee proprietary information and assignment of
inventions agreement. For three (3) years following his termination as an
employee, Employee agrees not to undertake any employment or activity wherein
the loyal and complete fulfillment of the duties of such employment or activity
would necessarily call upon Employee to reveal, to make judgments on or
otherwise to use, any proprietary business information or trade secrets of
Company's business to which Employee had access by reason of Company's
business.
8. Attorneys' Fees. If any legal action arises under this Agreement
or by reason of any asserted breach of it, the prevailing party shall be
entitled to recover all costs and
-2-
<PAGE> 3
expenses, including reasonable attorneys' fees, incurred in enforcing or
attempting to enforce any of the terms, covenants or conditions, including
costs incurred prior to commencement of legal action, and all costs and
expenses, including reasonable attorneys' fees, incurred in any appeal from an
action brought to enforce any of the terms, covenants or conditions. For
purposes of this section, "prevailing party" includes without limitation a
party who agrees to dismiss a suit or proceeding upon the other's payment or
performance of substantially the relief sought.
9. Notices. Any notice to be given to Company under the terms of
this Agreement shall be addressed to Company at the address of its principal
place of business, and any notice to be given to Employee shall be addressed to
him at his home address last shown on the records of Company, or to such other
address as a party shall have given notice of hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year hereinabove written.
PARAVAX, INC.
By /s/ A. BARR DOLAN
---------------------------
Its Chairman
--------------------------
/s/ ROBERT B. GRIEVE
-----------------------------
Robert B. Grieve
-3-
<PAGE> 4
HESKA CORPORATION
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
WITH
ROBERT B GRIEVE
THIS AMENDMENT AGREEMENT is entered into effective as of March 4, 1997 by
and between Heska Corporation, formerly Paravax, Inc. (the "Company"), and
Robert B. Grieve ("Employee"). The Company and Employee are collectively
referred to herein as the "Parties."
WHEREAS, effective as of January 1, 1994, the Company and Employee entered
into an Employment Agreement (the "Employment Agreement"); and
WHEREAS, the Parties desire to amend the Employment Agreement for the
purpose of (a) extending the period during which terminations may give rise to
one-year's severance pay, and (b) amending the scope of severance pay to
include vesting under equity stock arrangements;
NOW THEREFORE, in consideration of the foregoing, the Parties agree as
follows:
1. Amendment to Section 6(b)(iii). Section 6(b)(iii) is hereby amended by
deleting said paragraph in its entirety and substituting the following
therefor:
(iii) In the event that severance pay is due to Employee as a result
of the involuntary termination of his employment without "cause" on
or before December 31, 1999, Employee will receive (i) one year's
salary in twelve equal monthly installments, with the first such
installment due 15 days after the date of such termination and with
the following eleven installments due monthly thereafter, and (ii) an
additional twelve months of vesting (calculated from the effective
termination date, and not from the end of the severance pay period)
under all stock option agreements, stock purchase agreements or other
stock rights granted to Employee.
2. Amendment to Section 6(b)(iv). Section 6(b)(iv) is hereby amended by
deleting said paragraph in its entirety and substituting the following
therefor:
(iv) In the event that the severance pay is due to Employee as a
result of the involuntary termination of his employment without
"cause" after December 31, 1999, Employee will receive (i) six
months' salary in six equal monthly installments, with the first such
installment due 15 days after the date of such termination and with
the following six installments due monthly thereafter, and (ii) an
additional six months of vesting (calculated from the effective
termination date, and not from the end of the severance pay period)
<PAGE> 5
under all stock option agreements, stock purchase agreements or other
stock rights granted to Employee.
3. Addition of Section 10. Section 10 is hereby added to read as follows:
10. Miscellaneous. This Agreement shall be governed by the laws of
the State of Colorado as applied to contracts between residents of
that state to be performed wholly within that state. This Agreement is
the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior understandings and agreements.
This Agreement may be modified only by a writing signed by both
parties.
4. No Other Changes. Except for the changes expressly made by this
Amendment Agreement, the Employment Agreement remains in full force
and effect without change.
IN WITNESS WHEREOF, the Parties, for good and valuable consideration the
sufficiency of which is hereby acknowledged, have executed this Amendment
Agreement as of the date first written above.
the "Corporation" "Employee"
Heska Corporation Robert B. Grieve
By: /s/ FRED M. SCHWARZER /s/ ROBERT B. GRIEVE
------------------------------ -----------------------------
-2-
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into by and between
PARAVAX, INC., a California corporation with its principal office at 2301
Research Boulevard, Suite 110, Fort Collins, Colorado ("Company") and FRED M.
SCHWARZER ("Employee"), effective as of November 1, 1994.
W I T N E S S E T H:
Whereas Company desires to employ Employee to act as its President and
Chief Executive Officer, in an at-will capacity; and
Whereas Employee wishes to act as Company's President and Chief
Executive Officer as an employee in an at-will capacity;
Now, Therefore, in consideration of the mutual covenants and
warranties contained herein, the parties agree as follows:
1. Employment. Company hereby employs Employee as its President
and Chief Executive Officer, and Employee hereby accepts such employment.
2. Duties and Responsibilities. Employee shall serve as
President and Chief Executive Officer of Company, with such duties and
responsibilities as may be assigned to him from time to time by the Board of
Directors of Company, and with such on-going daily duties and responsibilities
as are typically entailed in the position of President and Chief Executive
Officer. Employee shall devote substantially all of his time and energies to
such duties; provided, however, that Employee may devote a modest amount of
time and energy, including travel, on behalf of Charter Venture Capital and its
affiliates.
3. Compensation. Company shall pay Employee, as compensation for
services rendered under this Agreement, compensation at the rate of $200,000
per year, payable in accordance with the usual and customary payroll practices
of Company. If for any reason during any given year, Employee does not work an
entire year, other than normal vacations as provided hereunder, the
compensation will be prorated to compensate only for the actual time worked.
4. Expenses. Company shall reimburse Employee for his reasonable
out-of-pocket expenses incurred in connection with the business of Company,
including travel away from the Company's facilities, upon presentation of
appropriate written receipts and reports and subject to the customary practices
of Company.
In addition, the Company will reimburse Employee all of his
reasonable expenses related to moving his household to the Fort Collins area,
including reasonable travel expenses, moving expenses and temporary living
expenses. Such reimbursement will be made upon presentation of appropriate
written receipts. The Company will not reimburse Employee for any brokerage
commissions or other expenses relating to the sale of property in California or
the purchase of a home in Colorado.
5. Employee Benefits. During the term of his employment
hereunder, Employee shall be entitled to receive the same benefits that the
Board of Directors establishes generally for the officers and other employees
of Company. These may include from time to time, medical insurance, life
insurance, paid vacation time and medical disability insurance.
<PAGE> 2
6. Termination.
(a) At-Will. This is an at-will employment agreement and does not
bind either of the parties to any specific term or duration.
(i) Employee is free to terminate employment with Company at
any time, for any reason, or for no reason.
(ii) Company is free to terminate the employment of Employee
at any time, for any reason or for no reason, for cause or without cause, and
without any prior notice.
(b) Severance Pay.
(i) Upon involuntary termination of his employment,
Employee will be entitled to severance pay as provided below unless he is
terminated for "cause," as defined below. If Company terminates Employee for
"cause," Employee will not be entitled to any severance pay and shall only
receive pay and benefits which Employee earned as of the date of termination.
(ii) The parties agree that for the purposes of this
Employment Agreement, a termination for "cause" will be deemed to have occurred
when Company terminates Employee's employment because of the occurrence of any
of the following events:
(A) Employee shall die, be adjudicated to be mentally
incompetent or become mentally or physically disabled to such an
extent that Employee is unable to perform his duties under this
Employment Agreement for a period of ninety (90) consecutive days;
(B) Company shall discontinue its business (for the
purpose of this provision, a merger, acquisition or sale of Company in
which Company's business is carried on by the surviving entity shall
not be deemed to be a discontinuance of the business of Company);
(C) Employee shall commit any material breach of his
obligations under this Agreement;
(D) Employee shall commit any material breach of any
material fiduciary duty to Company;
(E) Employee shall be convicted of, or enter a plea of
nolo contendere to, any crime involving moral turpitude or dishonesty,
whether a felony or misdemeanor, or any crime which reflects so
negatively on Company to be detrimental to Company's image or
interests;
(F) Employee shall commit repeated insubordination or
refusal to comply with any reasonable request of the Board of
Directors of Company relating to the scope or performance of
Employee's duties;
(G) Employee shall possess any illegal drug on Company
premises or Employee shall be under the influence of illegal drugs or
abusing prescription drugs or alcohol while on Company business or on
Company premises; or
-2-
<PAGE> 3
(H) Employee shall conduct himself in a manner, which in
the good faith and reasonable determination of the Board of Directors
demonstrated Employee's gross unfitness to serve.
(iii) In the event that severance pay is due to Employee as
a result of the involuntary termination of his employment without "cause"
within three years of the date of this Agreement, Employee will be paid one (1)
years' salary in twelve equal monthly installments, with the first such
installment due 15 days after the date of such termination and with the
following eleven installments due monthly thereafter.
(iv) In the event that severance pay is due to Employee as
a result of the involuntary termination of his employment without "cause" three
or more years after the date of this Agreement, Employee will be paid six (6)
months' salary in six equal monthly installments, with the first such
installment due 15 days after the date of such termination and with the
following five installments due monthly thereafter.
7. Proprietary Information. Employee agrees that he will
promptly execute Company's standard employee proprietary information and
assignment of inventions agreement. For three (3) years following his
termination as an employee, Employee agrees not to undertake any employment or
activity wherein the loyal and complete fulfillment of the duties of such
employment or activity would necessarily call upon Employee to reveal, to make
judgments on or otherwise to use, any proprietary business information or trade
secrets of Company's business to which Employee had access by reason of
Company's business.
8. Attorneys' Fees. If any legal action arises under this
Agreement or by reason of any asserted breach of it, the prevailing party shall
be entitled to recover all costs and expenses, including reasonable attorneys'
fees, incurred in enforcing or attempting to enforce any of the terms,
covenants or conditions, including costs incurred prior to commencement of
legal action, and all costs and expenses, including reasonable attorneys' fees,
incurred in any appeal from an action brought to enforce any of the terms,
covenants or conditions. For purposes of this section, "prevailing party"
includes without limitation a party who agrees to dismiss a suit or proceeding
upon the other's payment or performance of substantially the relief sought.
9. Notices. Any notice to be given to Company under the terms of
this Agreement shall be addressed to Company at the address of its principal
place of business, and any notice to be given to Employee shall be addressed to
him at his home address last shown on the records of Company, or to such other
address as a party shall have given notice of hereunder.
10. Miscellaneous. This Agreement shall be governed by the laws
of the State of Colorado as applied to contracts between residents of that
state to be performed wholly within that state. This Agreement is the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior understandings and agreements. This Agreement may be
modified only by a writing signed by both parties.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year hereinabove written.
PARAVAX, INC.
By /s/ A. BARR DOLAN
------------------------------------
A. Barr Dolan, Chairman
/s/ FRED M. SCHWARZER
----------------------------------------
Fred M. Schwarzer
-4-
<PAGE> 5
HESKA CORPORATION
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
WITH
FRED M. SCHWARZER
THIS AMENDMENT AGREEMENT is entered into effective as of March 4, 1997 by
and between Heska Corporation, formerly Paravax, Inc. (the "Company"), and Fred
M. Schwarzer ("Employee"). The Company and Employee are collectively referred
to herein as the "Parties."
WHEREAS, effective as of November 1, 1994, the Company and Employee
entered into an Employment Agreement (the "Employment Agreement"); and
WHEREAS, the Parties desire to amend the Employment Agreement for the
purpose of (a) extending the period during which terminations may give rise to
one-year's severance pay, and (b) amending the scope of severance pay to
include vesting under equity stock arrangements;
NOW THEREFORE, in consideration of the foregoing, the Parties agree as
follows:
1. Amendment to Section 6(b)(iii). Section 6(b)(iii) is hereby
amended by deleting said paragraph in its entirety and substituting
the following therefor:
(iii) In the event that severance pay is due to Employee as a result
of the involuntary termination of his employment without "cause" on
or before December 31, 1999, Employee will receive (i) one year's
salary in twelve equal monthly installments, with the first such
installment due 15 days after the date of such termination and with
the following eleven installments due monthly thereafter, and (ii) an
additional twelve months of vesting (calculated from the effective
termination date, and not from the end of the severance pay period)
under all stock option agreements, stock purchase agreements or other
stock rights granted to Employee.
2. Amendment to Section 6(b)(iv). Section 6(b)(iv) is hereby amended by
deleting said paragraph in its entirety and substituting the
following therefor:
(iv) In the event that the severance pay is due to Employee as a
result of the involuntary termination of his employment without
"cause" after December 31, 1999, Employee will receive (i) six
months' salary in six equal monthly installments, with the first such
installment due 15 days after the date of such termination and with
the following six installments due monthly thereafter, and (ii) an
additional six months of vesting (calculated from the effective
termination date, and not from the end of the severance pay period)
<PAGE> 6
under all stock option agreements, stock purchase agreements or other
stock rights granted to Employee.
3. No Other Changes. Except for the changes expressly made by this
Amendment Agreement, the Employment Agreement remains in full force
and effect without change.
IN WITNESS WHEREOF, the Parties, for good and valuable consideration the
sufficiency of which is hereby acknowledged, have executed this Amendment
Agreement as of the date first written above.
the "Corporation" "Employee"
Heska Corporation Fred M. Schwarzer
By: /s/ ROBERT B. GRIEVE /s/ FRED M. SCHWARZER
------------------------------ -----------------------------
-2-
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into by and between
PARAVAX, INC., a California corporation with its principal office at 2301
Research Boulevard, Suite 110, Fort Collins, Colorado ("Company") and R. LEE
SEWARD ("Employee"), effective as of October 17, 1994.
W I T N E S S E T H:
Whereas Company desires to employ Employee to act as its Vice
President, in an at-will capacity; and
Whereas Employee wishes to act as Company's Vice President as an
employee in an at-will capacity;
Now, Therefore, in consideration of the mutual covenants and
warranties contained herein, the parties agree as follows:
1. Employment. Company hereby employs Employee as its Vice
President, and Employee hereby accepts such employment.
2. Duties and Responsibilities. Employee shall serve as Vice
President of Company, with such duties and responsibilities as may be assigned
to him from time to time by the Board of Directors of Company, and with such
on-going daily duties and responsibilities as are typically entailed in the
position of Vice President. Employee shall devote 100% of his time and
energies to such duties.
3. Compensation. Company shall pay Employee, as compensation for
services rendered under this Agreement, compensation at the rate of $160,000
per year, payable in accordance with the usual and customary payroll practices
of Company. If for any reason during any given year, Employee does not work an
entire year, other than normal vacations as provided hereunder, the
compensation will be prorated to compensate only for the actual time worked.
4. Expenses. Company shall reimburse Employee for his reasonable
out-of-pocket expenses incurred in connection with the business of Company,
including travel away from the Company's facilities, upon presentation of
appropriate written receipts and reports and subject to the customary practices
of Company.
In addition, the Company will reimburse Employee all of his
reasonable expenses related to moving his household to the Fort Collins area,
including reasonable travel expenses, moving expenses and temporary living
expenses. Such reimbursement will be made upon presentation of appropriate
written receipts. The Company will not reimburse Employee for any brokerage
commissions or other expenses relating to the sale of property in New Jersey or
the purchase of a home in Colorado. Employee may, upon request, ask for a loan
from the Company in order to make a down payment on the purchase of a home in
Colorado.
5. Employee Benefits. During the term of his employment
hereunder, Employee shall be entitled to receive the same benefits that the
Board of Directors establishes generally for the officers and other employees
of Company. These may include from time to time, medical insurance, life
insurance, paid vacation time and medical disability insurance.
6. Termination.
(a) At-Will. This is an at-will employment agreement and does not
bind either of the parties to any specific term or duration.
(i) Employee is free to terminate employment with Company at
any time, for any reason, or for no reason.
(ii) Company is free to terminate the employment of Employee
at any time, for any reason or for no reason, for cause or without cause, and
without any prior notice.
<PAGE> 2
(b) Severance Pay.
(i) Upon involuntary termination of his employment,
Employee will be entitled to severance pay as provided below unless he is
terminated for "cause," as defined below. If Company terminates Employee for
"cause," Employee will not be entitled to any severance pay and shall only
receive pay and benefits which Employee earned as of the date of termination.
(ii) The parties agree that for the purposes of this
Employment Agreement, a termination for "cause" will be deemed to have occurred
when Company terminates Employee's employment because of the occurrence of any
of the following events:
(A) Employee shall die, be adjudicated to be mentally
incompetent or become mentally or physically disabled to such an
extent that Employee is unable to perform his duties under this
Employment Agreement for a period of ninety (90) consecutive days;
(B) Company shall discontinue its business (for the
purpose of this provision, a merger, acquisition or sale of Company in
which Company's business is carried on by the surviving entity shall
not be deemed to be a discontinuance of the business of Company);
(C) Employee shall commit any material breach of his
obligations under this Agreement;
(D) Employee shall commit any material breach of any
material fiduciary duty to Company;
(E) Employee shall be convicted of, or enter a plea of
nolo contendere to, any crime involving moral turpitude or dishonesty,
whether a felony or misdemeanor, or any crime which reflects so
negatively on Company to be detrimental to Company's image or
interests;
(F) Employee shall commit repeated insubordination or
refusal to comply with any reasonable request of the Board of
Directors of Company relating to the scope or performance of
Employee's duties;
(G) Employee shall possess any illegal drug on Company
premises or Employee shall be under the influence of illegal drugs or
abusing prescription drugs or alcohol while on Company business or on
Company premises; or
(H) Employee shall conduct himself in a manner, which in
the good faith and reasonable determination of the Board of Directors
demonstrated Employee's gross unfitness to serve.
(iii) In the event that severance pay is due to Employee as
a result of the involuntary termination of his employment without "cause"
within three years of the date of this Agreement, Employee will be paid one (1)
years' salary in twelve equal monthly installments, with the first such
installment due 15 days after the date of such termination and with the
following eleven installments due monthly thereafter.
(iv) In the event that severance pay is due to Employee as
a result of the involuntary termination of his employment without "cause" three
or more years after the date of this Agreement, Employee will be paid six (6)
months' salary in six equal monthly installments, with the first such
installment due 15 days after the date of such termination and with the
following five installments due monthly thereafter.
7. Proprietary Information. Employee agrees that he will
promptly execute Company's standard employee proprietary information and
assignment of inventions agreement. For three (3) years following his
termination as an employee, Employee agrees not
-2-
<PAGE> 3
to undertake any employment or activity wherein the loyal and complete
fulfillment of the duties of such employment or activity would necessarily call
upon Employee to reveal, to make judgments on or otherwise to use, any
proprietary business information or trade secrets of Company's business to
which Employee had access by reason of Company's business.
8. Attorneys' Fees. If any legal action arises under this
Agreement or by reason of any asserted breach of it, the prevailing party shall
be entitled to recover all costs and expenses, including reasonable attorneys'
fees, incurred in enforcing or attempting to enforce any of the terms,
covenants or conditions, including costs incurred prior to commencement of
legal action, and all costs and expenses, including reasonable attorneys' fees,
incurred in any appeal from an action brought to enforce any of the terms,
covenants or conditions. For purposes of this section, "prevailing party"
includes without limitation a party who agrees to dismiss a suit or proceeding
upon the other's payment or performance of substantially the relief sought.
9. Notices. Any notice to be given to Company under the terms of
this Agreement shall be addressed to Company at the address of its principal
place of business, and any notice to be given to Employee shall be addressed to
him at his home address last shown on the records of Company, or to such other
address as a party shall have given notice of hereunder.
10. Miscellaneous. This Agreement shall be governed by the laws
of the State of Colorado as applied to contracts between residents of that
state to be performed wholly within that state. This Agreement is the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior understandings and agreements. This Agreement may be
modified only by a writing signed by both parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year hereinabove written.
PARAVAX, INC.
By /s/ FRED M. SCHWARZER
-------------------------------------
Its
------------------------------------
/s/ R. LEE SEWARD
---------------------------------------
R. Lee Seward
-3-
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into by and between
DIAMOND ANIMAL HEALTH, INC., an Iowa corporation with its principal office at
2538 S.E. 43rd Street, Des Moines, Iowa ("Company") and LOUIS VAN DAELE
("Employee"), effective as of April 19, 1996.
W I T N E S S E T H:
Whereas Company desires to employ Employee to act as its President in
an at-will capacity; and
Whereas Employee wishes to act as Company's President as an employee
in an at-will capacity;
Now, Therefore, in consideration of the mutual covenants and
warranties contained herein, the parties agree as follows:
1. Employment. Company hereby employs Employee as its President
and Employee hereby accepts such employment.
2. Duties and Responsibilities. Employee shall serve as
President of Company, with such duties and responsibilities as may be assigned
to him from time to time by the Board of Directors of Company, and with such
on-going daily duties and responsibilities as are typically entailed in the
position of President. Employee shall devote substantially all of his time and
energies to such duties.
3. Compensation. Company shall pay Employee, as compensation for
services rendered under this Agreement, compensation at the rate of $130,000
per year, payable in accordance with the usual and customary payroll practices
of Company. If for any reason during any given year, Employee does not work an
entire year, other than normal vacations as provided hereunder, the
compensation will be prorated to compensate only for the actual time worked.
4. Expenses. Company shall reimburse Employee for his reasonable
out-of-pocket expenses incurred in connection with the business of Company,
including travel away from the Company's facilities, upon presentation of
appropriate written receipts and reports and subject to the customary practices
of Company.
5. Employee Benefits. During the term of his employment
hereunder, Employee shall be entitled to receive the same benefits that the
Board of Directors establishes generally for the officers and other employees
of Company. These may include from time to time, medical insurance, life
insurance, paid vacation time and medical disability insurance.
6. Termination.
(a) At-Will. This is an at-will employment agreement and does not
bind either of the parties to any specific term or duration.
(i) Employee is free to terminate employment with Company at
any time, for any reason, or for no reason.
(ii) Company is free to terminate the employment of Employee
at any time, for any reason or for no reason, for cause or without cause, and
without any prior notice.
<PAGE> 2
(b) Severance Pay.
(i) Upon involuntary termination of his employment within
four (4) years of the date of this Agreement, Employee will be entitled to
severance pay as provided below unless he is terminated for "cause," as defined
below. If Company terminates Employee for "cause," Employee will not be
entitled to any severance pay and shall only receive pay and benefits which
Employee earned as of the date of termination.
(ii) The parties agree that for the purposes of this
Employment Agreement, a termination for "cause" will be deemed to have occurred
when Company terminates Employee's employment because of the occurrence of any
of the following events:
(A) Employee shall die, be adjudicated to be mentally
incompetent or become mentally or physically disabled to such an
extent that Employee is unable to perform his duties under this
Employment Agreement for a period of ninety (90) consecutive days;
(B) Company shall discontinue its business (for the
purpose of this provision, a merger, acquisition or sale of Company in
which Company's business is carried on by the surviving entity shall
not be deemed to be a discontinuance of the business of Company);
(C) Employee shall commit any material breach of his
obligations under this Agreement;
(D) Employee shall commit any material breach of any
material fiduciary duty to Company;
(E) Employee shall be convicted of, or enter a plea of
nolo contendere to, any crime involving moral turpitude or dishonesty,
whether a felony or misdemeanor, or any crime which reflects so
negatively on Company to be detrimental to Company's image or
interests;
(F) Employee shall commit repeated insubordination or
refusal to comply with any reasonable request of the Board of
Directors of Company relating to the scope or performance of
Employee's duties;
(G) Employee shall possess any illegal drug on Company
premises or Employee shall be under the influence of illegal drugs or
abusing prescription drugs or alcohol while on Company business or on
Company premises; or
(H) Employee shall conduct himself in a manner, which in
the good faith and reasonable determination of the Board of Directors
demonstrated Employee's gross unfitness to serve.
(iii) In the event that severance pay is due to Employee as
a result of the involuntary termination of his employment without "cause"
within four (4) years of the date of this Agreement, Employee will be paid one
(1) year's salary in twelve equal monthly installments, with the first such
installment due 15 days after the date of such termination and with the
following eleven installments due monthly thereafter.
-2-
<PAGE> 3
7. Proprietary Information. Employee agrees that, if he has not
already done so, he will promptly execute Company's standard employee
proprietary information and assignment of inventions agreement. For four (4)
years following his termination as an employee, Employee agrees not to
undertake any employment or activity wherein the loyal and complete fulfillment
of the duties of such employment or activity would necessarily call upon
Employee to reveal, to make judgments on or otherwise to use, any proprietary
business information or trade secrets of Company's business to which Employee
had access by reason of Company's business.
8. Attorneys' Fees. If any legal action arises under this
Agreement or by reason of any asserted breach of it, the prevailing party shall
be entitled to recover all costs and expenses, including reasonable attorneys'
fees, incurred in enforcing or attempting to enforce any of the terms,
covenants or conditions, including costs incurred prior to commencement of
legal action, and all costs and expenses, including reasonable attorneys' fees,
incurred in any appeal from an action brought to enforce any of the terms,
covenants or conditions. For purposes of this section, "prevailing party"
includes without limitation a party who agrees to dismiss a suit or proceeding
upon the other's payment or performance of substantially the relief sought.
9. Notices. Any notice to be given to Company under the terms of
this Agreement shall be addressed to Company at the address of its principal
place of business, and any notice to be given to Employee shall be addressed to
him at his home address last shown on the records of Company, or to such other
address as a party shall have given notice of hereunder.
10. Miscellaneous. This Agreement shall be governed by the laws
of the State of Iowa as applied to contracts between residents of that state to
be performed wholly within that state. This Agreement is the entire agreement
of the parties with respect to the subject matter hereof and supersedes all
prior understandings and agreements. This Agreement may be modified only by a
writing signed by both parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year hereinabove written.
DIAMOND ANIMAL HEALTH, INC.
By /s/ FRED M. SCHWARZER
----------------------------------
Title Chairman
-------------------------------
/s/ LOUIS VAN DAELE
------------------------------------
Louis Van Daele
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<PAGE> 1
EXHIBIT 10.14
[HESKA LETTERHEAD]
November 1, 1996
VIA FEDERAL EXPRESS
Dr. John A. Shadduck
1005 Carmel Place
College Station, TX 77845
Dear Dr. Shadduck:
On behalf of Heska Corporation, a California corporation ("Heska" or the
"Company"), I am pleased to offer you the position of Executive Vice President,
Operations with the Company. All of us at Heska hope that you will accept this
position and begin with the Company not later than February 15, 1997. Should
you accept this position, the terms of your employment with Heska would be as
follows:
1. You will be paid an annual cash salary of $180,000 payable on a monthly
basis at the end of each month.
2. Subject to the approval of the Board of Directors of the Company, you
will be granted an incentive stock option to purchase 100,000 shares
of Common Stock of Heska at a price equal to the current fair value of
the Common Stock on the date of grant (the fair value is currently
estimated to be $1.20 per share), pursuant to the Company's standard
form of Incentive Stock Option Agreement (the "Option Agreement"). The
Option Agreement will provide that you will become entitled to exercise
this option as to one-eighth of the shares (12,500 shares) upon your
completion of six months of employment with the Company and as to
1/48th of the shares (2,083 shares) upon the completion of each
additional month of your employment with the Company, until you are
entitled to exercise the option as to the entire 100,000 shares at the
end of forty-eight months of employment with the Company. Your right
to exercise any portion of this option shall terminate 90 days after
the termination of your employment with Heska for any reason, including
termination without cause. As you know, the Company will be issuing
additional shares of Preferred Stock and/or Common Stock to obtain
additional financing or in connection with other corporate transactions
and the Company will be issuing additional shares of Common Stock and
options to purchase Common Stock to new and existing employees of the
Company, both of which will of course reduce the percentage of the
outstanding shares of the Company which your option represents.
<PAGE> 2
The Company makes no additional promises to you concerning the issuance of
options or shares other than those which are expressly stated here, and
there is no obligation on the part of the Company to issue any additional
options or shares to you during the course of your employment, even though
the percentage ownership in the Company which is represented by your options
and shares decreases.
3. You will be entitled to participate in all of Heska's employee benefits
programs, such as health insurance, in the form that they exist from time
to time during your employment.
4. Should you choose to relocate to the Fort Collins area during the course
of your employment, Heska will reimburse you for the reasonable cost of
moving your personal effects. In addition, Heska will reimburse you for the
cost of temporary housing. Some of this reimbursement however, will be
treated as taxable income to you. Heska will not reimburse you for brokerage
commissions and other expenses related to the sale of your home or the
purchase of a home in Fort Collins.
5. You will also be required to execute the Company's standard form of
confidential information and assignment of inventions agreement upon the
commencement of your employment.
6. You understand that your employment with Heska may be terminated by the
Company at any time, with or without cause; however the Company will offer
you its standard executive employment agreement, which provides, among other
things, that you will receive one years' severance pay in the event that
your employment with the Company is terminated without cause within the first
three years.
We greatly look forward to your joining us at Heska, and we believe that you
will be a critical part of the Company's ultimate success. We also believe that
you will find Heska to be an aggressive, bold and opportunistic company that
will take advantage of, and in fact demand, all of the skills, abilities and
energy you have to offer. In short, we believe you will find Heska to be a
challenging and rewarding opportunity.
<PAGE> 3
To enable us to be prepared for your first day, please indicate below how you
would like your e-mail address setup. Your e-mail dress typically is the first
six letters of your last name and the first initial of your first name.
If you agree to join Heska on the terms described above, please indicate your
agreement by signing the enclosed copy and returning it to Ms. Diane McCoy,
Director of Human Resources.
Very truly yours,
/s/ FRED M. SCHWARZER
Fred M. Schwarzer
Chief Executive Officer
Since 15 Feb 97 is a Saturday, I
would like to make my First day
at work 17 Feb 97 (Monday).
Accepted and agreed:
/s/ JOHN A. SHADDUCK 6 NOV 96
----------------------------------
Dr. John A. Shadduck Date
SHADDUJ
----------------------------------
e-mail address
<PAGE> 1
EXHIBIT 10.15
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 28th day of February, 1995,
by and between Paravax, Inc., a California corporation (the "Company"), and
Fred M. Schwarzer (the "Purchaser").
In consideration of the mutual covenants and representations
herein set forth, the Company and Purchaser agree as follows:
1. Purchase and Sale of Stock.
1.1 Purchase of Stock. Subject to the terms and
conditions of this Agreement, the Company hereby agrees to sell to Purchaser
and Purchaser agrees to purchase from the Company at the Closing an aggregate
of 177,000 shares of the Company's Common Stock (the "Stock") at a price of
$0.35 per share, for an aggregate purchase price of $61,950.00. The shares of
Stock shall be purchased by delivery of Purchaser's full recourse promissory
note in substantially the form of Exhibit A attached hereto (the "Note"). This
purchase is being made upon exercise of a stock purchase right granted under
the Company's 1994 Key Executive Stock Plan on November 1, 1994.
1.2 Security for Note. As security for the payment of
the Note and any renewal or modification thereof, Purchaser hereby pledges and
grants to the Company a security interest in all of the Stock pursuant to a
Security Agreement in substantially the form attached hereto as Exhibit B (the
"Security Agreement"). As part of this pledge, Purchaser will sign and deliver
to the Secretary of the Company ("Escrow Agent") a Stock Assignment duly
endorsed (with date and number of shares blank) in the form attached hereto as
Exhibit C (the "Assignment"), together with the certificate or certificates
evidencing the Stock; the Assignment and the certificate or certificates
evidencing the Stock are to be held in escrow by the Escrow Agent pursuant to
an Escrow Agreement in substantially the form attached hereto as Exhibit D (the
"Escrow Agreement") for use if, as and when required pursuant to the Security
Agreement.
2. Closing. The purchase and sale of the Stock shall
occur at a Closing to be held on the date hereof (the "Closing Date"). The
Closing will take place at the principal office of the Company or at such other
place as shall be designated by the Company. At the Closing, Purchaser shall
deliver to the Company the Note and the Company will issue the Stock registered
in the name of Purchaser. In addition, the Purchaser shall sign and deliver
the Security Agreement, the Assignment and the Escrow Agreement.
<PAGE> 2
3. Purchase Option.
3.1 Grant of Purchase Option. Beginning on the Closing
Date, the Stock shall be subject to the right and option of the Company to
repurchase the Stock (the "Purchase Option") as set forth in this Section 3.
In the event Purchaser's employment by or consulting relationship with the
Company (including a parent or subsidiary of the Company) shall cease for any
reason, or no reason, with or without cause, including death, disability or
involuntary termination ("Termination"), the Company shall have the right, as
provided in Section 3.2 hereof, to purchase from Purchaser or his personal
representative, as the case may be, at the purchase price of $0.35 per share
(the "Option Price"), all of the Stock that has not been released from the
Purchase Option in accordance with the following schedule:
(a) Beginning as of June 1, 1994, 116,500 shares of Stock
will begin vesting over a four year period as follows: 2,427
(116,500/48) of the shares of Stock will be released from the Purchase
Option on the first of each month beginning after June 1994 and 2,384
shares of the Stock will be released from the Purchase Option on the
first day of the 48th month.
(b) Beginning as of November 1, 1994, 60,500 shares of
Stock will begin vesting over a four year period as follows: 1,260
(60,500/48) of the shares of Stock will be released from the Purchase
Option on the first of each month beginning after November 1994 and
1,280 shares of the Stock will be released from the Purchase Option on
the first day of the 48th month.
3.2 Exercise of Purchase Option. Within ninety (90) days
following Termination, the Company shall notify Purchaser by written notice
delivered or mailed as provided in Section 8.3 as to whether it wishes to
purchase the Stock pursuant to exercise of the Purchase Option. If the Company
(or its assignees) elects to purchase the Stock hereunder, it shall specify a
date (which shall not be later than thirty (30) days from the date of the above
described notice) and a place for the closing of the transaction. At such
closing, the Company (or its assignees) shall tender payment for the Stock and
the certificates representing the Stock so purchased shall be cancelled.
Purchaser hereby authorizes and directs the Secretary or Transfer Agent of the
Company to transfer the Stock as to which the Purchase Option has been
exercised from Purchaser to the Company (or its assignees). The Option Price
may be payable, at the option of the Company, in cancellation of all or a
portion of any outstanding indebtedness of Purchaser to the Company, or by
check, or both.
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<PAGE> 3
3.3 No Limit on Rights. Nothing in this Agreement shall
affect in any manner whatsoever the right or power of the Company, or a parent
or subsidiary of the Company, to terminate Purchaser's employment or consulting
relationship, for any reason, with or without cause.
3.4 Escrow of Stock. Purchaser agrees at the Closing
hereunder, to deliver to and deposit with the Escrow Agent named in the Escrow
Agreement of even date and delivered herewith, the certificate or certificates
evidencing the Stock and the duly executed Assignments. Such documents are to
be held by the Escrow Agent until delivered pursuant to the terms of such
Escrow Agreement. Shares of the Stock which are subject to the Purchase Option
shall not be transferable by the Purchaser.
3.5 Acceleration on Merger. A dissolution of the Company
or a merger or consolidation of the Company in which the Company is not the
surviving corporation or in which the shares held by the shareholders of the
Company prior to the merger do not represent more than 50% of the outstanding
voting securities of the surviving corporation shall cause the Purchase Option
to terminate effective immediately prior to the closing of such dissolution,
merger or consolidation.
4. Stock Splits, etc. If, from time to time during the
term of the Purchase Option as provided in Section 3 hereof, there is any stock
dividend, stock split or other change in the character or amount of any of the
outstanding securities of the Company or if there is any consolidation, merger
or sale of all, or substantially all, of the assets of the Company, then in
such event, and subject to Section 3.5, any and all new, substituted or
additional securities to which Purchaser is entitled by reason of his ownership
of Stock shall be immediately subject to the Purchase Option and be included in
the term "Stock" for all purposes of this Agreement with the same force and
effect as the shares of Stock presently subject to this Agreement.
5. Legends. All certificates representing any shares of
Stock of the Company subject to the provisions of this Agreement shall have
endorsed thereon substantially the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS UPON AND OBLIGATIONS WITH
RESPECT TO TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN
AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL REGISTERED
HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY."
-3-
<PAGE> 4
(b) "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) Any legend required under applicable state
securities laws.
6. Investment Intent; Covenant. In purchasing the
Stock, Purchaser represents to the Company as follows:
(a) Purchaser has had an opportunity to discuss
the business prospects and business plan of the Company with the officers and
directors of the Company. Purchaser has a preexisting personal or business
relationship with the Company or one of its officers, directors or controlling
persons and/or by reason of his business or financial experience he has the
capacity to protect his own interests in connection with the transactions
contemplated by this Agreement. Purchaser further acknowledges that the Stock
is highly speculative and involves a high degree of risk, and represents and
warrants that he is able, without impairing his financial condition, to hold
the Stock for an indefinite period of time and suffer a complete loss of his
investment therein.
(b) Purchaser is acquiring the Stock for
investment and not with a view to or for sale in connection with any
distribution of said Stock or with any present intention of distributing or
selling said Stock and he does not presently have reason to anticipate any
change in circumstances or any particular occasion or event which would cause
him to sell said Stock. Purchaser understands that the Stock has not been
registered under the Securities Act of 1933, as amended, (the "Act") and may
not be sold or otherwise disposed of except pursuant to an effective
Registration Statement filed under the Act or pursuant to an exemption from the
registration requirements of such Act. Purchaser acknowledges that the Company
is under no obligation to register the Stock under the Act on his behalf.
Purchaser represents and warrants that he understands that the Stock
constitutes restricted securities within the meaning of Rule 144 promulgated
under the Act; that the exemption from registration under Rule 144 will not be
available in any event for at least two years from the date of purchase and
payment for the Stock, and even then will not be available unless the terms and
conditions of Rule 144 are complied with and will be subject to the limitations
on amount set forth therein.
-4-
<PAGE> 5
(c) Without limiting the representations and
warranties set forth above, Purchaser agrees he will not make any transfer of
all or any part of the Stock unless (i) there is a Registration Statement under
the Act in effect with respect to such transfer and such transfer is made in
accordance therewith, or (ii) Purchaser has furnished the Company an opinion of
counsel satisfactory to the Company and its counsel to the effect that such
transfer will not require registration under the Act. Purchaser agrees that,
prior to the closing of the Company's initial public offering registered under
the Act, he will not transfer any of such securities in a public offering
without the Company's prior consent, even if he is otherwise permitted to
transfer them pursuant to Rule 144(k) under the Act.
7. Lock-up Agreement. In the event the Company sells
any of its securities in an underwritten initial public offering pursuant to a
registration filed pursuant to the Act, Purchaser agrees (but only if each
officer and director of the Company also agrees), upon request from the Company
or the managing underwriter of such initial or other public offering, not to
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of, any of the Stock, without the prior written consent of
the Company or such underwriter, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the effective date of such
registration as the Company or the underwriter may specify. Purchaser further
agrees that the Company may place stop-transfer notations with the transfer
agent of the Stock to enforce this provision.
8. Miscellaneous.
8.1 Further Assurances. The parties agree to execute
such further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.
8.2 Entire Agreement. This Agreement, including any
exhibits, is the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior oral and written understandings of the
parties.
8.3 Notices. Any notice required or permitted hereunder
shall be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail with postage and fees prepaid, addressed to Purchaser at his
address shown on the Company's employment records and to the Company at the
address of its principal corporate offices (attention: President) or at such
other address as such party may designate by ten (10) days' advance written
notice to the other party hereto.
-5-
<PAGE> 6
8.4 Assignment of Rights; Binding Upon Successors. The
Company may assign its rights and delegate its duties under Section 3 hereof.
This Agreement shall inure to the benefit of the successors and assigns of the
Company and, subject to the restrictions on transfer herein set forth, be
binding upon Purchaser, his heirs, executors, administrators, successors and
assigns.
8.5 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California as applied
to contracts between California residents to be wholly performed within the
State of California.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
PARAVAX, INC.
a California corporation
By: /s/ ROBERT B. GRIEVE
---------------------------------
Title: Vice Chairman
------------------------------
PURCHASER
/s/ FRED M. SCHWARZER
------------------------------------
Address 1845 Wallenberg Drive
----------------------------
Fort Collins CO 80526
----------------------------
----------------------------
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<PAGE> 7
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made as of the 28th day of February,
1995 between Paravax, Inc., a California corporation ("Pledgee" or the
"Company"), and Fred M. Schwarzer ("Pledgor").
Recitals
Pledgor purchased an aggregate of 177,000 shares of Pledgee's
Common Stock (the "Stock") under a Restricted Stock Purchase Agreement dated
February 28, 1995 (the "Purchase Agreement"), between Pledgor and Pledgee. As
payment for the Stock, Pledgor delivered a promissory note (the "Note") in the
total principal amount of $61,950.00. The Note and the obligations hereunder
are as set forth in Exhibit A to the Purchase Agreement.
NOW THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In order
to secure Pledgor's obligation to pay the Note in full, Pledgor, pursuant to
the Commercial Code of the State of California, hereby pledges all of the
Stock, including those shares purchased with cash (herein sometimes referred to
as the "Collateral") represented by certificate number _______.
The pledged Stock (together with an executed blank stock
assignment for use in transferring all or a portion of the Stock to Pledgee if,
as and when required pursuant to this Security Agreement) shall be delivered to
the Secretary of Pledgee, or such other person designated by the Company
("Escrow Agent") to be held pursuant to an Escrow Agreement in the form of
Exhibit D to the Purchase Agreement (the "Escrow Agreement") as security for
the repayment of the Note, and any extensions or renewals thereof.
2. Pledgor's Representations and Covenants. To induce
Pledgee to enter into this Security Agreement, Pledgor represents and covenants
to Pledgee, its successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the
principal sum of the Note secured hereby, together with interest thereon, at
the time and in the manner provided in the Note.
(b) Encumbrances. The Stock is not subject to any
encumbrances, defenses and liens other than the security interest granted
hereunder, and
<PAGE> 8
Pledgor will not further encumber the Stock in any manner without the prior
written consent of Pledgee.
(c) Margin Regulations. In the event that Pledgee's
Common Stock becomes margin-listed by the Federal Reserve Board subsequent to
the execution of this Security Agreement, and Pledgee is classified as a
"lender" within the meaning of the regulations under Part 207 of Title 12 of
the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate
with Pledgee in making any amendment to the Note or providing any additional
collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long
as all payments of principal and interest are made as they become due under the
terms of the Note, Pledgor shall have the right to vote all of the Stock
pledged hereunder.
4. Stock Adjustments. In the event that during the term of
the pledge any stock dividend, reclassification, readjustment or other changes
declared or made in the capital structure of Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change shall
be delivered to and held by the Pledgee and Escrow Agent under the terms of
this Security Agreement and the Escrow Agreement in the same manner as the
Stock originally pledged hereunder. In the event of substitution of such
securities, Pledgor and Pledgee shall cooperate and execute such documents as
are reasonable so as to provide for the substitution of such Collateral and,
upon such substitution, references to "Stock" in this Security Agreement shall
include the substituted shares of capital stock of Pledgor as a result thereof.
5. Warrants and Rights. In the event that, during the term
of this pledge, subscription warrants or other rights or options shall be
issued in connection with the pledged Stock, such rights, warrants and options
shall be the property of Pledgor and, if exercised by Pledgor, all new stock or
other securities so acquired by Pledgor as it relates to the pledged Stock then
held by Escrow Agent shall be immediately delivered to Escrow Agent, to be held
under the terms of this Security Agreement in the same manner as the Stock
pledged.
6. Default. Pledgor shall be deemed to be in default of the
Note and of this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall
be delinquent for a period of ten (10) days or more; or
-2-
<PAGE> 9
(b) Pledgor fails to perform any of the covenants set
forth in the Purchase Agreement or contained in this Security Agreement for a
period of ten (10) days after written notice thereof from Pledgee.
In the case of an event of default, as set forth above, Pledgee
shall have the right to accelerate payment of the Note upon notice to Pledgor,
and Pledgee shall thereafter be entitled to pursue its remedies under the
California Commercial Code.
7. Withdrawal or Substitution of Collateral. Until the Note
has been paid in full, Pledgor shall not sell, withdraw, pledge, substitute or
otherwise dispose of all or any part of the Collateral without the prior
written consent of Pledgee.
8. Term. The within pledge of Stock shall continue until the
payment of all indebtedness secured hereby, at which time the remaining pledged
Stock shall be promptly delivered to Pledgor, subject to the terms of any other
agreement between Pledgor and Pledgee.
9. Insolvency. Pledgor agrees that if a bankruptcy or
insolvency proceeding is instituted by or against him, or if a receiver is
appointed for the property of Pledgor, or if Pledgor makes an assignment for
the benefit of creditors, the entire amount unpaid on the Note shall become
immediately due and payable, and Pledgee may proceed as provided in the case of
default.
10. Escrow Agent Liability. The liability of the Escrow Agent
shall be limited as provided in the Escrow Agreement.
11. Miscellaneous.
(a) Invalidity of Particular Provisions. Pledgor and
Pledgee agree that the enforceability or invalidity of any provision or
provisions of this Security Agreement shall not render any other provision or
provisions herein contained unenforceable or invalid.
(b) Successors or Assigns. Pledgor and Pledgee agree
that all of the terms of this Security Agreement shall be binding on their
respective successors and assigns, and that the term "Pledgor" and the term
"Pledgee" as used herein shall be deemed to include, for all purposes, the
respective designees, successors, assigns, heirs, executors and administrators.
(c) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California as applied
to
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<PAGE> 10
contracts between California residents to be wholly performed within the State
of California.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
"PLEDGEE"
Paravax, Inc.
a California corporation
By: /s/ ROBERT B. GRIEVE
--------------------------------------
Title: Vice Chairman
-----------------------------------
"PLEDGOR"
/s/ FRED M. SCHWARZER
-----------------------------------------
Address:
1845 Wallenberg Drive
-----------------------------------------
Fort Collins CO 80526
-----------------------------------------
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<PAGE> 11
FULL RECOURSE PROMISSORY NOTE
$61,950.00 Fort Collins, Colorado
February 28, 1995
For value received, the undersigned (the "Maker") promises to pay to
Paravax, Inc., a California corporation (the "Company"), or order, at its
principal office, the principal sum of Sixty-One Thousand Nine Hundred Fifty
Dollars ($61,950.00) with interest thereon at the rate of seven and one-half
percent (7 1/2%) per annum, compounded annually, on the unpaid balance of the
principal sum. Said principal and interest shall be due as follows:
This Note and all accrued interest shall be due and payable on
February 28, 2001. Notwithstanding the foregoing, this Note shall be
immediately due and payable upon the sale of any of the shares of Common Stock
purchased with this Note, to the extent of the proceeds of such sale.
All payments are to be made in lawful money of the United States of
America. The privilege is reserved to prepay any portion of the Note at any
time.
Should suit be commenced to collect this Note or any portion thereof,
such sum as the Court may deem reasonable shall be added hereto as attorneys'
fees. The Maker waives presentment for payment, protest, notice of protest,
and notice of non-payment of this Note.
This Note is secured by a pledge of certain shares of the Company's
Common Stock pursuant to a Security Agreement between the Company and the Maker
of even date herewith, and is subject to all the provisions thereof. This Note
is also subject to the terms of a Restricted Stock Purchase Agreement between
the Company and the Maker of even date herewith.
The holder of this Note shall have full recourse against the Maker,
and shall not be required to proceed against the collateral security pledged to
secure this Note in the event of default.
/s/ FRED M. SCHWARZER
------------------------------------
Fred M. Schwarzer
<PAGE> 12
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, I, _____________________, hereby sell, assign
and transfer unto _______________________
______________________________________________________(_________________)
shares of the Common Stock of Paravax, Inc., standing in my name on the books
of said corporation represented by Certificate No. _______ herewith and do
hereby irrevocably constitute and appoint
________________________________________________________________________________
______ ________________________ to transfer said stock on the books of the
within-named corporation with full power of substitution in the premises.
Dated: _______________, 19____.
Signature:
/s/ FRED M. SCHWARZER
-------------------------------------
This Assignment Separate from Certificate was executed in conjunction
with the terms of a Restricted Stock Purchase Agreement between the above
assignor and Paravax, Inc., dated February 28, 1995.
INSTRUCTION: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE
LINE.
<PAGE> 13
JOINT ESCROW INSTRUCTIONS
February 28, 1995
Secretary
Paravax, Inc.
1825 Sharp Point Drive
Fort Collins, CO 80525
Dear Sir:
As Escrow Agent for both Paravax, Inc., a California corporation
(the "Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock
Purchase Agreement, dated as of February 28, 1995 ("Agreement"), to which a
copy of these Joint Escrow Instructions is attached as Exhibit D, in accordance
with the following instructions:
1. Pledge of Stock. Purchaser has pledged an aggregate of
177,000 shares of the Company's Common Stock (the "Stock") to the Company
pursuant to a Security Agreement in the form of Exhibit B to the Agreement
between Purchaser and the Company of even date herewith (the "Security
Agreement") as security for the performance of Purchaser's obligations to the
Company under a note (the "Note") delivered to the Company in connection with
the purchase of the Stock. This pledge shall continue until the Note has been
paid in full.
2. Delivery Upon Default. If an Event of Default shall occur
under the Security Agreement or the Note, you shall, within ten (10) days of
receipt of a written request of an authorized officer of the Company given to
you and Purchaser, deliver the certificate evidencing the Stock and the stock
assignments to the Company to enable the Company to exercise its rights as a
secured party under the Commercial Code of the State of California.
3. Exercise of Purchase Option. In the event the Company
and/or any assignee of the Company (referred to collectively for convenience
herein as the "Company") exercises the Purchase Option set forth in the
Agreement, the Company shall give to Purchaser and you a written notice
specifying the number of shares of stock to be purchased, the purchase price,
and the time for a closing hereunder at the principal office of the Company.
Purchaser and the Company hereby irrevocably authorize and direct you to close
the transaction contemplated by such notice in accordance with the terms of
said notice.
<PAGE> 14
At the closing, you are directed (a) to date the stock
assignments necessary for the transfer in question, (b) to fill in the number
of shares being transferred, and (c) to deliver same, together with the
certificate evidencing the shares of stock to be transferred, to the Company
against the simultaneous delivery to you of the purchase price (by check or by
cancellation of any debt owed by Purchaser to the Company) for the number of
shares of stock being purchased pursuant to the exercise of the Purchase
Option.
4. Deposit of Certificates. Purchaser irrevocably authorizes
the Company to deposit with you any certificates evidencing the Stock to be
held by you hereunder and any additions and substitutions to said shares as
defined in the Agreement and the Security Agreement. Purchaser does hereby
irrevocably constitute and appoint you as his attorney-in-fact and agent for
the term of this escrow to execute with respect to such securities all
documents necessary or appropriate to make such securities negotiable and to
complete any transaction herein contemplated, including but not limited to the
filing with the Department of Corporations of the State of California of an
Application for Consent to Transfer Securities Subject to Legend or Escrow
Condition Pursuant to Section 25151 of the California Corporate Securities Law
of 1968, if required. Subject to the provisions of this Section 4, Purchaser
shall exercise all rights and privileges of a shareholder of the Company while
the Stock is held by you.
5. Term. This escrow shall commence upon the date hereof and
shall terminate six (6) years and one month from the date hereof or earlier if
the Company shall give you notice that the Note has been paid in full and the
Shares are no longer subject to the Purchase Option. If at the time of
termination of this escrow you should have in your possession any documents,
securities, or other property belonging to Purchaser, you shall deliver all of
same to Purchaser and shall be discharged of all further obligations hereunder.
6. Provisions Applicable to Escrow Agent. With respect to
your performance of your obligations, the following terms shall apply:
(a) Your duties hereunder may be altered, amended,
modified or revoked only by a writing signed by all of the parties hereto.
(b) You shall be obligated only for the performance of
such duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by you to be genuine and to have been signed or presented by the
proper party or parties. You shall not be personally liable for any act you
may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for
Purchaser while acting in good faith and in the
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<PAGE> 15
exercise of your own good judgment, and any act done or omitted by you pursuant
to the advice of your own attorneys shall be conclusive evidence of such good
faith.
(c) You are hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of
any court. In case you obey or comply with any such order, judgment or decree,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
(d) You shall not be liable in any respect on account of
the identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
(e) You shall be entitled to employ such legal counsel
and other experts as you may deem necessary properly to advise you in
connection with your obligations hereunder, may rely upon the advice of such
counsel, and may pay such counsel reasonable compensation therefor.
(f) Your responsibilities and rights as Escrow Agent
hereunder shall pass to any successor Secretary and/or Assistant Secretary of
the Company.
(g) If you reasonably require other or further
instruments in connection with these Joint Escrow Instructions or obligations
in respect hereto, the necessary parties hereto shall join in furnishing such
instruments.
(h) It is understood and agreed that should any dispute
arise with respect to the delivery and/or ownership or right of possession of
the securities held by you hereunder, you are authorized and directed to retain
in your possession without liability to anyone all or any part of said
securities until such disputes shall have been settled either by mutual written
agreement of the parties concerned or by a final order, decree or judgment of a
court of competent jurisdiction, but you shall be under no duty whatsoever to
institute or defend any such proceedings.
(i) By signing these Joint Escrow Instructions, you
become a party hereto only for the purpose of said Joint Escrow Instructions;
you do not become a party to the Agreement or the Security Agreement.
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<PAGE> 16
7. Notices. Any notice required or permitted hereunder shall
be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail with postage and fees prepaid, addressed to Purchaser at his
address shown on the Company's employment records and to you and the Company at
the address of its principal corporate offices (attention: Secretary and
attention: President, respectively) or at such other address as such party may
designate by ten (10) days prior written notice to the other parties hereto.
8. Successors and Assigns. This instrument shall be binding
upon and inure to the benefit of the parties hereto, and their respective
successors and permitted assigns.
Very truly yours,
PARAVAX, INC.
By: /s/ ROBERT B. GRIEVE
-------------------------------------
Title: Vice Chairman
----------------------------------
PURCHASER:
/s/ FRED M. SCHWARZER
----------------------------------------
ESCROW AGENT:
/s/ A. BARR DOLAN
----------------------------------------
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<PAGE> 1
EXHIBIT 10.16
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 28th day of February, 1995,
by and between Paravax, Inc., a California corporation (the "Company"), and
R. Lee Seward (the "Purchaser").
In consideration of the mutual covenants and representations
herein set forth, the Company and Purchaser agree as follows:
1. Purchase and Sale of Stock.
1.1 Purchase of Stock. Subject to the terms and
conditions of this Agreement, the Company hereby agrees to sell to Purchaser
and Purchaser agrees to purchase from the Company at the Closing an aggregate
of 120,000 shares of the Company's Common Stock (the "Stock") at a price of
$0.35 per share, for an aggregate purchase price of $42,000.00. The shares of
Stock shall be purchased by delivery of Purchaser's full recourse promissory
note in substantially the form of Exhibit A attached hereto (the "Note"). This
purchase is being made upon exercise of a stock purchase right granted under
the Company's 1994 Key Executive Stock Plan on November 1, 1994.
1.2 Security for Note. As security for the payment of
the Note and any renewal or modification thereof, Purchaser hereby pledges and
grants to the Company a security interest in all of the Stock pursuant to a
Security Agreement in substantially the form attached hereto as Exhibit B (the
"Security Agreement"). As part of this pledge, Purchaser will sign and deliver
to the Secretary of the Company ("Escrow Agent") a Stock Assignment duly
endorsed (with date and number of shares blank) in the form attached hereto as
Exhibit C (the "Assignment"), together with the certificate or certificates
evidencing the Stock; the Assignment and the certificate or certificates
evidencing the Stock are to be held in escrow by the Escrow Agent pursuant to
an Escrow Agreement in substantially the form attached hereto as Exhibit D (the
"Escrow Agreement") for use if, as and when required pursuant to the Security
Agreement.
2. Closing. The purchase and sale of the Stock shall
occur at a Closing to be held on the date hereof (the "Closing Date"). The
Closing will take place at the principal office of the Company or at such other
place as shall be designated by the Company. At the Closing, Purchaser shall
deliver to the Company the Note and the Company will issue the Stock registered
in the name of Purchaser. In addition, the Purchaser shall sign and deliver
the Security Agreement, the Assignment and the Escrow Agreement.
<PAGE> 2
3. Purchase Option.
3.1 Grant of Purchase Option. Beginning on the Closing
Date, the Stock shall be subject to the right and option of the Company to
repurchase the Stock (the "Purchase Option") as set forth in this Section 3.
In the event Purchaser's employment by or consulting relationship with the
Company (including a parent or subsidiary of the Company) shall cease for any
reason, or no reason, with or without cause, including death, disability or
involuntary termination ("Termination"), the Company shall have the right, as
provided in Section 3.2 hereof, to purchase from Purchaser or his personal
representative, as the case may be, at the purchase price of $0.35 per share
(the "Option Price"), all of the Stock that has not been released from the
Purchase Option in accordance with the following schedule:
Beginning as of October 17, 94, the 120,000 shares of Stock will begin
vesting over a four year period as follows: 15,000 of the shares of
Stock will be released from the Purchase Option on April 17, 1995, and
2,500 shares of the Stock will be released from the Purchase Option on
the 17th day of each month thereafter.
3.2 Exercise of Purchase Option. Within ninety (90) days
following Termination, the Company shall notify Purchaser by written notice
delivered or mailed as provided in Section 8.3 as to whether it wishes to
purchase the Stock pursuant to exercise of the Purchase Option. If the Company
(or its assignees) elects to purchase the Stock hereunder, it shall specify a
date (which shall not be later than thirty (30) days from the date of the above
described notice) and a place for the closing of the transaction. At such
closing, the Company (or its assignees) shall tender payment for the Stock and
the certificates representing the Stock so purchased shall be cancelled.
Purchaser hereby authorizes and directs the Secretary or Transfer Agent of the
Company to transfer the Stock as to which the Purchase Option has been
exercised from Purchaser to the Company (or its assignees). The Option Price
may be payable, at the option of the Company, in cancellation of all or a
portion of any outstanding indebtedness of Purchaser to the Company, or by
check, or both.
3.3 No Limit on Rights. Nothing in this Agreement shall
affect in any manner whatsoever the right or power of the Company, or a parent
or subsidiary of the Company, to terminate Purchaser's employment or consulting
relationship, for any reason, with or without cause.
3.4 Escrow of Stock. Purchaser agrees at the Closing
hereunder, to deliver to and deposit with the Escrow Agent named in the Escrow
Agreement of
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<PAGE> 3
even date and delivered herewith, the certificate or certificates evidencing
the Stock and the duly executed Assignments. Such documents are to be held by
the Escrow Agent until delivered pursuant to the terms of such Escrow
Agreement. Shares of the Stock which are subject to the Purchase Option shall
not be transferable by the Purchaser.
3.5 Acceleration on Merger. A dissolution of the Company
or a merger or consolidation of the Company in which the Company is not the
surviving corporation or in which the shares held by the shareholders of the
Company prior to the merger do not represent more than 50% of the outstanding
voting securities of the surviving corporation shall cause the Purchase Option
to terminate effective immediately prior to the closing of such dissolution,
merger or consolidation.
4. Stock Splits, etc. If, from time to time during the
term of the Purchase Option as provided in Section 3 hereof, there is any stock
dividend, stock split or other change in the character or amount of any of the
outstanding securities of the Company or if there is any consolidation, merger
or sale of all, or substantially all, of the assets of the Company, then in
such event, and subject to Section 3.5, any and all new, substituted or
additional securities to which Purchaser is entitled by reason of his ownership
of Stock shall be immediately subject to the Purchase Option and be included in
the term "Stock" for all purposes of this Agreement with the same force and
effect as the shares of Stock presently subject to this Agreement.
5. Legends. All certificates representing any shares of
Stock of the Company subject to the provisions of this Agreement shall have
endorsed thereon substantially the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS UPON AND OBLIGATIONS WITH
RESPECT TO TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN
AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL REGISTERED
HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY."
(b) "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
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<PAGE> 4
(c) Any legend required under applicable state
securities laws.
6. Investment Intent; Covenant. In purchasing the
Stock, Purchaser represents to the Company as follows:
(a) Purchaser has had an opportunity to discuss
the business prospects and business plan of the Company with the officers and
directors of the Company. Purchaser has a preexisting personal or business
relationship with the Company or one of its officers, directors or controlling
persons and/or by reason of his business or financial experience he has the
capacity to protect his own interests in connection with the transactions
contemplated by this Agreement. Purchaser further acknowledges that the Stock
is highly speculative and involves a high degree of risk, and represents and
warrants that he is able, without impairing his financial condition, to hold
the Stock for an indefinite period of time and suffer a complete loss of his
investment therein.
(b) Purchaser is acquiring the Stock for
investment and not with a view to or for sale in connection with any
distribution of said Stock or with any present intention of distributing or
selling said Stock and he does not presently have reason to anticipate any
change in circumstances or any particular occasion or event which would cause
him to sell said Stock. Purchaser understands that the Stock has not been
registered under the Securities Act of 1933, as amended, (the "Act") and may
not be sold or otherwise disposed of except pursuant to an effective
Registration Statement filed under the Act or pursuant to an exemption from the
registration requirements of such Act. Purchaser acknowledges that the Company
is under no obligation to register the Stock under the Act on his behalf.
Purchaser represents and warrants that he understands that the Stock
constitutes restricted securities within the meaning of Rule 144 promulgated
under the Act; that the exemption from registration under Rule 144 will not be
available in any event for at least two years from the date of purchase and
payment for the Stock, and even then will not be available unless the terms and
conditions of Rule 144 are complied with and will be subject to the limitations
on amount set forth therein.
(c) Without limiting the representations and
warranties set forth above, Purchaser agrees he will not make any transfer of
all or any part of the Stock unless (i) there is a Registration Statement under
the Act in effect with respect to such transfer and such transfer is made in
accordance therewith, or (ii) Purchaser has furnished the Company an opinion of
counsel satisfactory to the Company and its counsel to the effect that such
transfer will not require registration under the Act. Purchaser agrees that,
prior to the closing of the Company's initial public offering registered under
the Act, he will not transfer any of such
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<PAGE> 5
securities in a public offering without the Company's prior consent, even if he
is otherwise permitted to transfer them pursuant to Rule 144(k) under the Act.
7. Lock-up Agreement. In the event the Company sells
any of its securities in an underwritten initial public offering pursuant to a
registration filed pursuant to the Act, Purchaser agrees (but only if each
officer and director of the Company also agrees), upon request from the Company
or the managing underwriter of such initial or other public offering, not to
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of, any of the Stock, without the prior written consent of
the Company or such underwriter, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the effective date of such
registration as the Company or the underwriter may specify. Purchaser further
agrees that the Company may place stop-transfer notations with the transfer
agent of the Stock to enforce this provision.
8. Miscellaneous.
8.1 Further Assurances. The parties agree to execute
such further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.
8.2 Entire Agreement. This Agreement, including any
exhibits, is the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior oral and written understandings of the
parties.
8.3 Notices. Any notice required or permitted hereunder
shall be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail with postage and fees prepaid, addressed to Purchaser at his
address shown on the Company's employment records and to the Company at the
address of its principal corporate offices (attention: President) or at such
other address as such party may designate by ten (10) days' advance written
notice to the other party hereto.
8.4 Assignment of Rights; Binding Upon Successors. The
Company may assign its rights and delegate its duties under Section 3 hereof.
This Agreement shall inure to the benefit of the successors and assigns of the
Company and, subject to the restrictions on transfer herein set forth, be
binding upon Purchaser, his heirs, executors, administrators, successors and
assigns.
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<PAGE> 6
8.5 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California as applied
to contracts between California residents to be wholly performed within the
State of California.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
PARAVAX, INC.
a California corporation
By: /s/ FRED M. SCHWARZER
------------------------------------
Title: President
--------------------------------
PURCHASER
/s/ R. LEE SEWARD
---------------------------------------
Address P.O. Box 272119
--------------------------------
Fort Collins CO 80527
--------------------------------
--------------------------------
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<PAGE> 7
FULL RECOURSE PROMISSORY NOTE
$42,000.00 Fort Collins, Colorado
February 28, 1995
For value received, the undersigned (the "Maker") promises to pay to
Paravax, Inc., a California corporation (the "Company"), or order, at its
principal office, the principal sum of Forty-Two Thousand Dollars ($42,000.00)
with interest thereon at the rate of seven and one-half percent (7 1/2%) per
annum, compounded annually, on the unpaid balance of the principal sum. Said
principal and interest shall be due as follows:
This Note and all accrued interest shall be due and payable on
February 28, 2001. Notwithstanding the foregoing, this Note shall be
immediately due and payable upon the sale of any of the shares of Common Stock
purchased with this Note, to the extent of the proceeds of such sale.
All payments are to be made in lawful money of the United States of
America. The privilege is reserved to prepay any portion of the Note at any
time.
Should suit be commenced to collect this Note or any portion thereof,
such sum as the Court may deem reasonable shall be added hereto as attorneys'
fees. The Maker waives presentment for payment, protest, notice of protest,
and notice of non-payment of this Note.
This Note is secured by a pledge of certain shares of the Company's
Common Stock pursuant to a Security Agreement between the Company and the Maker
of even date herewith, and is subject to all the provisions thereof. This Note
is also subject to the terms of a Restricted Stock Purchase Agreement between
the Company and the Maker of even date herewith.
The holder of this Note shall have full recourse against the Maker,
and shall not be required to proceed against the collateral security pledged to
secure this Note in the event of default.
/s/ R. LEE SEWARD
-----------------------------
R. Lee Seward
<PAGE> 8
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made as of the 28th day of February,
1995 between Paravax, Inc., a California corporation ("Pledgee" or the
"Company"), and R. Lee Seward ("Pledgor").
Recitals
Pledgor purchased an aggregate of 120,000 shares of Pledgee's
Common Stock (the "Stock") under a Restricted Stock Purchase Agreement dated
February 28, 1995 (the "Purchase Agreement"), between Pledgor and Pledgee. As
payment for the Stock, Pledgor delivered a promissory note (the "Note") in the
total principal amount of $42,000.00. The Note and the obligations hereunder
are as set forth in Exhibit A to the Purchase Agreement.
NOW THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In order
to secure Pledgor's obligation to pay the Note in full, Pledgor, pursuant to
the Commercial Code of the State of California, hereby pledges all of the
Stock, including those shares purchased with cash (herein sometimes referred to
as the "Collateral") represented by certificate number _______.
The pledged Stock (together with an executed blank stock
assignment for use in transferring all or a portion of the Stock to Pledgee if,
as and when required pursuant to this Security Agreement) shall be delivered to
the Secretary of Pledgee, or such other person designated by the Company
("Escrow Agent") to be held pursuant to an Escrow Agreement in the form of
Exhibit D to the Purchase Agreement (the "Escrow Agreement") as security for
the repayment of the Note, and any extensions or renewals thereof.
2. Pledgor's Representations and Covenants. To induce
Pledgee to enter into this Security Agreement, Pledgor represents and covenants
to Pledgee, its successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the
principal sum of the Note secured hereby, together with interest thereon, at
the time and in the manner provided in the Note.
(b) Encumbrances. The Stock is not subject to any
encumbrances, defenses and liens other than the security interest granted
hereunder, and
<PAGE> 9
Pledgor will not further encumber the Stock in any manner without the prior
written consent of Pledgee.
(c) Margin Regulations. In the event that Pledgee's
Common Stock becomes margin-listed by the Federal Reserve Board subsequent to
the execution of this Security Agreement, and Pledgee is classified as a
"lender" within the meaning of the regulations under Part 207 of Title 12 of
the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate
with Pledgee in making any amendment to the Note or providing any additional
collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long
as all payments of principal and interest are made as they become due under the
terms of the Note, Pledgor shall have the right to vote all of the Stock
pledged hereunder.
4. Stock Adjustments. In the event that during the term of
the pledge any stock dividend, reclassification, readjustment or other changes
declared or made in the capital structure of Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change shall
be delivered to and held by the Pledgee and Escrow Agent under the terms of
this Security Agreement and the Escrow Agreement in the same manner as the
Stock originally pledged hereunder. In the event of substitution of such
securities, Pledgor and Pledgee shall cooperate and execute such documents as
are reasonable so as to provide for the substitution of such Collateral and,
upon such substitution, references to "Stock" in this Security Agreement shall
include the substituted shares of capital stock of Pledgor as a result thereof.
5. Warrants and Rights. In the event that, during the term
of this pledge, subscription warrants or other rights or options shall be
issued in connection with the pledged Stock, such rights, warrants and options
shall be the property of Pledgor and, if exercised by Pledgor, all new stock or
other securities so acquired by Pledgor as it relates to the pledged Stock then
held by Escrow Agent shall be immediately delivered to Escrow Agent, to be held
under the terms of this Security Agreement in the same manner as the Stock
pledged.
6. Default. Pledgor shall be deemed to be in default of the
Note and of this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall
be delinquent for a period of ten (10) days or more; or
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<PAGE> 10
(b) Pledgor fails to perform any of the covenants set
forth in the Purchase Agreement or contained in this Security Agreement for a
period of ten (10) days after written notice thereof from Pledgee.
In the case of an event of default, as set forth above, Pledgee
shall have the right to accelerate payment of the Note upon notice to Pledgor,
and Pledgee shall thereafter be entitled to pursue its remedies under the
California Commercial Code.
7. Withdrawal or Substitution of Collateral. Until the Note
has been paid in full, Pledgor shall not sell, withdraw, pledge, substitute or
otherwise dispose of all or any part of the Collateral without the prior
written consent of Pledgee.
8. Term. The within pledge of Stock shall continue until the
payment of all indebtedness secured hereby, at which time the remaining pledged
Stock shall be promptly delivered to Pledgor, subject to the terms of any other
agreement between Pledgor and Pledgee.
9. Insolvency. Pledgor agrees that if a bankruptcy or
insolvency proceeding is instituted by or against him, or if a receiver is
appointed for the property of Pledgor, or if Pledgor makes an assignment for
the benefit of creditors, the entire amount unpaid on the Note shall become
immediately due and payable, and Pledgee may proceed as provided in the case of
default.
10. Escrow Agent Liability. The liability of the Escrow Agent
shall be limited as provided in the Escrow Agreement.
11. Miscellaneous.
(a) Invalidity of Particular Provisions. Pledgor and
Pledgee agree that the enforceability or invalidity of any provision or
provisions of this Security Agreement shall not render any other provision or
provisions herein contained unenforceable or invalid.
(b) Successors or Assigns. Pledgor and Pledgee agree
that all of the terms of this Security Agreement shall be binding on their
respective successors and assigns, and that the term "Pledgor" and the term
"Pledgee" as used herein shall be deemed to include, for all purposes, the
respective designees, successors, assigns, heirs, executors and administrators.
(c) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California as applied
to
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<PAGE> 11
contracts between California residents to be wholly performed within the State
of California.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
"PLEDGEE"
Paravax, Inc.
a California corporation
By: /s/ FRED M. SCHWARZER
-------------------------------------------
Title: President
----------------------------------------
"PLEDGOR"
/s/ R. LEE SEWARD
----------------------------------------------
Address:
P.O. Box 272119
----------------------------------------------
Fort Collins CO 80527
----------------------------------------------
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<PAGE> 12
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, I, _____________________, hereby sell, assign
and transfer unto _________________________________________(_________________)
shares of the Common Stock of Paravax, Inc., standing in my name on the books
of said corporation represented by Certificate No. _______ herewith and do
hereby irrevocably constitute and appoint ___________________________________
________________________ to transfer said stock on the books of the
within-named corporation with full power of substitution in the premises.
Dated: _______________, 19____.
Signature:
/s/ R. LEE SEWARD
-------------------------------------
This Assignment Separate from Certificate was executed in conjunction
with the terms of a Restricted Stock Purchase Agreement between the above
assignor and Paravax, Inc., dated February 28, 1995.
INSTRUCTION: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE.
<PAGE> 13
JOINT ESCROW INSTRUCTIONS
February 28, 1995
Secretary
Paravax, Inc.
1825 Sharp Point Drive
Fort Collins, CO 80525
Dear Sir:
As Escrow Agent for both Paravax, Inc., a California corporation
(the "Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock
Purchase Agreement, dated as of February 28, 1995 ("Agreement"), to which a
copy of these Joint Escrow Instructions is attached as Exhibit D, in accordance
with the following instructions:
1. Pledge of Stock. Purchaser has pledged an aggregate of
120,000 shares of the Company's Common Stock (the "Stock") to the Company
pursuant to a Security Agreement in the form of Exhibit B to the Agreement
between Purchaser and the Company of even date herewith (the "Security
Agreement") as security for the performance of Purchaser's obligations to the
Company under a note (the "Note") delivered to the Company in connection with
the purchase of the Stock. This pledge shall continue until the Note has been
paid in full.
2. Delivery Upon Default. If an Event of Default shall occur
under the Security Agreement or the Note, you shall, within ten (10) days of
receipt of a written request of an authorized officer of the Company given to
you and Purchaser, deliver the certificate evidencing the Stock and the stock
assignments to the Company to enable the Company to exercise its rights as a
secured party under the Commercial Code of the State of California.
3. Exercise of Purchase Option. In the event the Company
and/or any assignee of the Company (referred to collectively for convenience
herein as the "Company") exercises the Purchase Option set forth in the
Agreement, the Company shall give to Purchaser and you a written notice
specifying the number of shares of stock to be purchased, the purchase price,
and the time for a closing hereunder at the principal office of the Company.
Purchaser and the Company hereby irrevocably authorize and direct you to close
the transaction contemplated by such notice in accordance with the terms of
said notice.
<PAGE> 14
At the closing, you are directed (a) to date the stock
assignments necessary for the transfer in question, (b) to fill in the number
of shares being transferred, and (c) to deliver same, together with the
certificate evidencing the shares of stock to be transferred, to the Company
against the simultaneous delivery to you of the purchase price (by check or by
cancellation of any debt owed by Purchaser to the Company) for the number of
shares of stock being purchased pursuant to the exercise of the Purchase
Option.
4. Deposit of Certificates. Purchaser irrevocably authorizes
the Company to deposit with you any certificates evidencing the Stock to be
held by you hereunder and any additions and substitutions to said shares as
defined in the Agreement and the Security Agreement. Purchaser does hereby
irrevocably constitute and appoint you as his attorney-in-fact and agent for
the term of this escrow to execute with respect to such securities all
documents necessary or appropriate to make such securities negotiable and to
complete any transaction herein contemplated, including but not limited to the
filing with the Department of Corporations of the State of California of an
Application for Consent to Transfer Securities Subject to Legend or Escrow
Condition Pursuant to Section 25151 of the California Corporate Securities Law
of 1968, if required. Subject to the provisions of this Section 4, Purchaser
shall exercise all rights and privileges of a shareholder of the Company while
the Stock is held by you.
5. Term. This escrow shall commence upon the date hereof and
shall terminate six (6) years and one month from the date hereof or earlier if
the Company shall give you notice that the Note has been paid in full and the
Shares are no longer subject to the Purchase Option. If at the time of
termination of this escrow you should have in your possession any documents,
securities, or other property belonging to Purchaser, you shall deliver all of
same to Purchaser and shall be discharged of all further obligations hereunder.
6. Provisions Applicable to Escrow Agent. With respect to
your performance of your obligations, the following terms shall apply:
(a) Your duties hereunder may be altered, amended,
modified or revoked only by a writing signed by all of the parties hereto.
(b) You shall be obligated only for the performance of
such duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by you to be genuine and to have been signed or presented by the
proper party or parties. You shall not be personally liable for any act you
may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for
Purchaser while acting in good faith and in the
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<PAGE> 15
exercise of your own good judgment, and any act done or omitted by you pursuant
to the advice of your own attorneys shall be conclusive evidence of such good
faith.
(c) You are hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of
any court. In case you obey or comply with any such order, judgment or decree,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
(d) You shall not be liable in any respect on account of
the identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
(e) You shall be entitled to employ such legal counsel
and other experts as you may deem necessary properly to advise you in
connection with your obligations hereunder, may rely upon the advice of such
counsel, and may pay such counsel reasonable compensation therefor.
(f) Your responsibilities and rights as Escrow Agent
hereunder shall pass to any successor Secretary and/or Assistant Secretary of
the Company.
(g) If you reasonably require other or further
instruments in connection with these Joint Escrow Instructions or obligations
in respect hereto, the necessary parties hereto shall join in furnishing such
instruments.
(h) It is understood and agreed that should any dispute
arise with respect to the delivery and/or ownership or right of possession of
the securities held by you hereunder, you are authorized and directed to retain
in your possession without liability to anyone all or any part of said
securities until such disputes shall have been settled either by mutual written
agreement of the parties concerned or by a final order, decree or judgment of a
court of competent jurisdiction, but you shall be under no duty whatsoever to
institute or defend any such proceedings.
(i) By signing these Joint Escrow Instructions, you
become a party hereto only for the purpose of said Joint Escrow Instructions;
you do not become a party to the Agreement or the Security Agreement.
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<PAGE> 16
7. Notices. Any notice required or permitted hereunder shall
be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail with postage and fees prepaid, addressed to Purchaser at his
address shown on the Company's employment records and to you and the Company at
the address of its principal corporate offices (attention: Secretary and
attention: President, respectively) or at such other address as such party may
designate by ten (10) days prior written notice to the other parties hereto.
8. Successors and Assigns. This instrument shall be binding
upon and inure to the benefit of the parties hereto, and their respective
successors and permitted assigns.
Very truly yours,
PARAVAX, INC.
By: /s/ FRED M. SCHWARZER
-------------------------------
Title: President
----------------------------
PURCHASER:
/s/ R. LEE SEWARD
----------------------------------
ESCROW AGENT:
/s/ A. BARR DOLAN
----------------------------------
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<PAGE> 1
EXHIBIT 10.17
HESKA CORPORATION
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 11th day of January, 1997, by and
between Heska Corporation, a California corporation (the "Company"), and Denis
Pomroy (the "Purchaser").
In consideration of the mutual covenants and representations herein set
forth, the Company and Purchaser agree as follows:
1. PURCHASE AND SALE OF STOCK.
1.1 PURCHASE OF STOCK. Subject to the terms and conditions of this
Agreement, the Company hereby agrees to sell to Purchaser and Purchaser agrees
to purchase from the Company at the Closing an aggregate of 25,000 shares of
the Company's Common Stock (the "Stock") at a price of $1.20 per share, for an
aggregate purchase price of $30,000.00. The shares of Stock shall be purchased
by delivery of Purchaser's full recourse promissory note in substantially the
form of Exhibit A attached hereto (the "Note"). This purchase is being made
upon exercise of a stock purchase right granted under the Company's 1994 Key
Executive Stock Plan effective as of October 21, 1996.
1.2 SECURITY FOR NOTE. As security for the payment of the Note and any
renewal or modification thereof, Purchaser hereby pledges and grants to the
Company a security interest in all of the Stock pursuant to a Security
Agreement in substantially the form attached hereto as Exhibit B (the "Security
Agreement"). As part of this pledge, Purchaser will sign and deliver to the
Secretary of the Company ("Escrow Agent") a Stock Assignment duly endorsed
(with date and number of shares blank) in the form attached hereto as Exhibit C
(the "Assignment"), together with the certificate or certificates evidencing
the Stock; the Assignment and the certificate or certificates evidencing the
Stock are to be held in escrow by the Escrow Agent pursuant to an Escrow
Agreement in substantially the form attached hereto as Exhibit D (the "Escrow
Agreement") for use if, as and when required pursuant to the Security
Agreement.
2. CLOSING. The purchase and sale of the Stock shall occur at a Closing to
be held on the date hereof (the "Closing Date"). The Closing will take place at
the principal office of the Company or at such other place as shall be
designated by the Company. At the Closing, Purchaser shall deliver to the
Company the Note and the Company will issue the Stock registered in the name of
Purchaser. In addition, the Purchaser shall sign and deliver the Security
Agreement, the Assignment and the Escrow Agreement.
3. PURCHASE OPTION.
3.1 GRANT OF PURCHASE OPTION. Beginning on the Closing Date, the Stock
shall be subject to the right and option of the Company to repurchase the Stock
(the "Purchase Option") as set forth in this Section 3. In the event service as
a member of the Board of Directors
<PAGE> 2
of the Company shall cease for any reason, or no reason, with or without
cause, including death, disability or involuntary termination ("Termination"),
the Company shall have the right, as provided in Section 3.2 hereof, to
purchase from Purchaser or his personal representative, as the case may be, at
the purchase price of $1.20 per share (the "Option Price"), all of the Stock
that has not been released from the Purchase Option in accordance with the
following schedule:
(a) Beginning as of October 21, 1996, 24,440 shares of Stock will
begin vesting over a four year period as follows: 520 (24,440/47) of the
shares of Stock will be released from the Purchase Option on the 21st day
of each month beginning after October 1996 and 560 shares of the Stock
will be released from the Purchase Option on the 21st day of the 48th
month.
3.2 EXERCISE OF PURCHASE OPTION. Within ninety (90) days following
Termination, the Company shall notify Purchaser by written notice delivered or
mailed as provided in Section 8.3 as to whether it wishes to purchase the Stock
pursuant to exercise of the Purchase Option. If the Company (or its assignees)
elects to purchase the Stock hereunder, it shall specify a date (which shall
not be later than thirty (30) days from the date of the above described notice)
and a place for the closing of the transaction. At such closing, the Company
(or its assignees) shall tender payment for the Stock and the certificates
representing the Stock so purchased shall be canceled. Purchaser hereby
authorizes and directs the Secretary or Transfer Agent of the Company to
transfer the Stock as to which the Purchase Option has been exercised from
Purchaser to the Company (or its assignees). The Option Price may be payable,
at the option of the Company, in cancellation of all or a portion of any
outstanding indebtedness of Purchaser to the Company, or by check, or both.
3.3 NO LIMIT ON RIGHTS. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
3.4 ESCROW OF STOCK. Purchaser agrees at the Closing hereunder, to deliver
to and deposit with the Escrow Agent named in the Escrow Agreement of even date
and delivered herewith, the certificate or certificates evidencing the Stock
and the duly executed Assignments. Such documents are to be held by the Escrow
Agent until delivered pursuant to the terms of such Escrow Agreement. Shares of
the Stock which are subject to the Purchase Option shall not be transferable by
the Purchaser.
3.5 ACCELERATION ON MERGER. A dissolution of the Company or a merger or
consolidation of the Company in which the Company is not the surviving
corporation or in which the shares held by the shareholders of the Company
prior to the merger do not represent more than 50% of the outstanding voting
securities of the surviving corporation shall cause the Purchase Option to
terminate effective immediately prior to the closing of such dissolution,
merger or consolidation.
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<PAGE> 3
4. STOCK SPLITS, ETC. If, from time to time during the term of the
Purchase Option as provided in Section 3 hereof, there is any stock dividend,
stock split or other change in the character or amount of any of the
outstanding securities of the Company or if there is any consolidation, merger
or sale of all, or substantially all, of the assets of the Company, then in
such event, and subject to Section 3.5, any and all new, substituted or
additional securities to which Purchaser is entitled by reason of his ownership
of Stock shall be immediately subject to the Purchase Option and be included in
the term "Stock" for all purposes of this Agreement with the same force and
effect as the shares of Stock presently subject to this Agreement.
5. LEGENDS. All certificates representing any shares of Stock of the
Company subject to the provisions of this Agreement shall have endorsed thereon
substantially the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS UPON AND OBLIGATIONS WITH RESPECT TO TRANSFER AND
RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND
THE ORIGINAL REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY."
(b) "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) Any legend required under applicable state or other local
securities laws.
6. INVESTMENT INTENT; COVENANT. In purchasing the Stock, Purchaser
represents to the Company as follows:
(a) Purchaser has had an opportunity to discuss the business
prospects and business plan of the Company with the officers and directors of
the Company. Purchaser has a preexisting personal or business relationship with
the Company or one of its officers, directors or controlling persons and/or by
reason of his business or financial experience he has the capacity to protect
his own interests in connection with the transactions contemplated by this
Agreement. Purchaser further acknowledges that the Stock is highly speculative
and involves a high degree of risk, and represents and warrants that he is
able, without impairing his financial condition, to hold the Stock for an
indefinite period of time and suffer a complete loss of his investment therein.
(b) Purchaser is acquiring the Stock for investment and not with a
view to or for sale in connection with any distribution of said Stock or with
any present intention
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<PAGE> 4
of distributing or selling said Stock and he does not presently have
reason to anticipate any change in circumstances or any particular occasion or
event which would cause him to sell said Stock. Purchaser understands that the
Stock has not been registered under the Securities Act of 1933, as amended,
(the "Act") and may not be sold or otherwise disposed of except pursuant to an
effective Registration Statement filed under the Act or pursuant to an
exemption from the registration requirements of such Act. Purchaser
acknowledges that the Company is under no obligation to register the Stock
under the Act on his behalf. Purchaser represents and warrants that he
understands that the Stock constitutes restricted securities within the meaning
of Rule 144 promulgated under the Act; that the exemption from registration
under Rule 144 will not be available in any event for at least two years from
the date of purchase and payment for the Stock, and even then will not be
available unless the terms and conditions of Rule 144 are complied with and
will be subject to the limitations on amount set forth therein.
(c) Without limiting the representations and warranties set forth
above, Purchaser agrees he will not make any transfer of all or any part of the
Stock unless (i) there is a Registration Statement under the Act in effect with
respect to such transfer and such transfer is made in accordance therewith, or
(ii) Purchaser has furnished the Company an opinion of counsel satisfactory to
the Company and its counsel to the effect that such transfer will not require
registration under the Act. Purchaser agrees that, prior to the closing of the
Company's initial public offering registered under the Act, he will not
transfer any of such securities in a public offering without the Company's
prior consent, even if he is otherwise permitted to transfer them pursuant to
Rule 144(k) under the Act.
7. LOCK-UP AGREEMENT. In the event the Company sells any of its securities
in an underwritten initial public offering pursuant to a registration filed
pursuant to the Act, Purchaser agrees (but only if each officer and director of
the Company also agrees), upon request from the Company or the managing
underwriter of such initial or other public offering, not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of, any of the Stock, without the prior written consent of the Company or such
underwriter, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the effective date of such registration as the
Company or the underwriter may specify. Purchaser further agrees that the
Company may place stop-transfer notations with the transfer agent of the Stock
to enforce this provision.
8. MISCELLANEOUS.
8.1 FURTHER ASSURANCES. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
8.2 ENTIRE AGREEMENT. This Agreement, including any exhibits, is the
entire agreement of the parties with respect to the subject matter hereof and
supersedes all prior oral and written understandings of the parties.
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<PAGE> 5
8.3 NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given by telefax or courier, addressed
to Purchaser at his number or address, as the case may be, shown on the
Company's records and to the Company at its main telefax number or the address
of its principal corporate offices, as the case may be, (attention: President)
or at such other number or address as such party may designate by ten (10)
days' advance written notice to the other party hereto.
8.4 ASSIGNMENT OF RIGHTS; BINDING UPON SUCCESSORS. The Company may assign
its rights and delegate its duties under Section 3 hereof. This Agreement shall
inure to the benefit of the successors and assigns of the Company and, subject
to the restrictions on transfer herein set forth, be binding upon Purchaser,
his heirs, executors, administrators, successors and assigns.
8.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado as applied to contracts
between Colorado residents to be wholly performed within the State of Colorado.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
HESKA CORPORATION
PURCHASER a California corporation
/s/ DENIS POMROY By: /s/ DEBORAH E. ROBBINS
- ------------------------------------- ----------------------------
Title: V.P. and General Counsel
----------------------------
Address:
/s/ c/o Volendam Capital Advisors
---------------------------------
Suite 222, 430 Cooper St.
---------------------------------
Palo Alto, CA 904301
---------------------------------
-5-
<PAGE> 6
FULL RECOURSE PROMISSORY NOTE
$30,000.00 Fort Collins, Colorado
January 11, 1997
For value received, the undersigned (the "Maker") promises to pay to Heska
Corporation, a California corporation (the "Company"), or order, at its
principal office, the principal sum of Thirty Thousand Dollars ($30,000.00)
with interest thereon at the rate of seven and one-half percent (7 1/2%) per
annum, compounded annually, on the unpaid balance of the principal sum. Said
principal and interest shall be due as follows:
This Note and all accrued interest shall be due and payable on January 11,
2003. Notwithstanding the foregoing, this Note shall be immediately due and
payable upon the sale of any of the shares of Common Stock purchased with this
Note, to the extent of the proceeds of such sale.
All payments are to be made in lawful money of the United States of
America. The privilege is reserved to prepay any portion of the Note at any
time.
Should suit be commenced to collect this Note or any portion thereof, such
sum as the Court may deem reasonable shall be added hereto as attorneys' fees.
The Maker waives presentment for payment, protest, notice of protest, and
notice of non-payment of this Note.
This Note is secured by a pledge of certain shares of the Company's Common
Stock pursuant to a Security Agreement between the Company and the Maker of
even date herewith, and is subject to all the provisions thereof. This Note is
also subject to the terms of a Restricted Stock Purchase Agreement between the
Company and the Maker of even date herewith.
The holder of this Note shall have full recourse against the Maker, and
shall not be required to proceed against the collateral security pledged to
secure this Note in the event of default.
/s/ DENIS POMROY
----------------------------------
Denis Pomroy
<PAGE> 7
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made as of the 11th day of January, 1997
between Heska Corporation, a California corporation ("Pledgee" or the
"Company"), and Denis Pomroy ("Pledgor").
RECITALS
Pledgor purchased an aggregate of 25,000 shares of Pledgee's Common Stock
(the "Stock") under a Restricted Stock Purchase Agreement dated January 11,
1997 (the "Purchase Agreement"), between Pledgor and Pledgee. As payment for
the Stock, Pledgor delivered a promissory note (the "Note") in the total
principal amount of $30,000. The Note and the obligations hereunder are as set
forth in Exhibit A to the Purchase Agreement.
NOW THEREFORE, it is agreed as follows:
1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In order to secure
Pledgor's obligation to pay the Note in full, Pledgor, pursuant to the
Commercial Code of the State of Colorado, hereby pledges all of the Stock,
including those shares purchased with cash (herein sometimes referred to as the
"Collateral") represented by certificate number 72.
The pledged Stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Stock to Pledgee if, as and when
required pursuant to this Security Agreement) shall be delivered to the
Secretary of Pledgee, or such other person designated by the Company ("Escrow
Agent") to be held pursuant to an Escrow Agreement in the form of Exhibit D to
the Purchase Agreement (the "Escrow Agreement") as security for the repayment
of the Note, and any extensions or renewals thereof.
2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum of
the Note secured hereby, together with interest thereon, at the time and
in the manner provided in the Note.
(b) ENCUMBRANCES. The Stock is not subject to any encumbrances,
defenses and liens other than the security interest granted hereunder, and
Pledgor will not further encumber the Stock in any manner without the prior
written consent of Pledgee.
(c) MARGIN REGULATIONS. In the event that Pledgee's Common Stock
becomes margin-listed by the Federal Reserve Board subsequent to the
execution of this Security Agreement, and Pledgee is classified as a "lender"
within the meaning of the regulations under Part 207 of Title 12 of the Code of
Federal Regulations ("Regulation G"), Pledgor agrees to
<PAGE> 8
cooperate with Pledgee in making any amendment to the Note or providing
any additional collateral as may be necessary to comply with such regulations.
3. VOTING RIGHTS. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Stock pledged
hereunder.
4. STOCK ADJUSTMENTS. In the event that during the term of the pledge any
stock dividend, reclassification, readjustment or other changes declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee and Escrow Agent under the terms of this
Security Agreement and the Escrow Agreement in the same manner as the Stock
originally pledged hereunder. In the event of substitution of such securities,
Pledgor and Pledgee shall cooperate and execute such documents as are
reasonable so as to provide for the substitution of such Collateral and, upon
such substitution, references to "Stock" in this Security Agreement shall
include the substituted shares of capital stock of Pledgor as a result thereof.
5. WARRANTS AND RIGHTS. In the event that, during the term of this pledge,
subscription warrants or other rights or options shall be issued in connection
with the pledged Stock, such rights, warrants and options shall be the property
of Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor as it relates to the pledged Stock then held by Escrow
Agent shall be immediately delivered to Escrow Agent, to be held under the
terms of this Security Agreement in the same manner as the Stock pledged.
6. DEFAULT. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of ten (10) days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Purchase Agreement or contained in this Security Agreement for a period of
ten (10) days after written notice thereof from Pledgee.
In the case of an event of default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the Colorado
Commercial Code.
7. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Until the Note has been paid
in full, Pledgor shall not sell, withdraw, pledge, substitute or otherwise
dispose of all or any part of the Collateral without the prior written consent
of Pledgee.
8. TERM. The within pledge of Stock shall continue until the payment of
all indebtedness secured hereby, at which time the remaining pledged Stock
shall be promptly delivered to Pledgor, subject to the terms of any other
agreement between Pledgor and Pledgee.
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<PAGE> 9
9. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against him, or if a receiver is appointed for
the property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due
and payable, and Pledgee may proceed as provided in the case of default.
10. ESCROW AGENT LIABILITY. The liability of the Escrow Agent shall be
limited as provided in the Escrow Agreement.
11. MISCELLANEOUS.
(a) INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree
that the enforceability or invalidity of any provision or provisions of
this Security Agreement shall not render any other provision or provisions
herein contained unenforceable or invalid.
(b) SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective
successors and assigns, and that the term "Pledgor" and the term "Pledgee" as
used herein shall be deemed to include, for all purposes, the respective
designees, successors, assigns, heirs, executors and administrators.
(c) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado as applied to contracts
between Colorado residents to be wholly performed within the State of Colorado.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGEE"
HESKA CORPORATION
"PLEDGOR" a California corporation
/s/ DENIS POMROY By: /s/ DEBORAH E. ROBBINS
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Title: V.P. and General Counsel
----------------------------
Address:
/s/ c/o Volendam Capital Advisors
---------------------------------
Suite 222, 430 Cooper St.
---------------------------------
Palo Alto, CA 94301
---------------------------------
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<PAGE> 10
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, I, , hereby sell, assign and
--------------------
transfer unto
------------------------------------------------------------
( ) shares of the Common Stock of Heska Corporation, standing in
---
my name on the books of said corporation represented by Certificate No.
herewith and do hereby irrevocably constitute and appoint to transfer said
stock on the books of the within-named corporation with full power of
substitution in the premises.
Dated: , 19 .
--------------- --
Signature:
/s/ DENIS POMROY
--------------------------------
This Assignment Separate from Certificate was executed in conjunction with
the terms of a Restricted Stock Purchase Agreement between the above assignor
and Heska Corporation, dated January , 1997.
---
INSTRUCTION: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE.
<PAGE> 11
JOINT ESCROW INSTRUCTIONS
January 11, 1997
Secretary
Heska Corporation
1825 Sharp Point Drive
Fort Collins, CO 80525
Dear Sir or Madam:
As Escrow Agent for both Heska Corporation, a California corporation (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock
Purchase Agreement, dated as of January 11, 1997 ("Agreement"), to which a copy
of these Joint Escrow Instructions is attached as Exhibit D, in accordance with
the following instructions:
1. PLEDGE OF STOCK. Purchaser has pledged an aggregate of 25,000 shares of
the Company's Common Stock (the "Stock") to the Company pursuant to a Security
Agreement in the form of Exhibit B to the Agreement between Purchaser and the
Company of even date herewith (the "Security Agreement") as security for the
performance of Purchaser's obligations to the Company under a note (the "Note")
delivered to the Company in connection with the purchase of the Stock. This
pledge shall continue until the Note has been paid in full.
2. DELIVERY UPON DEFAULT. If an Event of Default shall occur under the
Security Agreement or the Note, you shall, within ten (10) days of receipt of a
written request of an authorized officer of the Company given to you and
Purchaser, deliver the certificate evidencing the Stock and the stock
assignments to the Company to enable the Company to exercise its rights as a
secured party under the Commercial Code of the State of Colorado.
3. EXERCISE OF PURCHASE OPTION. In the event the Company and/or any
assignee of the Company (referred to collectively for convenience herein as the
"Company") exercises the Purchase Option set forth in the Agreement, the
Company shall give to Purchaser and you a written notice specifying the number
of shares of stock to be purchased, the purchase price, and the time for a
closing hereunder at the principal office of the Company. Purchaser and the
Company hereby irrevocably authorize and direct you to close the transaction
contemplated by such notice in accordance with the terms of said notice.
At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company against the
simultaneous delivery to you of the purchase price (by check or by cancellation
of any debt owed by Purchaser to the Company) for the number of shares of stock
being purchased pursuant to the exercise of the Purchase Option.
<PAGE> 12
4. DEPOSIT OF CERTIFICATES. Purchaser irrevocably authorizes the Company
to deposit with you any certificates evidencing the Stock to be held by you
hereunder and any additions and substitutions to said shares as defined in the
Agreement and the Security Agreement. Purchaser does hereby irrevocably
constitute and appoint you as his attorney-in-fact and agent for the term of
this escrow to execute with respect to such securities all documents necessary
or appropriate to make such securities negotiable and to complete any
transaction herein contemplated Subject to the provisions of this Section 4,
Purchaser shall exercise all rights and privileges of a shareholder of the
Company while the Stock is held by you.
5. TERM. This escrow shall commence upon the date hereof and shall
terminate six (6) years and one month from the date hereof or earlier if the
Company shall give you notice that the Note has been paid in full and the
Shares are no longer subject to the Purchase Option. If at the time of
termination of this escrow you should have in your possession any documents,
securities, or other property belonging to Purchaser, you shall deliver all of
same to Purchaser and shall be discharged of all further obligations hereunder.
6. PROVISIONS APPLICABLE TO ESCROW AGENT. With respect to your performance
of your obligations, the following terms shall apply:
(a) Your duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto.
(b) You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed by you
to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to
do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting
in good faith and in the exercise of your own good judgment, and any act done
or omitted by you pursuant to the advice of your own attorneys shall be
conclusive evidence of such good faith.
(c) You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of
any court. In case you obey or comply with any such order, judgment or decree,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
(d) You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
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<PAGE> 13
(e) You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with
your obligations hereunder, may rely upon the advice of such counsel, and may
pay such counsel reasonable compensation therefor.
(f) Your responsibilities and rights as Escrow Agent hereunder shall
pass to any successor Secretary and/or Assistant Secretary of the Company.
(g) If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
(h) It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction, but you shall be under no duty whatsoever to institute
or defend any such proceedings.
(i) By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not
become a party to the Agreement or the Security Agreement.
7. NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or by
telefax or courier, addressed to Purchaser at his number or address as the case
may be, shown on the Company's records and to the Company at its main telefax
number or the address of its principal corporate offices, as the case may be,
(attention: Secretary and attention: President, respectively) or at such other
number or address as such party may designate by ten (10) days prior written
notice to the other parties hereto.
8. SUCCESSORS AND ASSIGNS. This instrument shall be binding upon and
inure to the benefit of the parties hereto, and their respective successors and
permitted assigns.
HESKA CORPORATION
PURCHASER a California corporation
/s/ DENIS POMROY By: /s/ DEBORAH E. ROBBINS
- -------------------------------- ----------------------------
Title: VP and General Counsel
-------------------------
ESCROW AGENT
/s/ DEBORAH E. ROBBINS
- -------------------------------------
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<PAGE> 1
EXHIBIT 10.18
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made and entered into as to this ___th
day of _________, 199__ ("Agreement"), by and between Heska Corporation (as
successor by name change to Heska Merger Corporation), a Delaware corporation
(the "Company"), and ________________________, (the "Indemnitee"), with
reference to the following facts:
A. The Company desires the benefits of having Indemnitee serve as an
officer and/or director secure in the knowledge that any expenses, liability
and/or losses incurred by him in his good faith service to the Company will be
borne by the Company or its successors and assigns;
B. Indemnitee is willing to serve in his position with the Company
only on the condition that he be indemnified for such expenses, liability
and/or losses;
C. The Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for directors, officers and agents of a
corporation at reasonable cost;
D. The Company and Indemnitee recognize that there has been an
increase in litigation against corporate directors, officers and agents; and
E. The Company's Restated Certificate of Incorporation and Bylaws
allow the Company to indemnify its directors, officers and agents to the
maximum extent not prohibited under Delaware law.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. For purposes of this Agreement:
1.1 "Agent" shall mean any person who (a) is or was a
director, officer, employee or agent of the Company or a subsidiary of
the Company whether serving in such capacity or as a director, officer,
employee, agent, fiduciary or other official of another corporation,
joint venture, trust or other enterprise at the request of, for the
convenience of, or to represent the interests of the Company or a
subsidiary of the Company or (b) was a director, officer, employee or
agent of Heska Corporation, a California corporation and the predecessor
by merger to the Company (the "Predecessor Corporation") whether serving
in such capacity or as a director, officer, employee, agent, fiduciary
or other official of another corporation, joint venture, trust or other
enterprise at the request of, for the convenience of, or to represent
the interests of such Predecessor Corporation.
<PAGE> 2
1.2 "Change of Control" shall mean the occurrence of any of
the following events after the date of this Agreement:
(a) A change in the composition of the board of
directors of the Company (the "Board"), as a result of which
fewer than two-thirds of the incumbent directors are directors
who either (a) had been directors of the Company 24 months prior
to such change or (b) were elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of
the directors who had been directors of the Company 24 months
prior to such change and who were still in office at the time of
the election or nomination; or
(b) Any "person" (as such term is used in sections
13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), as amended) through the acquisition or
aggregation of securities is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing
20 percent or more of the combined voting power of the Company's
then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at
elections of directors (the "Capital Stock"); provided, however,
that any change in ownership of the Company's securities by any
person resulting solely from a reduction in the aggregate number
of outstanding shares of Capital Stock, and any decrease
thereafter in such person's ownership of securities, shall be
disregarded until such person increases in any manner, directly
or indirectly, such person's beneficial ownership of any
securities of the Company; and provided further that, with
respect to Charter Ventures and Charter Ventures II, L.P.,
Volendam Investeringen N.V. and Novartis AG (formerly known as
Ciba-Geigy Limited), each of whom, through the acquisition or
aggregation of securities, is or was a beneficial owner on the
date hereof, directly or indirectly, of securities of the Company
representing 20 percent or more of the Company's Capital Stock on
the date hereof, a "Change of Control" shall occur when any of
such "persons" is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing [25]
percent (rather than 20 percent) or more of the combined voting
power of the Company's Capital Stock.
1.3 "Disinterested Director" shall mean a director of the
Company who is not and was not a party to the Proceeding in respect of
which indemnification is being sought by Indemnitee.
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<PAGE> 3
1.4 "Expenses" shall be broadly construed and shall include,
without limitation, (a) all direct and indirect costs incurred, paid or
accrued, (b) all attorneys' fees, retainers, court costs, transcripts,
fees of experts, witness fees, travel expenses, food and lodging
expenses while traveling, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service, freight or other
transportation fees and expenses, (c) all other disbursements and
out-of-pocket expenses, (d) amounts paid in settlement, to the extent
not prohibited by Delaware Law, and (e) reasonable compensation for time
spent by Indemnitee for which he is otherwise not compensated by the
Company or any third party, actually and reasonably incurred in
connection with or arising out of a Proceeding, including a Proceeding
by Indemnitee to establish or enforce a right to indemnification under
this Agreement, applicable law or otherwise.
1.5 "Independent Counsel" shall mean a law firm or a member of
a law firm that neither is presently nor in the past five years has been
retained to represent: (a) the Company, an affiliate of the Company or
Indemnitee in any matter material to either party or (b) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's right to indemnification under this Agreement.
1.6 "Liabilities" shall mean liabilities of any type
whatsoever, including, but not limited to, judgments or fines, ERISA or
other excise taxes and penalties, and amounts paid in settlement
(including all interest, assessments or other charges paid or payable in
connection with any of the foregoing) actually and reasonably incurred
by Indemnitee in connection with a Proceeding.
1.7 "Delaware Law" means the Delaware General Corporation Law
as amended and in effect from time to time or any successor or other
statutes of Delaware having similar import and effect.
1.8 "Proceeding" shall mean any pending, threatened or
completed action, hearing, suit or any other proceeding, whether civil,
criminal, arbitrative, administrative, investigative or any alternative
dispute resolution mechanism, including without limitation any such
Proceeding brought by or in the right of the Company.
2. Employment Rights and Duties. Subject to any other obligations
imposed on either of the parties by contract or by law, and with the
understanding that this Agreement is not intended to confer employment rights
on either party which they did not possess on the date of its execution,
Indemnitee agrees to serve as a director or officer so long as he is duly
appointed or elected and qualified in accordance with the applicable provisions
of the Restated Certificate of Incorporation (the "Certificate") and Bylaws
(the "Bylaws") of the Company or any subsidiary
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<PAGE> 4
of the Company and until such time as he resigns or fails to stand for election
or until his employment terminates. Indemnitee may from time to time also
perform other services at the request, or for the convenience of, or otherwise
benefiting the Company. Indemnitee may at any time and for any reason resign or
be removed from such position (subject to any other contractual obligation or
other obligation imposed by operation of law), in which event the Company shall
have no obligation under this Agreement to continue Indemnitee in any such
position.
2.1 Directors' and Officers' Insurance.
(a) The Company hereby covenants and agrees that, so
long as Indemnitee shall continue to serve as a director or
officer of the Company and thereafter so long as Indemnitee shall
be subject to any possible Proceeding, the Company, subject to
Section 2(c), shall maintain directors' and officers' insurance
in full force and effect.
(b) In all policies of directors' and officers'
insurance, Indemnitee shall be named as an insured in such a
manner as to provide Indemnitee the same rights and benefits,
subject to the same limitations, as are accorded to the Company's
directors or officers most favorably insured by such policy.
(c) The Company shall have no obligation to maintain
directors' and officers' insurance if the Company determines in
good faith that such insurance is not reasonably available, the
premium costs for such insurance are disproportionate to the
amount of coverage provided, or the coverage provided by such
insurance is limited by exclusions so as to provide an
insufficient benefit.
3. Indemnification. The Company shall indemnify Indemnitee to the
fullest extent not prohibited by Delaware Law and the provisions of the
Certificate and Bylaws of the Company in effect on the date hereof and as the
Delaware Law, the Certificate and Bylaws may from time to time be amended (but,
in the case of any such amendment, only to the extent such amendment permits
the Company to provide broader indemnification rights than Delaware Law, the
Certificate and Bylaws permitted the Company to provide before such amendment).
The right to indemnification conferred in the Bylaws shall be presumed to have
been relied upon by Indemnitee in serving or continuing to serve the Company as
a director or officer and shall be enforceable as a contract right. Without in
any way diminishing the scope of the indemnification provided by the Bylaws and
this Section 3, the Company will indemnify Indemnitee if and whenever he is or
was a witness, party or is threatened to be made a witness or a party to any
Proceeding, by reason of the fact that he is or was an Agent or by reason of
anything done or not done, or alleged to have been done or not done, by him in
such capacity, against all Expenses and Liabilities actually and reasonably
incurred by Indemnitee or on his behalf in connection with the investigation,
defense, settlement or appeal of such Proceeding. In addition to, and not as
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<PAGE> 5
a limitation of, the foregoing, the rights of indemnification of Indemnitee
provided under this Agreement shall include those rights set forth in Sections
4, 5 and 6 below.
4. Payment of Expenses.
4.1 All Expenses incurred by or on behalf of Indemnitee shall
be advanced by the Company to Indemnitee within 20 days after the
receipt by the Company of a written request for such advance which may
be made from time to time, whether prior to or after final disposition
of a Proceeding (unless there has been a final determination by a court
of competent jurisdiction that Indemnitee is not entitled to be
indemnified for such Expenses). Indemnitee's entitlement to advancement
of Expenses shall include those incurred in connection with any
Proceeding by Indemnitee seeking a determination, an adjudication or an
award in arbitration pursuant to this Agreement. The requests shall
reasonably evidence the Expenses incurred by Indemnitee in connection
therewith. Indemnitee hereby undertakes to repay the amounts advanced
if it shall ultimately be determined that Indemnitee is not entitled to
be indemnified pursuant to the terms of this Agreement.
4.2 Notwithstanding any other provision in this Agreement, to
the extent that Indemnitee has been successful on the merits or
otherwise in defense of any Proceeding, Indemnitee shall be indemnified
against all Expenses and Liabilities actually and reasonably incurred by
Indemnitee in connection therewith.
5. Procedure for Determination of Entitlement to Indemnification.
5.1 Whenever Indemnitee believes that he is entitled to
indemnification pursuant to this Agreement, Indemnitee shall submit a
written request for indemnification (the "Indemnification Request") to
the Company to the attention of the President with a copy to the
Secretary. This request shall include documentation or information
which is necessary for the determination of entitlement to
indemnification and which is reasonably available to Indemnitee.
Determination of Indemnitee's entitlement to indemnification shall be
made no later than 60 days after receipt of the Indemnification Request.
The President or the Secretary shall, promptly upon receipt of
Indemnitee's request for indemnification, advise the Board in writing
that Indemnitee has made such request for indemnification.
5.2 The Indemnification Request shall set forth Indemnitee's
selection of which of the following forums shall determine whether
Indemnitee is entitled to indemnification:
(1) A majority vote of Directors who are not parties to
the action with respect to which indemnification is sought, even
though less than a quorum.
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<PAGE> 6
(2) A written opinion of an Independent Counsel
(provided no such Directors in (1) above or if such Directors in
(1) above so direct).
(3) A majority vote of the stockholders at a meeting at
which a quorum is present, with the shares owned by the person to
be indemnified not being entitled to vote thereon.
(4) The court in which the Proceeding is or was pending
upon application by Indemnitee.
The Company agrees to bear any and all costs and expenses incurred by
Indemnitee or the Company in connection with the determination of Indemnitee's
entitlement to indemnification by any of the above forums.
6. Presumptions and Effect of Certain Proceedings. No initial
finding by the Board, its counsel, Independent Counsel, arbitrators or the
stockholders shall be effective to deprive Indemnitee of the protection of this
indemnity, nor shall a court or other forum to which Indemnitee may apply for
enforcement of this indemnity give any weight to any such adverse finding in
deciding any issue before it. Upon making a request for indemnification,
Indemnitee shall be presumed to be entitled to indemnification under this
Agreement and the Company shall have the burden of proof to overcome that
presumption in reaching any contrary determination. The termination of any
Proceeding by judgment, order, settlement, arbitration award or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, (a)
adversely affect the rights of Indemnitee to indemnification except as
indemnification may be expressly prohibited under this Agreement, (b) create a
presumption that Indemnitee did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company or (c) with respect to any criminal action or proceeding, create a
presumption that Indemnitee had reasonable cause to believe that his conduct
was unlawful.
7. Remedies of Indemnitee in Cases of Determination not to Indemnify
or to Advance Expenses.
7.1 In the event that (a) an initial determination is made
that Indemnitee is not entitled to indemnification, (b) advances for
Expenses are not made when and as required by this Agreement, (c)
payment has not been timely made following a determination of
entitlement to indemnification pursuant to this Agreement or (d)
Indemnitee otherwise seeks enforcement of this Agreement, Indemnitee
shall be entitled to a final adjudication in an appropriate court of the
State of Delaware of his entitlement to such indemnification or advance.
Alternatively, Indemnitee at his option may seek an award in
arbitration. If the parties are unable to agree on an arbitrator, the
parties shall provide Judicial Arbitration & Mediation Services, Inc.
("JAMS") with a statement of the nature of the dispute and the desired
qualifications of the arbitrator. JAMS will then provide a list of
three available arbitrators. Each party may strike one of the
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<PAGE> 7
names on the list, and the remaining person will serve as the
arbitrator. If both parties strike the same person, JAMS will select
the arbitrator from the other two names. The arbitration award shall be
made within 90 days following the demand for arbitration. Except as set
forth herein, the provisions of Delaware law shall apply to any such
arbitration. The Company shall not oppose Indemnitee's right to seek
any such adjudication or arbitration award. In any such proceeding or
arbitration Indemnitee shall be presumed to be entitled to
indemnification under this Agreement and the Company shall have the
burden of proof to overcome that presumption.
7.2 An initial determination, in whole or in part, that
Indemnitee is not entitled to indemnification shall create no
presumption in any judicial proceeding or arbitration that Indemnitee
has not met the applicable standard of conduct for, or is otherwise not
entitled to, indemnification.
7.3 If an initial determination is made or deemed to have been
made pursuant to the terms of this Agreement that Indemnitee is entitled
to indemnification, the Company shall be bound by such determination in
the absence of (a) a misrepresentation of a material fact by Indemnitee
in the request for indemnification or (b) a specific finding (which has
become final) by a court of competent jurisdiction that all or any part
of such indemnification is expressly prohibited by law.
7.4 The Company and Indemnitee agree herein that a monetary
remedy for breach of this Agreement, at some later date, will be
inadequate, impracticable and difficult of proof, and further agree that
such breach would cause Indemnitee irreparable harm. Accordingly, the
Company and Indemnitee agree that Indemnitee shall be entitled to
temporary and permanent injunctive relief to enforce this Agreement
without the necessity of proving actual damages or irreparable harm.
The Company and Indemnitee further agree that Indemnitee shall be
entitled to such injunctive relief, including temporary restraining
orders, preliminary injunctions and permanent injunctions, without the
necessity of posting bond or other undertaking in connection therewith.
Any such requirement of bond or undertaking is hereby waived by the
Company, and the Company acknowledges that in the absence of such a
waiver, a bond or undertaking may be required by the court.
7.5 The Company shall be precluded from asserting that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable. The Company shall stipulate in any such court or before
any such arbitrator that the Company is bound by all the provisions of
this Agreement and is precluded from making any assertion to the
contrary.
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<PAGE> 8
7.6 Expenses incurred by Indemnitee in connection with his
request for indemnification under, seeking enforcement of or to recover
damages for breach of this Agreement shall be borne and advanced by the
Company.
8. Other Rights to Indemnification. Indemnitee's rights of
indemnification and advancement of expenses provided by this Agreement shall
not be deemed exclusive of any other rights to which Indemnitee may now or in
the future be entitled under applicable law, the Certificate, the Bylaws, an
employment agreement, vote of stockholders or Disinterested Directors,
insurance or other financial arrangements or otherwise.
9. Limitations on Indemnification. No indemnification pursuant to
Section 3 shall be paid by the Company nor shall Expenses be advanced pursuant
to Section 3:
9.1 Insurance. To the extent that Indemnitee is reimbursed
pursuant to such insurance as may exist for Indemnitee's benefit.
Notwithstanding the availability of such insurance, Indemnitee also may
claim indemnification from the Company pursuant to this Agreement by
assigning to the Company any claims under such insurance to the extent
Indemnitee is paid by the Company. Indemnitee shall reimburse the
Company for any sums he receives as indemnification from other sources
to the extent of any amount paid to him for that purpose by the Company;
9.2 Section 16(b). On account and to the extent of any wholly
or partially successful claim against Indemnitee for an accounting of
profits made from the purchase or sale by Indemnitee of securities of
the Company pursuant to the provisions of Section 16(b) or the
Securities Exchange Act of 1934, as amended, and amendments thereto or
similar provisions of any federal, state or local statutory law; or
9.3 Indemnitee's Proceedings. Except as otherwise provided in
this Agreement, in connection with all or any part of a Proceeding which
is initiated or maintained by or on behalf of Indemnitee, or any
Proceeding by Indemnitee against the Company or its directors, officers,
employees or other agents, unless (a) such indemnification is expressly
required to be made by Delaware Law, (b) the Proceeding was authorized
by a majority of the Disinterested Directors or (c) such indemnification
is provided by the Company, in its sole discretion, pursuant to the
powers vested in the Company under Delaware Law.
10. Duration and Scope of Agreement; Binding Effect. This Agreement
shall continue so long as Indemnitee shall be subject to any possible
Proceeding subject to indemnification by reason of the fact that he is or was
an Agent and shall be applicable to Proceedings commenced or continued after
execution of this Agreement, whether arising from acts or omissions occurring
before or after such execution. This Agreement shall be binding upon the
Company and its successors and assigns (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company)
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<PAGE> 9
and shall inure to the benefit of Indemnitee and his spouse, assigns, heirs,
devisees, executors, administrators and other legal representatives.
11. Notice by Indemnitee and Defense of Claims. Indemnitee agrees
promptly to notify the Company in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
relating to any matter which may be subject to indemnification hereunder,
whether civil, criminal, arbitrative, administrative or investigative; but the
omission so to notify the Company will not relieve it from any liability which
it may have to Indemnitee if such omission does not actually prejudice the
Company's rights and, if such omission does prejudice the Company's rights, it
will relieve the Company from liability only to the extent of such prejudice;
nor will such omission relieve the Company from any liability which it may have
to Indemnitee otherwise than under this Agreement. With respect to any
Proceeding:
(a) The Company will be entitled to participate therein
at its own expense;
(b) Except as otherwise provided below, to the extent
that it may wish, the Company jointly with any other indemnifying
party similarly notified will be entitled to assume the defense
thereof, with counsel reasonably satisfactory to Indemnitee.
After notice from the Company to Indemnitee of its election so to
assume the defense thereof and the assumption of such defense,
the Company will not be liable to Indemnitee under this Agreement
for any attorney fees or costs subsequently incurred by
Indemnitee in connection with Indemnitee's defense except as
otherwise provided below. Indemnitee shall have the right to
employ his counsel in such Proceeding but the fees and expenses
of such counsel incurred after notice from the Company of its
assumption of the defense thereof and the assumption of such
defense shall be at the expense of Indemnitee unless (i) the
employment of counsel by Indemnitee has been authorized by the
Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company and
Indemnitee in the conduct of the defense of such action or that
the Company's counsel may not be adequately representing
Indemnitee or (iii) the Company shall not in fact have employed
counsel to assume the defense of such action, in each of which
cases the fees and expenses of counsel shall be at the expense of
the Company; and
(c) The Company shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in
settlement of any action or claim effected without its written
consent. The Company shall not settle any action or claim in any
manner without Indemnitee's written consent. Neither the
-9-
<PAGE> 10
Company nor Indemnitee will unreasonably withhold its or his
consent to any proposed settlement.
11.1 Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for
in this Agreement is held by a court of competent jurisdiction to be
unavailable to Indemnitee in whole or part, the Company shall, in such
an event, after taking into account, among other things, contributions
by other directors and officers of the Company pursuant to
indemnification agreements or otherwise, and, in the absence of personal
enrichment, acts of intentional fraud or dishonesty or criminal conduct
on the part of Indemnitee, contribute to the payment of Indemnitee's
losses to the extent that, after other contributions are taken into
account, such losses exceed: (i) in the case of a director of the
Company or any of its subsidiaries who is not an officer of the Company
or any of such subsidiaries, the amount of fees paid to the director for
serving as a director during the 12 months preceding the commencement of
the Proceeding; or (ii) in the case of a director of the Company or any
of its subsidiaries who is also an officer of the Company or any of such
subsidiaries, the amount set forth in clause (i) plus 5% of the
aggregate cash compensation paid to said director for service in such
office(s) during the 12 months preceding the commencement of the
Proceeding; or (iii) in the case of an officer of the Corporation or any
of its subsidiaries, 5% of the aggregate cash compensation paid to such
officer for service in such office(s) during the 12 months preceding the
commencement of such Proceeding.
12. Establishment of Trust. Upon a Change of Control of the Company,
the Company or its successor or assign shall establish a Trust (the "Trust")
for the benefit of the Indemnitee, the trustee (the "Trustee") of which shall
be chosen by the Company and which is reasonably acceptable to the Indemnitee.
Thereafter, from time to time, upon receipt of a written request from
Indemnitee, the Company shall fund the Trust in amounts sufficient to satisfy
any and all Liabilities and Expenses reasonably anticipated at the time of such
request for which the Company may indemnify Indemnitee hereunder. The amount
or amounts to be deposited in the Trust pursuant to the foregoing funding
obligation shall be determined by mutual agreement of the Indemnitee and the
Company or, if the Company and the Indemnitee are unable to reach such an
agreement, by Independent Counsel selected jointly by the Company and the
Indemnitee. The terms of the Trust shall provide that except upon the consent
of the Indemnitee and the Company, (i) the Trust shall not be revoked or the
principal thereof invaded, without the written consent of the Indemnitee, (ii)
the Trustee shall advance to the Indemnitee, within 20 days of a request by the
Indemnitee, any and all Expenses, the Indemnitee hereby agreeing to reimburse
the Trustee of the Trust for all Expenses so advanced if a final determination
is made by a court in a final adjudication from which there is no further right
of appeal that the Indemnitee is not entitled to be indemnified under this
Agreement, (iii) the Trust shall continue to be funded by the Company in
accordance with the funding obligations set forth in this Section, (iv) the
Trustee shall promptly pay to the Indemnitee any amounts to which the
Indemnitee shall be entitled pursuant to this Agreement, and (v) all unexpended
funds in the Trust shall revert to the Company upon a final determination by
Independent Counsel selected by Indemnitee or a court
-10-
<PAGE> 11
of competent jurisdiction that Indemnitee has been fully indemnified with
respect to the Proceeding giving rise to the funding of the Trust under the
terms of this Agreement.
13. Miscellaneous Provisions.
13.1 Severability; Partial Indemnity. If any provision or
provisions of this Agreement (or any portion thereof) shall be held by a
court of competent jurisdiction to be invalid, illegal or unenforceable
for any reason whatever: (a) such provision shall be limited or
modified in its application to the minimum extent necessary to avoid the
invalidity, illegality or unenforceability of such provision; (b) the
validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby; and
(c) to the fullest extent possible, the provisions of this Agreement
shall be construed so as to give effect to the intent manifested by the
provision (or portion thereof) held invalid, illegal or unenforceable.
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of any Expenses or
Liabilities of any type whatsoever incurred by him in the investigation,
defense, settlement or appeal of a Proceeding but not entitled to all of
the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for such total amount except as to the portion thereof for
which it has been determined pursuant to Section 5 hereof that
Indemnitee is not entitled.
13.2 Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed
to be an original but all of which together shall constitute one and the
same Agreement. Only one such counterpart signed by the party against
whom enforceability is sought needs to be produced to evidence the
existence of this Agreement.
13.3 Interpretation of Agreement. It is understood that the
parties hereto intend this Agreement to be interpreted and enforced so
as to provide indemnification to Indemnitee to the fullest extent not
now or hereafter prohibited by law.
13.4 Headings. The headings of the Sections and paragraphs of
this Agreement are inserted for convenience only and shall not be deemed
to constitute part of this Agreement or to affect the construction
thereof.
13.5 Pronouns. Use of the masculine pronoun shall be deemed to
include use of the feminine pronoun where appropriate.
13.6 Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing
by both of the parties to this Agreement. No waiver of any provision of
this Agreement shall be deemed to constitute a waiver of any of the
provisions hereof (whether
-11-
<PAGE> 12
or not similar) nor shall such waiver constitute a continuing waiver.
No waiver of any provision of this Agreement shall be effective unless
executed in writing.
13.7 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have
been duly given if (i) delivered by hand and receipted for by the party
to whom said notice or other communication shall have been directed or
(ii) mailed by certified or registered mail with postage prepaid, on the
third business day after the date on which it is so mailed:
(a) If to Indemnitee, to:
[Name of Director/Officer]
c/o HESKA CORPORATION
1825 Sharp Point Drive
Fort Collins, Colorado 80525
Telephone: (970) 493-7272
Telefax: (____) __________
(b) If to the Company to:
HESKA CORPORATION
1825 Sharp Point Drive
Fort Collins, Colorado 80525
Attention: President and Chief Executive Officer
Telephone: (970) 493-7272
Telefax: (970) 493-7333
with a copy to:
HESKA CORPORATION
1825 Sharp Point Drive
Fort Collins, Colorado 80525
Attention: Secretary
Telephone: (970) 493-7272
Telefax: (970) 493-7333
or to such other address as may have been furnished to Indemnitee by the
Company or to the Company by Indemnitee, as the case may be.
13.8 Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws
of the State of Delaware, as applied to contracts between Delaware
residents entered into and to be performed entirely within Delaware.
-12-
<PAGE> 13
13.9 Consent to Jurisdiction. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the
State of Delaware for all purposes in connection with any action or
proceeding which arises out of or relates to this agreement and agree
that any action instituted under this agreement shall be brought only in
the state courts of the State of Delaware.
13.10 Entire Agreement. This Agreement represents the entire
agreement between the parties hereto, and there are no other agreements,
contracts or understanding between the parties hereto with respect to
the subject matter of this Agreement, except as specifically referred to
herein or as provided in Sections 8 and 2.1 hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
HESKA CORPORATION
By:
--------------------------------
Name:
Title
[Name of Indemnitee]
-------------------------------------
-13-
<PAGE> 1
EXHIBIT 10.21
HESKA CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
(AS ADOPTED EFFECTIVE _______ __, 1997)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 1. PURPOSE OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Committee Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Committee Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 3. ENROLLMENT AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Offering Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Accumulation Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(c) Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(d) Duration of Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(e) Applicable Offering Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 4. EMPLOYEE CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Frequency of Payroll Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Amount of Payroll Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Changing Withholding Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(d) Discontinuing Payroll Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(e) Limit on Number of Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 5. WITHDRAWAL FROM THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Re-Enrollment After Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 6. CHANGE IN EMPLOYMENT STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Plan Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Number of Shares Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Available Shares Insufficient . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(e) Issuance of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(f) Unused Cash Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Five Percent Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) $25,000 Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 9. RIGHTS NOT TRANSFERABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 10. NO RIGHTS AS AN EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 11. NO RIGHTS AS A STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 12. STOCK OFFERED UNDER THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Authorized Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Anti-Dilution Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Reorganizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 13. AMENDMENT OR DISCONTINUANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 14. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 15. EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
ii
<PAGE> 4
HESKA CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board on _______ __, 1997, effective as of
the date of the IPO. The purpose of the Plan is to provide Eligible Employees
with an opportunity to increase their proprietary interest in the success of
the Company by purchasing Stock from the Company on favorable terms and to pay
for such purchases through payroll deductions. The Plan is intended to qualify
under section 423 of the Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Company, who shall be appointed by the Board.
(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the
Plan and make all other policy decisions relating to the operation of the Plan.
The Committee may adopt such rules, guidelines and forms as it deems
appropriate to implement the Plan. The Committee's determinations under the
Plan shall be final and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, two
overlapping Offering Periods shall commence in each calendar year. The
Offering Periods shall consist of the 24-month periods commencing on each
January 1 and July 1, except that the first Offering Period shall commence on
the date of the IPO and end on June 30, 1999.
(b) ACCUMULATION PERIODS. While the Plan is in effect, two
Accumulation Periods shall commence in each calendar year. The Accumulation
Periods shall consist of the six-month periods commencing on each January 1 and
July 1, except that the first Accumulation Period shall commence on the date of
the IPO and end on December 31, 1997.
(c) ENROLLMENT. Any individual who, on the day preceding the
first day of an Offering Period, qualifies as an Eligible Employee may elect to
become a Participant in the Plan for such Offering Period by executing the
enrollment form prescribed for this purpose by the Committee. The enrollment
form shall be filed with the Company at the prescribed location not later than
10 days prior to the commencement of such Offering Period.
(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a
Participant shall continue to participate in the Plan until he or she ceases to
be an Eligible Employee, withdraws from the Plan under Section 5(a) or reaches
the end of the Accumulation Period in which his or
<PAGE> 5
her employee contributions were discontinued under Section 4(b), 4(d) or 8(b).
A Participant who discontinued employee contributions under Section 4(d) or
withdrew from the Plan under Section 5(a) may again become a Participant, if he
or she then is an Eligible Employee, by following the procedure described in
Subsection (c) above. A Participant whose employee contributions were
discontinued automatically under Section 4(b) or 8(b) shall automatically
resume participation at the beginning of the earliest Accumulation Period
ending in the next calendar year, if he or she then is an Eligible Employee.
(e) APPLICABLE OFFERING PERIOD. For purposes of calculating the
Purchase Price under Section 7(b), the applicable Offering Period shall be
determined as follows:
(i) Once a Participant is enrolled in the Plan for an
Offering Period, such Offering Period shall continue to apply to him
or her until the earliest of (A) the end of such Offering Period, (B)
the end of his or her participation under Subsection (d) above or (C)
re-enrollment in a subsequent Offering Period under Paragraph (ii)
below.
(ii) In the event that the Fair Market Value of Stock on the
last trading day before the commencement of the Offering Period in
which the Participant is enrolled is higher than on the last trading
day before the commencement of any subsequent offering period, the
Participant shall automatically be re-enrolled for such subsequent
Offering Period.
(iii) When a Participant reaches the end of an Offering Period
but his or her participation is to continue, then such Participant
shall automatically be re-enrolled for the Offering Period that
commences immediately after the end of the prior Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase
shares of Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.
(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall
designate on the enrollment form the portion of his or her Compensation that he
or she elects to have withheld for the purchase of Stock. Such portion shall
be a whole percentage of the Eligible Employee's Compensation, but not less
than 1% nor more than 10%. Any other provision of the Plan notwithstanding, no
Participant shall have more than $21,250 withheld in the aggregate during all
Accumulation Periods ending in the same calendar year. If a Participant is
precluded by this Subsection (b) from making additional employee contributions,
then his or her employee contributions shall automatically be discontinued and
shall resume at the beginning of the earliest Accumulation Period ending in the
next calendar year (if he or she then is an Eligible Employee).
2
<PAGE> 6
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change
the rate of payroll withholding, he or she may do so by filing a new enrollment
form with the Company at the prescribed location at any time. The new
withholding rate shall be effective as soon as reasonably practicable after
such form has been received by the Company. The new withholding rate shall be
a whole percentage of the Eligible Employee's Compensation, but not less than
1% nor more than 10%.
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a
new enrollment form with the Company at the prescribed location at any time.
Payroll withholding shall cease as soon as reasonably practicable after such
form has been received by the Company. (In addition, employee contributions
may be discontinued automatically pursuant to Section 4(b) or 8(b).) A
Participant who has discontinued employee contributions may resume such
contributions by filing a new enrollment form with the Company at the
prescribed location. Payroll withholding shall resume as soon as reasonably
practicable after such form has been received by the Company.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more
than two elections under Subsection (c) or (d) above during any Accumulation
Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan
by filing the prescribed form with the Company at the prescribed location at
any time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls
in the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an
Eligible Employee for any reason, including death, shall be treated as an
automatic withdrawal from the Plan under Section 5(a). (A transfer from one
Participating Company to another shall not be treated as a termination of
employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall
not be deemed to terminate when the Participant goes on a military leave, a
sick leave or another bona fide leave of absence, if the leave was approved by
the Company in writing and if continued crediting of service for such purpose
is expressly required by the terms of such leave or by applicable law (as
determined by the Company). Employment, however, shall be deemed to terminate
90 days after the Participant goes on a leave, unless a contract or statute
protects his or her right to return to
3
<PAGE> 7
work. Employment shall be deemed to terminate in any event when the approved
leave ends, unless the Participant immediately returns to work.
(c) DEATH. In the event of the Participant's death, the amount
credited to his or her Plan Account shall be paid to a beneficiary designated
by him or her for this purpose on the prescribed form or, if none, to the
Participant's estate. Such form shall be valid only if it was filed with the
Company at the prescribed location before the Participant's death.
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Company shall maintain a Plan Account on
its books in the name of each Participant. Whenever an amount is deducted from
the Participant's Compensation under the Plan, such amount shall be credited to
the Participant's Plan Account. Amounts credited to Plan Accounts shall not be
trust funds and may be commingled with the Company's general assets and applied
to general corporate purposes. No interest shall be credited to Plan Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Stock
purchased at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last
trading day in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the last
trading day before the commencement of the applicable Offering Period
(as determined under Section 3(e)) or, in the case of the first
Offering Period under the Plan, 85% of the price at which one share of
Stock is offered to the public in the IPO.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each
Accumulation Period, each Participant shall be deemed to have elected to
purchase the number of shares of Stock calculated in accordance with this
Subsection (c), unless the Participant has previously elected to withdraw from
the Plan in accordance with Section 5(a). The amount then in the Participant's
Plan Account shall be divided by the Purchase Price, and the number of shares
that results shall be purchased from the Company with the funds in the
Participant's Plan Account. The foregoing notwithstanding, no Participant
shall purchase more than 5,000 shares of Stock with respect to any Accumulation
Period nor more than the amounts of Stock set forth in Sections 8(b) and 12(a).
The Committee may determine with respect to all Participants that any
fractional share, as calculated under this Subsection (c), shall be rounded
down to the next lower whole share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the
aggregate number of shares that all Participants elect to purchase during an
Accumulation Period exceeds the maximum number of shares remaining available
for issuance under Section 12(a), then the number of shares to which each
Participant is entitled shall be determined by multiplying the number of shares
available for issuance by a fraction, the numerator of which is the number of
shares that such
4
<PAGE> 8
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) ISSUANCE OF STOCK. Certificates representing the shares of
Stock purchased by a Participant under the Plan shall be issued to him or her
as soon as reasonably practicable after the close of the applicable
Accumulation Period, except that the Committee may determine that such shares
shall be held for each Participant's benefit by a broker designated by the
Committee (unless the Participant has elected that certificates be issued to
him or her). Shares may be registered in the name of the Participant or
jointly in the name of the Participant and his or her spouse as joint tenants
with right of survivorship or as community property.
(f) UNUSED CASH BALANCES. An amount remaining in the
Participant's Plan Account that represents the Purchase Price for any
fractional share shall be carried over in the Participant's Plan Account to the
next Accumulation Period. Any amount remaining in the Participant's Plan
Account that represents the Purchase Price for whole shares that could not be
purchased by reason of Subsection (c) above, Section 8(b) or Section 12(a)
shall be refunded to the Participant in cash, without interest.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan
notwithstanding, no Participant shall be granted a right to purchase Stock
under the Plan if such Participant, immediately after his or her election to
purchase such Stock, would own stock possessing more than 5% of the total
combined voting power or value of all classes of stock of the Company or any
parent or Subsidiary of the Company. For purposes of this Subsection (a), the
following rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he
or she has a right or option to purchase under this or any other plan;
and
(iii) Each Participant shall be deemed to have the right to
purchase 5,000 shares of Stock under this Plan with respect to each
Accumulation Period.
(b) $25,000 LIMIT. Any other provision of the Plan
notwithstanding, no Participant shall purchase Stock with a Fair Market Value
(determined as of the beginning of the applicable Offering Period) in excess of
$25,000 during any calendar year under this Plan and all other employee stock
purchase plans of the Company or any parent or Subsidiary of the Company. For
purposes of this Subsection (b), employee stock purchase plans not described in
section 423 of the Code shall be disregarded. If a Participant is precluded by
this Subsection (b) from purchasing additional Stock under the Plan, then his
or her employee contributions shall automatically be discontinued and shall
resume at the beginning of the earliest Accumulation Period ending in the next
calendar year (if he or she then is an Eligible Employee).
5
<PAGE> 9
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by beneficiary designation
or the laws of descent and distribution. If a Participant in any manner
attempts to transfer, assign or otherwise encumber his or her rights or
interest under the Plan, other than by beneficiary designation or the laws of
descent and distribution, then such act shall be treated as an election by the
Participant to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall
confer upon the Participant any right to continue in the employ of a
Participating Company for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Participating Companies or of
the Participant, which rights are hereby expressly reserved by each, to
terminate his or her employment at any time and for any reason, with or without
cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to
any shares of Stock that he or she may have a right to purchase under the Plan
until such shares have been purchased on the last day of the applicable
Accumulation Period.
SECTION 12. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. The aggregate number of shares of
Stock available for purchase under the Plan shall be 250,000, subject to
adjustment pursuant to this Section 12.
(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of
Stock offered under the Plan, the 5,000- share limitation described in Section
7(c) and the price of shares that any Participant has elected to purchase shall
be adjusted proportionately by the Committee for any increase or decrease in
the number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Company, the distribution of the shares of a Subsidiary to the Company's
stockholders or a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan
notwithstanding, immediately prior to the effective time of a Change in
Control, the Offering Period and Accumulation Period then in progress shall
terminate and shares shall be purchased pursuant to Section 7. In the event of
a merger or consolidation to which the Company is a constituent corporation and
which does not constitute a Change in Control, the Plan shall continue unless
the plan of merger or consolidation provides otherwise. The Plan shall in no
event be construed to restrict in any way the Company's right to undertake a
dissolution, liquidation, merger, consolidation or other reorganization.
6
<PAGE> 10
SECTION 13. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan
at any time and without notice. Except as provided in Section 12, any increase
in the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Company. In addition,
any other amendment of the Plan shall be subject to approval by a vote of the
stockholders of the Company to the extent required by an applicable law or
regulation.
SECTION 14. DEFINITIONS
(a) "ACCUMULATION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 3(b).
(b) "BOARD" means the Board of Directors of the Company, as
constituted from time to time.
(c) "CHANGE IN CONTROL" means:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the
continuing or surviving entity's securities outstanding immediately
after such merger, consolidation or other reorganization is owned by
persons who were not stockholders of the Company immediately prior to
such merger, consolidation or other reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets or the complete liquidation
or dissolution of the Company. A transaction shall not constitute a
Change in Control if its sole purpose is to change the state of the
Company's incorporation or to create a holding company that will be
owned in substantially the same proportions by the persons who held the
Company's securities immediately before such transaction.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of the Board, as described in
Section 2.
(f) "COMPANY" means Heska Corporation, a Delaware corporation.
(g) "COMPENSATION" means (i) the total compensation paid in cash to
a Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions and overtime pay, plus (ii) any pre-tax
contributions made by the Participant under section 401(k) or 125 of the Code.
Compensation shall exclude moving or relocation allowances, car allowances,
imputed income attributable to cars or life insurance, fringe benefits,
7
<PAGE> 11
contributions to employee benefit plans and similar items. The Committee shall
determine whether a particular item is included in Compensation.
(e) "ELIGIBLE EMPLOYEE" means any employee of a Participating
Company who meets both of the following requirements:
(i) His or her customary employment is for more than five
months per calendar year and for more than 20 hours per week; and
(ii) He or she either (A) has been an employee of a
Participating Company for not less than 30 consecutive days or (B) is
an employee of a Participating Company on the date of the IPO.
The foregoing notwithstanding, an individual shall not be considered an
Eligible Employee if his or her participation in the Plan is prohibited by the
law of any country which has jurisdiction over him or her or if he or she is
subject to a collective bargaining agreement that does not provide for
participation in the Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(ii) "FAIR MARKET VALUE" means the market price of Stock, determined
by the Committee as follows:
(i) If Stock was traded over-the-counter on the date in
question but was not traded on The Nasdaq Stock Market or The Nasdaq
National Market, then the Fair Market Value shall be equal to the mean
between the last reported representative bid and asked prices quoted
for such date by the principal automated inter-dealer quotation system
on which Stock is quoted or, if the Stock is not quoted on any such
system, by the "Pink Sheets" published by the National Quotation
Bureau, Inc.;
(ii) If Stock was traded over-the-counter on the date in
question and was traded on The Nasdaq Stock Market or The Nasdaq
National Market, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by The Nasdaq Stock Market
or The Nasdaq National Market;
(iii) If the Stock was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite transactions report for
such date; and
(iv) If none of the foregoing provisions is applicable, then
the Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in The Wall Street Journal or as reported
directly to the Company by Nasdaq or a comparable exchange. Such determination
shall be conclusive and binding on all persons.
8
<PAGE> 12
(k) "IPO" means the initial offering of Stock to the public
pursuant to a registration statement filed with the Securities and Exchange
Commission on Form S-1.
(l) "OFFERING PERIOD" means a 24-month period with respect to which
the right to purchase Stock may be granted under the Plan, as determined
pursuant to Section 3(a).
(m) "PARTICIPANT" means an Eligible Employee who elects to
participate in the Plan, as provided in Section 3(c).
(n) "PARTICIPATING COMPANY" means (i) the Company and (ii) each
present or future Subsidiary designated by the Committee as a Participating
Company.
(o) "PLAN" means this Heska Corporation 1997 Employee Stock
Purchase Plan, as it may be amended from time to time.
(p) "PLAN ACCOUNT" means the account established for each
Participant pursuant to Section 7(a).
(q) "PURCHASE PRICE" means the price at which Participants may
purchase Stock under the Plan, as determined pursuant to Section 7(b).
(r) "STOCK" means the Common Stock of the Company.
(s) "SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
SECTION 15. EXECUTION.
To record the adoption of the Plan by the Board on ________ __, 1997,
the Company has caused its authorized officer to execute the same.
HESKA CORPORATION
By:
----------------------------
Title:
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9
<PAGE> 13
HESKA CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
BENEFICIARY DESIGNATION
Name:
-------------------------------------
Social Security Number - -
----- --- -----
If I die, any unused cash in my account under the Heska Corporation 1997
Employee Stock Purchase Plan (the "Plan") is to be paid to those beneficiaries
designated below who survive me, subject to the provisions of the Plan. The
payment is to be made as follows [check one box only]:
[ ] Entirely to the spouse to whom I am currently married. [Please provide
names and addresses below.] If my spouse does not survive me, payment is
to be made to [check one box only]:
[ ] All of my children who survive me in equal shares.
[ ] All of the persons named below who survive me in equal shares.
[ ] To all of my children who survive me in equal shares. [Please provide
names and addresses below.]
[ ] Entirely to the first person named below who survives me.
[ ] To all of the persons named below who survive me in equal shares.
[ ] Other [please use a separate sheet if necessary]:
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The term "children" means natural or legally adopted children but excludes
stepchildren (if not adopted). The term "siblings" means brothers and sisters,
whether natural or adoptive, but excludes stepbrothers and stepsisters.
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<PAGE> 14
The names and addresses of my beneficiaries are as follows [please use a
separate sheet if necessary]:
1. Name: Relationship:
------------------- -----------
Address:
---------------------------------------
Telephone ( )
---------------- -------------
2. Name: Relationship:
------------------- -----------
Address:
---------------------------------------
Telephone ( )
---------------- -------------
3. Name: Relationship:
------------------- -----------
Address:
---------------------------------------
Telephone ( )
---------------- -------------
4. Name: Relationship:
------------------- -----------
Address:
---------------------------------------
Telephone ( )
---------------- -------------
5. Name: Relationship:
------------------- -----------
Address:
---------------------------------------
Telephone ( )
---------------- -------------
This beneficiary designation is to take effect on the date when it is received
by the person responsible for administering the Plan at Heska Corporation, and
it supersedes any prior designations that I may have made under the Plan.
, 199
- -------------- -- ----------------------------
(Signature)
Please file this form with .
---------------------
- --------------------------------------------------------------------------------
Received by:
Date of receipt: . 199
------------------ --
2
<PAGE> 1
EXHIBIT 10.20
HESKA CORPORATION 1997 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
TAX TREATMENT This option is intended to be an incentive stock
option under section 422 of the Internal Revenue Code
or a nonstatutory option, as provided in the Notice
of Stock Option Grant.
VESTING This option becomes exercisable in installments, as
shown in the Notice of Stock Option Grant. In
addition, this option becomes exercisable in full if
one of the following events occurs:
o Your service as an employee, consultant or
director of the Company or a subsidiary of the
Company terminates because of death, total and
permanent disability, or retirement at or after
age 65, or
o The Company is a party to a merger or other
reorganization while you are an employee,
consultant or director of the Company or a
subsidiary of the Company, this option is not
continued by the Company and is not assumed by the
surviving corporation or its parent, and the
surviving corporation or its parent does not
substitute its own option for this option, or
o The Company is subject to a "Change in
Control" (as defined in the Plan) while
you are an employee, consultant or
director of the Company or a
subsidiary of the Company and, within
12 months after the Change in
Control, the surviving entity
terminates your service without your
consent. If the surviving entity
demotes you to a lower position,
materially reduces your authority or
responsibilities, materially reduces
your total compensation or announces
its intention to relocate your
principal place of work by more than
20 miles, then that action will be
treated as a termination of your
service.
In the event of a merger or other
reorganization or a Change in Control, the
following rules apply:
o If this option is designated as an
incentive stock option in the Notice of
Stock Option Grant, the acceleration
of exercisability will not occur
without your written consent.
o If the Company and the other party to
the transaction agreed that the
transaction is to be treated as a
"pooling of interests" for financial
reporting purposes, and if the
transaction in fact was so treated,
then the acceleration of
exercisability will not occur to the
extent that the surviving entity's
independent
<PAGE> 2
public accountants determine in good faith
that the acceleration would include the use
of "pooling of interests" accounting.
No additional shares become exercisable after
your service as an employee, consultant or
director of the Company or a subsidiary
of the Company has terminated for any reason.
TERM This option expires in any event at the close of
business at Company headquarters on the day
before the 10th anniversary of the Date of Grant,
as shown in the Notice of Stock Option Grant.
(It will expire earlier if your service
terminates, as described below.)
REGULAR TERMINATION If your service as an employee, consultant
or director of the Company or a subsidiary of
the Company terminates for any reason except
death or total and permanent disability, then
this option will expire at the close of
business at Company headquarters on the date
three months after your termination date. The
Company determines when your service terminates
for this purpose.
DEATH If you die as an employee, consultant or
director of the Company or a subsidiary of the
Company, then this option will expire at the
close of business at Company headquarters on the
date 12 months after the date of death.
DISABILITY If your service as an employee, consultant or
director of the Company or a subsidiary of
the Company terminates because of your
total and permanent disability, then this
option will expire at the close of business
at Company headquarters on the date 12 months
after your termination date. For all purposes
under this Agreement, "total and permanent
disability" means that you are unable to engage
in any substantial gainful activity by reason
of any medically determinable physical or mental
impairment which can be expected to result in
death or which has lasted, or can be expected to
last, for a continuous period of not less than
one year.
LEAVES OF ABSENCE For purposes of this option, your service does
not terminate when you go on a military leave,
a sick leave or another bona fide leave of
absence, if the leave was approved by the
Company in writing and if continued crediting of
service is required by the terms of the
leave or by applicable law. But your service
terminates when the approved leave ends, unless
you immediately return to active work.
RESTRICTIONS ON The Company will not permit you to exercise this
EXERCISE option if the issuance of shares at that time
would violate any law or regulation.
NOTICE OF EXERCISE When you wish to exercise this option, you must
notify the Company by
-2-
<PAGE> 3
filing the proper "Notice of Exercise" form
at the address given on the form. Your notice
must specify how many shares you wish to
purchase. Your notice must also specify how
your shares should be registered (in your name
only or in your and your spouse's names as
community property or as joint tenants with
right of survivorship). The notice will be
effective when it is received by the Company.
If someone else wants to exercise this option
after your death, that person must prove to the
Company's satisfaction that he or she is entitled
to do so.
FORM OF PAYMENT When you submit your notice of exercise, you must
include payment of the option exercise price
for the shares you are purchasing. Payment may
be made in one (or a combination of two or more)
of the following forms:
o Your personal check, a cashier's check or a
money order.
o Certificates for shares of Company stock
that you own, along with any forms needed to
effect a transfer of those shares to the
Company. The value of the shares, determined
as of the effective date of the option
exercise, will be applied to the option
exercise price. Instead of surrendering shares
of Company stock, you may attest to the
ownership of those shares on a form provided
by the Company and have the same number of
shares subtracted from the option shares
issued to you. However, you may not
surrender, or attest to the ownership of,
shares of Company stock in payment of the
exercise price if your action would cause
the Company to recognize compensation expense
(or additional compensation expense) with
respect to this option for financial reporting
purposes.
o Irrevocable directions to a securities broker
approved by the Company to sell all or part of
your option shares and to deliver to the
Company from the sale proceeds an amount
sufficient to pay the option exercise
price and any withholding taxes. (The balance
of the sale proceeds, if any, will be
delivered to you.) The directions must be
given by signing a special"Notice of
Exercise" form provided by the Company.
WITHHOLDING TAXES
AND You will not be allowed to exercise this
STOCK WITHHOLDING option unless you make arrangements
acceptable to the Company to pay any
withholding taxes that may be due as a
result of the option exercise. These
arrangements may include withholding shares of
Company stock that otherwise would be issued
to you when you exercise this option. The
value of these shares, determined as of the
effective date of the option exercise, will be
applied to the withholding taxes.
-3-
<PAGE> 4
RESTRICTIONS ON By signing this Agreement, you agree not to sell
RESALE any option shares at a time when applicable
laws, Company policies or an agreement between
the Company and its underwriters prohibit a
sale. This restriction will apply as long as
you are an employee, consultant or director of
the Company or a subsidiary of the Company.
TRANSFER OF Prior to your death, only you may exercise this
OPTION option. You cannot transfer or assign this
option. For instance, you may not sell this
option or use it as security for a loan. If
you attempt to do any of these things, this
option will immediately become invalid. You
may, however, dispose of this option in your
will or a beneficiary designation.
Regardless of any marital property settlement
agreement, the Company is not obligated to
honor a notice of exercise from your former
spouse, nor is the Company obligated to
recognize your former spouse's interest in your
option in any other way.
RETENTION RIGHTS Your option or this Agreement do not give you
the right to be retained by the Company or a
subsidiary of the Company in any capacity.
The Company and its subsidiaries reserve the
right to terminate your service at any time,
with or without cause.
STOCKHOLDER RIGHTS You, or your estate or heirs, have no rights
as a stockholder of the Company until you have
exercised this option by giving the required
notice to the Company and paying the exercise
price. No adjustments are made for dividends
or other rights if the applicable record date
occurs before you exercise this option, except
as described in the Plan.
ADJUSTMENTS In the event of a stock split, a stock dividend
or a similar change in Company stock, the
number of shares covered by this option and
the exercise price per share may be adjusted
pursuant to the Plan.
APPLICABLE LAW This Agreement will be interpreted and enforced
under the laws of the State of Colorado.
THE PLAN AND The text of the Plan is incorporated in this
OTHER AGREEMENTS Agreement by reference.
This Agreement and the Plan constitute the
entire understanding between you and the
Company regarding this option. Any prior
agreements, commitments or negotiations
concerning this option are superseded. This
Agreement may be amended only by another written
agreement, signed by both parties.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
-4-
<PAGE> 5
HESKA CORPORATION 1997 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
(OUTSIDE DIRECTORS)
TAX TREATMENT This option is intended to be an incentive stock
option under section 422 of the Internal Revenue Code
or a nonstatutory option, as provided in the
Notice of Stock Option Grant.
VESTING This option becomes exercisable in installments, as
shown in the Notice of Stock Option Grant. In
addition, this option becomes exercisable in full if
one of the following events occurs:
o Your service as an employee, consultant or
director of the Company or a subsidiary of the
Company terminates because of death, total and
permanent disability, or retirement at or after
age 65, or
o The Company is a party to a merger or other
reorganization while you are an employee,
consultant or director of the Company or a
subsidiary of the Company, this option is not
continued by the Company and is not assumed by
the surviving corporation or its parent, and
the surviving corporation or its parent does
not substitute its own option for this option, or
o The Company is subject to a "Change in Control"
(as defined in the Plan) while you are an
employee, consultant or director of the Company or
a subsidiary of the Company and, within 12 months
after the Change in Control, the surviving entity
terminates your service without your consent. If
the surviving entity demotes you to a lower
position, materially reduces your authority or
responsibilities, materially reduces your total
compensation or announces its intention to
relocate your principal place of work by more than
20 miles, then that action will be treated as a
termination of your service.
In the event of a merger or other reorganization or
a Change in Control, the following rules apply:
o If this option is designated as an
incentive stock option in the Notice of
Stock Option Grant, the acceleration of
exercisability will not occur without your
written consent.
o If the Company and the other party to the
transaction agreed that the transaction is
to be treated as a "pooling of interests"
for financial reporting purposes, and if
the transaction in fact was so treated, then
the acceleration of exercisability will
not
<PAGE> 6
occur to the extent that that the surviving
entity's independent public accountants
determine in good faith that the
acceleration would preclude the use of
"pooling of interests" accounting.
No additional shares become exercisable after
your service as an employee, consultant or
director of the Company or a subsidiary of the
Company has terminated for any reason.
TERM This option expires in any event at the close of
business at Company headquarters on the day before
the 10th anniversary of the Date of Grant, as
shown in the Notice of Stock Option Grant. (It
will expire earlier if your service terminates,
as described below.)
REGULAR TERMINATION If your service as an employee, consultant or
director of the Company or a subsidiary of the
Company terminates for any reason except death or
total and permanent disability, then this option
will expire at the close of business at Company
headquarters on the date three months after your
termination date. The Company determines when your
service terminates for this purpose.
DEATH If you die as an employee, consultant or director of
the Company or a subsidiary of the Company, then
this option will expire at the close of business at
Company headquarters on the date 12 months after the
date of death.
DISABILITY If your service as an employee, consultant or
director of the Company or a subsidiary of the
Company terminates because of your total and
permanent disability, then this option will expire
at the close of business at Company headquarters on
the date 12 months after your termination date. For
all purposes under this Agreement, "total and
permanent disability" means that you are unable to
engage in any substantial gainful activity by reason
of any medically determinable physical or mental
impairment which can be expected to result in death or
which has lasted, or can be expected to last, for a
continuous period of not less than one year.
LEAVES OF ABSENCE For purposes of this option, your service does not
terminate when you go on a military leave, a sick
leave or another bona fide leave of absence, if the
leave was approved by the Company in writing and if
continued crediting of service is required by the
terms of the leave or by applicable law. But
your service terminates when the approved leave ends,
unless you immediately return to active work.
-2-
<PAGE> 7
RESTRICTIONS ON The Company will not permit you to exercise this
EXERCISE option if the issuance of shares violate any law or
regulation.
NOTICE OF EXERCISE When you wish to exercise this option, you must
notify the Company by filing the proper "Notice of
Exercise" form at the address given on the form.
Your notice must specify how many shares you wish to
purchase. Your notice must also specify how your
shares should be registered (in your name only or
in your and your spouse's names as community
property or as joint tenants with right of
survivorship). The notice will be effective when it
is received by the Company. If someone else wants to
exercise this option after your death,that person
must prove to the Company's satisfaction that he or
she is entitled to do so.
EXERCISE OF UNVESTED Exercise of unvested shares is allowed under the
SHRES Plan. If you would like to exercise your
option before it is vested, you must complete a Stock
Repurchase Agreement. This agreement provides for the
repurchase of that portion of the shares which remain
unvested at the time of your termination, death or
disability.
FORM OF PAYMENT When you submit your notice of exercise, you must
include payment of the option exercise price for the
shares you are purchasing. Payment may be made in
one (or a combination of two or more) of the following
forms:
o Your personal check, a cashier's check or a money
order.
o Certificates for shares of Company stock that you
own, along with any forms needed to effect a
transfer of those shares to the Company. The
value of the shares, determined as of the
effective date of the option exercise, will be
applied to the option exercise price. Instead
of surrendering shares of Company stock, you may
attest to the ownership of those shares on a
form provided by the Company and have the same
number of shares subtracted from the option shares
issued to you. However, you may not surrender,
or attest to the ownership of, shares of
Company stock in payment of the exercise price
if your action would cause the Company to
recognize compensation expense (or additional
compensation expense) with respect to this option
for financial reporting purposes.
o Irrevocable directions to a securities broker
approved by the Company to sell all or part of
your option shares and to deliver to the
Company from the sale proceeds an amount
sufficient to pay the option exercise price and
any withholding taxes. (The balance of the sale
proceeds, if any, will be delivered to you.)
The directions must be given by signing a
special "Notice of Exercise" form provided by the
Company.
-3-
<PAGE> 8
WITHHOLDING You will not be allowed to exercise this option unless
TAXES AND STOCK you make arrangements acceptable to the Company to pay
WITHHOLDING any withholding taxes that may be due as a result of
the option exercise. These arrangements may include
withholding shares of Company stock that otherwise
would be issued to you when you exercise this option.
The value of these shares, determined as of the
effective date of the option exercise, will be
applied to the withholding taxes.
RESTRICTIONS ON By signing this Agreement, you agree not to sell any
RESALE option shares at a time when applicable laws, Company
policies or an agreement between the Company and
its underwriters prohibit a sale. This restriction
will apply as long as you are an employee, consultant
or director of the Company or a subsidiary of the
Company.
TRANSFER OF Prior to your death, only you may exercise this
OPTION option. You cannot transfer or assign this option.
For instance, you may not sell this option or use
it as security for a loan. If you attempt to do any
of these things, this option will immediately become
invalid. You may, however, dispose of this option
in your will or a beneficiary designation.
Regardless of any marital property settlement
agreement, the Company is not obligated to honor a
notice of exercise from your former spouse, nor is
the Company obligated to recognize your former
spouse's interest in your option in any other way.
RETENTION RIGHTS Your option or this Agreement do not give you the
right to be retained by the Company or a subsidiary
of the Company in any capacity. The Company and
its subsidiaries reserve the right to terminate
your service at any time, with or without cause.
STOCKHOLDER You, or your estate or heirs, have no rights as a
RIGHTS stockholder of the Company until you have exercised
this option by giving the required notice to the
Company and paying the exercise price. No
adjustments are made for dividends or other rights
if the applicable record date occurs before you
exercise this option, except as described in the
Plan.
ADJUSTMENTS In the event of a stock split, a stock dividend or
a similar change in Company stock, the number of
shares covered by this option and the exercise
price per share may be adjusted pursuant to the Plan.
-4-
<PAGE> 9
APPLICABLE LAW This Agreement will be interpreted and enforced
under the laws of the State of Colorado.
THE PLAN AND The text of the Plan is incorporated in this Agreement
OTHER AGREEMENTS by reference.
This Agreement and the Plan constitute the
entire understanding between you and the Company
regarding this option. Any prior agreements,
commitments or negotiations concerning this option
are superseded. This Agreement may be amended only by
another written agreement, signed by both parties.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
-5-
<PAGE> 1
EXHIBIT 10.21
HESKA CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
(AS ADOPTED EFFECTIVE _______ __, 1997)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
SECTION 1. PURPOSE OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Committee Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Committee Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 3. ENROLLMENT AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Offering Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Accumulation Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(c) Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(d) Duration of Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(e) Applicable Offering Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 4. EMPLOYEE CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Frequency of Payroll Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Amount of Payroll Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Changing Withholding Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(d) Discontinuing Payroll Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(e) Limit on Number of Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 5. WITHDRAWAL FROM THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Re-Enrollment After Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 6. CHANGE IN EMPLOYMENT STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Plan Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Number of Shares Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Available Shares Insufficient . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(e) Issuance of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(f) Unused Cash Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Five Percent Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) $25,000 Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
i
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<TABLE>
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SECTION 9. RIGHTS NOT TRANSFERABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 10. NO RIGHTS AS AN EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 11. NO RIGHTS AS A STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 12. STOCK OFFERED UNDER THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Authorized Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Anti-Dilution Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Reorganizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 13. AMENDMENT OR DISCONTINUANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 14. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 15. EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
ii
<PAGE> 4
HESKA CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board on _______ __, 1997, effective as of
the date of the IPO. The purpose of the Plan is to provide Eligible Employees
with an opportunity to increase their proprietary interest in the success of
the Company by purchasing Stock from the Company on favorable terms and to pay
for such purchases through payroll deductions. The Plan is intended to qualify
under section 423 of the Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Company, who shall be appointed by the Board.
(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the
Plan and make all other policy decisions relating to the operation of the Plan.
The Committee may adopt such rules, guidelines and forms as it deems
appropriate to implement the Plan. The Committee's determinations under the
Plan shall be final and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, two
overlapping Offering Periods shall commence in each calendar year. The
Offering Periods shall consist of the 24-month periods commencing on each
January 1 and July 1, except that the first Offering Period shall commence on
the date of the IPO and end on June 30, 1999.
(b) ACCUMULATION PERIODS. While the Plan is in effect, two
Accumulation Periods shall commence in each calendar year. The Accumulation
Periods shall consist of the six-month periods commencing on each January 1 and
July 1, except that the first Accumulation Period shall commence on the date of
the IPO and end on December 31, 1997.
(c) ENROLLMENT. Any individual who, on the day preceding the
first day of an Offering Period, qualifies as an Eligible Employee may elect to
become a Participant in the Plan for such Offering Period by executing the
enrollment form prescribed for this purpose by the Committee. The enrollment
form shall be filed with the Company at the prescribed location not later than
10 days prior to the commencement of such Offering Period.
(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a
Participant shall continue to participate in the Plan until he or she ceases to
be an Eligible Employee, withdraws from the Plan under Section 5(a) or reaches
the end of the Accumulation Period in which his or
<PAGE> 5
her employee contributions were discontinued under Section 4(b), 4(d) or 8(b).
A Participant who discontinued employee contributions under Section 4(d) or
withdrew from the Plan under Section 5(a) may again become a Participant, if he
or she then is an Eligible Employee, by following the procedure described in
Subsection (c) above. A Participant whose employee contributions were
discontinued automatically under Section 4(b) or 8(b) shall automatically
resume participation at the beginning of the earliest Accumulation Period
ending in the next calendar year, if he or she then is an Eligible Employee.
(e) APPLICABLE OFFERING PERIOD. For purposes of calculating the
Purchase Price under Section 7(b), the applicable Offering Period shall be
determined as follows:
(i) Once a Participant is enrolled in the Plan for an
Offering Period, such Offering Period shall continue to apply to him
or her until the earliest of (A) the end of such Offering Period, (B)
the end of his or her participation under Subsection (d) above or (C)
re-enrollment in a subsequent Offering Period under Paragraph (ii)
below.
(ii) In the event that the Fair Market Value of Stock on the
last trading day before the commencement of the Offering Period in
which the Participant is enrolled is higher than on the last trading
day before the commencement of any subsequent offering period, the
Participant shall automatically be re-enrolled for such subsequent
Offering Period.
(iii) When a Participant reaches the end of an Offering Period
but his or her participation is to continue, then such Participant
shall automatically be re-enrolled for the Offering Period that
commences immediately after the end of the prior Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase
shares of Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.
(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall
designate on the enrollment form the portion of his or her Compensation that he
or she elects to have withheld for the purchase of Stock. Such portion shall
be a whole percentage of the Eligible Employee's Compensation, but not less
than 1% nor more than 10%. Any other provision of the Plan notwithstanding, no
Participant shall have more than $21,250 withheld in the aggregate during all
Accumulation Periods ending in the same calendar year. If a Participant is
precluded by this Subsection (b) from making additional employee contributions,
then his or her employee contributions shall automatically be discontinued and
shall resume at the beginning of the earliest Accumulation Period ending in the
next calendar year (if he or she then is an Eligible Employee).
2
<PAGE> 6
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change
the rate of payroll withholding, he or she may do so by filing a new enrollment
form with the Company at the prescribed location at any time. The new
withholding rate shall be effective as soon as reasonably practicable after
such form has been received by the Company. The new withholding rate shall be
a whole percentage of the Eligible Employee's Compensation, but not less than
1% nor more than 10%.
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a
new enrollment form with the Company at the prescribed location at any time.
Payroll withholding shall cease as soon as reasonably practicable after such
form has been received by the Company. (In addition, employee contributions
may be discontinued automatically pursuant to Section 4(b) or 8(b).) A
Participant who has discontinued employee contributions may resume such
contributions by filing a new enrollment form with the Company at the
prescribed location. Payroll withholding shall resume as soon as reasonably
practicable after such form has been received by the Company.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more
than two elections under Subsection (c) or (d) above during any Accumulation
Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan
by filing the prescribed form with the Company at the prescribed location at
any time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls
in the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an
Eligible Employee for any reason, including death, shall be treated as an
automatic withdrawal from the Plan under Section 5(a). (A transfer from one
Participating Company to another shall not be treated as a termination of
employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall
not be deemed to terminate when the Participant goes on a military leave, a
sick leave or another bona fide leave of absence, if the leave was approved by
the Company in writing and if continued crediting of service for such purpose
is expressly required by the terms of such leave or by applicable law (as
determined by the Company). Employment, however, shall be deemed to terminate
90 days after the Participant goes on a leave, unless a contract or statute
protects his or her right to return to
3
<PAGE> 7
work. Employment shall be deemed to terminate in any event when the approved
leave ends, unless the Participant immediately returns to work.
(c) DEATH. In the event of the Participant's death, the amount
credited to his or her Plan Account shall be paid to a beneficiary designated
by him or her for this purpose on the prescribed form or, if none, to the
Participant's estate. Such form shall be valid only if it was filed with the
Company at the prescribed location before the Participant's death.
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Company shall maintain a Plan Account on
its books in the name of each Participant. Whenever an amount is deducted from
the Participant's Compensation under the Plan, such amount shall be credited to
the Participant's Plan Account. Amounts credited to Plan Accounts shall not be
trust funds and may be commingled with the Company's general assets and applied
to general corporate purposes. No interest shall be credited to Plan Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Stock
purchased at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last
trading day in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the last
trading day before the commencement of the applicable Offering Period
(as determined under Section 3(e)) or, in the case of the first
Offering Period under the Plan, 85% of the price at which one share of
Stock is offered to the public in the IPO.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each
Accumulation Period, each Participant shall be deemed to have elected to
purchase the number of shares of Stock calculated in accordance with this
Subsection (c), unless the Participant has previously elected to withdraw from
the Plan in accordance with Section 5(a). The amount then in the Participant's
Plan Account shall be divided by the Purchase Price, and the number of shares
that results shall be purchased from the Company with the funds in the
Participant's Plan Account. The foregoing notwithstanding, no Participant
shall purchase more than 5,000 shares of Stock with respect to any Accumulation
Period nor more than the amounts of Stock set forth in Sections 8(b) and 12(a).
The Committee may determine with respect to all Participants that any
fractional share, as calculated under this Subsection (c), shall be rounded
down to the next lower whole share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the
aggregate number of shares that all Participants elect to purchase during an
Accumulation Period exceeds the maximum number of shares remaining available
for issuance under Section 12(a), then the number of shares to which each
Participant is entitled shall be determined by multiplying the number of shares
available for issuance by a fraction, the numerator of which is the number of
shares that such
4
<PAGE> 8
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) ISSUANCE OF STOCK. Certificates representing the shares of
Stock purchased by a Participant under the Plan shall be issued to him or her
as soon as reasonably practicable after the close of the applicable
Accumulation Period, except that the Committee may determine that such shares
shall be held for each Participant's benefit by a broker designated by the
Committee (unless the Participant has elected that certificates be issued to
him or her). Shares may be registered in the name of the Participant or
jointly in the name of the Participant and his or her spouse as joint tenants
with right of survivorship or as community property.
(f) UNUSED CASH BALANCES. An amount remaining in the
Participant's Plan Account that represents the Purchase Price for any
fractional share shall be carried over in the Participant's Plan Account to the
next Accumulation Period. Any amount remaining in the Participant's Plan
Account that represents the Purchase Price for whole shares that could not be
purchased by reason of Subsection (c) above, Section 8(b) or Section 12(a)
shall be refunded to the Participant in cash, without interest.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan
notwithstanding, no Participant shall be granted a right to purchase Stock
under the Plan if such Participant, immediately after his or her election to
purchase such Stock, would own stock possessing more than 5% of the total
combined voting power or value of all classes of stock of the Company or any
parent or Subsidiary of the Company. For purposes of this Subsection (a), the
following rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he
or she has a right or option to purchase under this or any other plan;
and
(iii) Each Participant shall be deemed to have the right to
purchase 5,000 shares of Stock under this Plan with respect to each
Accumulation Period.
(b) $25,000 LIMIT. Any other provision of the Plan
notwithstanding, no Participant shall purchase Stock with a Fair Market Value
(determined as of the beginning of the applicable Offering Period) in excess of
$25,000 during any calendar year under this Plan and all other employee stock
purchase plans of the Company or any parent or Subsidiary of the Company. For
purposes of this Subsection (b), employee stock purchase plans not described in
section 423 of the Code shall be disregarded. If a Participant is precluded by
this Subsection (b) from purchasing additional Stock under the Plan, then his
or her employee contributions shall automatically be discontinued and shall
resume at the beginning of the earliest Accumulation Period ending in the next
calendar year (if he or she then is an Eligible Employee).
5
<PAGE> 9
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by beneficiary designation
or the laws of descent and distribution. If a Participant in any manner
attempts to transfer, assign or otherwise encumber his or her rights or
interest under the Plan, other than by beneficiary designation or the laws of
descent and distribution, then such act shall be treated as an election by the
Participant to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall
confer upon the Participant any right to continue in the employ of a
Participating Company for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Participating Companies or of
the Participant, which rights are hereby expressly reserved by each, to
terminate his or her employment at any time and for any reason, with or without
cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to
any shares of Stock that he or she may have a right to purchase under the Plan
until such shares have been purchased on the last day of the applicable
Accumulation Period.
SECTION 12. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. The aggregate number of shares of
Stock available for purchase under the Plan shall be 250,000, subject to
adjustment pursuant to this Section 12.
(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of
Stock offered under the Plan, the 5,000- share limitation described in Section
7(c) and the price of shares that any Participant has elected to purchase shall
be adjusted proportionately by the Committee for any increase or decrease in
the number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Company, the distribution of the shares of a Subsidiary to the Company's
stockholders or a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan
notwithstanding, immediately prior to the effective time of a Change in
Control, the Offering Period and Accumulation Period then in progress shall
terminate and shares shall be purchased pursuant to Section 7. In the event of
a merger or consolidation to which the Company is a constituent corporation and
which does not constitute a Change in Control, the Plan shall continue unless
the plan of merger or consolidation provides otherwise. The Plan shall in no
event be construed to restrict in any way the Company's right to undertake a
dissolution, liquidation, merger, consolidation or other reorganization.
6
<PAGE> 10
SECTION 13. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan
at any time and without notice. Except as provided in Section 12, any increase
in the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Company. In addition,
any other amendment of the Plan shall be subject to approval by a vote of the
stockholders of the Company to the extent required by an applicable law or
regulation.
SECTION 14. DEFINITIONS
(a) "ACCUMULATION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 3(b).
(b) "BOARD" means the Board of Directors of the Company, as
constituted from time to time.
(c) "CHANGE IN CONTROL" means:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the
continuing or surviving entity's securities outstanding immediately
after such merger, consolidation or other reorganization is owned by
persons who were not stockholders of the Company immediately prior to
such merger, consolidation or other reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets or the complete liquidation
or dissolution of the Company. A transaction shall not constitute a
Change in Control if its sole purpose is to change the state of the
Company's incorporation or to create a holding company that will be
owned in substantially the same proportions by the persons who held the
Company's securities immediately before such transaction.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of the Board, as described in
Section 2.
(f) "COMPANY" means Heska Corporation, a Delaware corporation.
(g) "COMPENSATION" means (i) the total compensation paid in cash to
a Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions and overtime pay, plus (ii) any pre-tax
contributions made by the Participant under section 401(k) or 125 of the Code.
Compensation shall exclude moving or relocation allowances, car allowances,
imputed income attributable to cars or life insurance, fringe benefits,
7
<PAGE> 11
contributions to employee benefit plans and similar items. The Committee shall
determine whether a particular item is included in Compensation.
(e) "ELIGIBLE EMPLOYEE" means any employee of a Participating
Company who meets both of the following requirements:
(i) His or her customary employment is for more than five
months per calendar year and for more than 20 hours per week; and
(ii) He or she either (A) has been an employee of a
Participating Company for not less than 30 consecutive days or (B) is
an employee of a Participating Company on the date of the IPO.
The foregoing notwithstanding, an individual shall not be considered an
Eligible Employee if his or her participation in the Plan is prohibited by the
law of any country which has jurisdiction over him or her or if he or she is
subject to a collective bargaining agreement that does not provide for
participation in the Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(ii) "FAIR MARKET VALUE" means the market price of Stock, determined
by the Committee as follows:
(i) If Stock was traded over-the-counter on the date in
question but was not traded on The Nasdaq Stock Market or The Nasdaq
National Market, then the Fair Market Value shall be equal to the mean
between the last reported representative bid and asked prices quoted
for such date by the principal automated inter-dealer quotation system
on which Stock is quoted or, if the Stock is not quoted on any such
system, by the "Pink Sheets" published by the National Quotation
Bureau, Inc.;
(ii) If Stock was traded over-the-counter on the date in
question and was traded on The Nasdaq Stock Market or The Nasdaq
National Market, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by The Nasdaq Stock Market
or The Nasdaq National Market;
(iii) If the Stock was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite transactions report for
such date; and
(iv) If none of the foregoing provisions is applicable, then
the Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in The Wall Street Journal or as reported
directly to the Company by Nasdaq or a comparable exchange. Such determination
shall be conclusive and binding on all persons.
8
<PAGE> 12
(k) "IPO" means the initial offering of Stock to the public
pursuant to a registration statement filed with the Securities and Exchange
Commission on Form S-1.
(l) "OFFERING PERIOD" means a 24-month period with respect to which
the right to purchase Stock may be granted under the Plan, as determined
pursuant to Section 3(a).
(m) "PARTICIPANT" means an Eligible Employee who elects to
participate in the Plan, as provided in Section 3(c).
(n) "PARTICIPATING COMPANY" means (i) the Company and (ii) each
present or future Subsidiary designated by the Committee as a Participating
Company.
(o) "PLAN" means this Heska Corporation 1997 Employee Stock
Purchase Plan, as it may be amended from time to time.
(p) "PLAN ACCOUNT" means the account established for each
Participant pursuant to Section 7(a).
(q) "PURCHASE PRICE" means the price at which Participants may
purchase Stock under the Plan, as determined pursuant to Section 7(b).
(r) "STOCK" means the Common Stock of the Company.
(s) "SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
SECTION 15. EXECUTION.
To record the adoption of the Plan by the Board on ________ __, 1997,
the Company has caused its authorized officer to execute the same.
HESKA CORPORATION
By:
----------------------------
Title:
-------------------------
9
<PAGE> 13
HESKA CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
BENEFICIARY DESIGNATION
Name:
-------------------------------------
Social Security Number - -
----- --- -----
If I die, any unused cash in my account under the Heska Corporation 1997
Employee Stock Purchase Plan (the "Plan") is to be paid to those beneficiaries
designated below who survive me, subject to the provisions of the Plan. The
payment is to be made as follows [check one box only]:
[ ] Entirely to the spouse to whom I am currently married. [Please provide
names and addresses below.] If my spouse does not survive me, payment is
to be made to [check one box only]:
[ ] All of my children who survive me in equal shares.
[ ] All of the persons named below who survive me in equal shares.
[ ] To all of my children who survive me in equal shares. [Please provide
names and addresses below.]
[ ] Entirely to the first person named below who survives me.
[ ] To all of the persons named below who survive me in equal shares.
[ ] Other [please use a separate sheet if necessary]:
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
The term "children" means natural or legally adopted children but excludes
stepchildren (if not adopted). The term "siblings" means brothers and sisters,
whether natural or adoptive, but excludes stepbrothers and stepsisters.
1
<PAGE> 14
The names and addresses of my beneficiaries are as follows [please use a
separate sheet if necessary]:
1. Name: Relationship:
------------------- -----------
Address:
---------------------------------------
Telephone ( )
---------------- -------------
2. Name: Relationship:
------------------- -----------
Address:
---------------------------------------
Telephone ( )
---------------- -------------
3. Name: Relationship:
------------------- -----------
Address:
---------------------------------------
Telephone ( )
---------------- -------------
4. Name: Relationship:
------------------- -----------
Address:
---------------------------------------
Telephone ( )
---------------- -------------
5. Name: Relationship:
------------------- -----------
Address:
---------------------------------------
Telephone ( )
---------------- -------------
This beneficiary designation is to take effect on the date when it is received
by the person responsible for administering the Plan at Heska Corporation, and
it supersedes any prior designations that I may have made under the Plan.
, 199
- -------------- -- ----------------------------
(Signature)
Please file this form with .
---------------------
- --------------------------------------------------------------------------------
Received by:
Date of receipt: . 199
------------------ --
2
<PAGE> 1
EXHIBIT 10.22
LEASE AGREEMENT
OFFICE AND INDUSTRIAL SPACE
This Lease Agreement is made and entered into as of the 8th day of March,1994,
by and between Sharp Point Properties, LLC ("Landlord"), whose address is
4875 Pearl East Circle, Suite 300, Boulder, CO 80301, and Paravax, Inc.
("Tenant"), whose address is 1825 Sharp Point Drive, Fort Collins, CO 80525 .
In consideration of the covenants, terms, conditions, agreements and payments
as herein set forth, the Landlord and Tenant hereby enter into the following
Lease:
1. Definitions. Whenever the following words or phrases are used in this
Lease, said words or phrases shall have the following meaning:
A. "Area" shall mean the parcel of land depicted on Exhibit "A"
attached hereto and commonly known and referred to as 1825 Sharp Point Drive,
Fort Collins, Colorado. The Area includes the Leased Premises and one or more
buildings. The Area may include Common Areas.
B. "Building" shall mean a building located in the Area.
C. "Common Areas" shall mean all entrances, exits, driveways, curbs,
walkways, hallways, parking areas, landscaped areas, restrooms, loading and
service areas, and like areas or facilities which are located in the Area and
which are designated by the Landlord as areas or facilities available for the
nonexclusive use in common by persons designated by the Landlord.
D. "Leased Premises" shall mean the premises herein leased to the
Tenant by the Landlord.
E. "Tenant's Prorata Share" as to the Building in which the Leased
Premises are located shall mean an amount (expressed as a percentage) equal to
the number of square feet included in the Leased Premises divided by the total
number of leasable square feet included in said Building. The Tenant's Prorata
Share as to Common Areas shall mean an amount (expressed as a percentage )
equal to the number of square feet included in the Leased Premises divided by
the total number of leasable square feet included in all Buildings located in
the Area. The Tenant's Prorata Share for Common Areas may change from time to
time as the leasable square footage in all Buildings located in the Area is
increased or decreased.
2. Leased Premises. The Landlord hereby leases unto the Tenant, and the
Tenant hereby leases from the Landlord, the following described premises:
Space All in Building 1825 Sharp Point Drive
consisting of 19,200 square feet.
3. Base Term. The term of this Lease shall commence at 12:00 noon on
September 1, 1994, and, unless sooner terminated as herein provided for, shall
end at 12:00 noon on September, 2004 ("Lease Term"). Except as specifically
provided to the contrary herein, the Leased Premises shall, upon the
termination of this Lease, by virtue of the expiration of the Lease Term or
otherwise, be returned to the Landlord by the Tenant in as good or better
condition than when entered upon by the Tenant, ordinary wear and tear
excepted. For Option Period see Exhibit F.
The term of this Lease will move to October 1, 1994 - October 1, 2004 if
Landlord so notifies Tenant by March 31, 1994
4. Rent. Tenant shall pay the following rent for the Leased Premises:
A. Base Monthly Rent. Tenant shall pay to Landlord, without notice
and without setoff, at the address of Landlord as herein set forth, the
following Base Monthly Rent ("Base Monthly Rent"), said Base Monthly Rent to be
paid in advance on the first day of each month during the term hereof. In the
event that this Lease commences on a date other than the first day of a month,
the Base Monthly Rent for the first month of the Lease Term shall be prorated
for said partial month. Below is a schedule of Base Monthly Rental payments as
agreed upon:
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During Lease Term
<TABLE>
<CAPTION>
FOR PERIOD TO PERIOD A BASE MONTHLY
STARTING ENDING RENT OF
<S> <C> <C>
September 1, 1994 September 1, 2004 $ 14,320.00
</TABLE>
B. Lease Term Adjustment. If, for any reason, other than delays
caused by the Tenant, the Leased Premises are not ready for Tenant's occupancy
on September 1, 1994, the Tenant's rental obligation and other monetary
expenses (i.e. taxes, utilities, etc.) shall be abated in direct proportion to
the number of days of delay. It is hereby agreed that the premises shall be
deemed ready for occupancy on the day the Landlord receives a T.C.O. or C.O.
from the appropriate authority, or on the day the Landlord gives Tenant the
keys to the Leased Premises if a building permit has not been applied for
and/or is not required by the appropriate authority.
C. Cost of Living Adjustment. The Base Monthly Rental specified in
paragraph 4A above shall be recalculated for each Lease Year as defined
hereinafter following the first Lease Year of this Lease Agreement. The
recalculated Base Monthly Rental shall be hereinafter referred to as the
"Adjusted Monthly Rental". The Adjusted Monthly Rental for each Lease Year
after the first Lease Year shall be the greater of: (i) the amount of the
previous year's Adjusted Monthly Rental, (or the Base Monthly Rental if
calculating the Adjusted Monthly Rental for the second Lease Year), or (ii) an
amount calculated by the rent adjustment formula set forth below. In applying
the rent adjustment formula, the following definitions shall apply:
(1) "Lease Year" shall mean a period of twelve (12) consecutive full
calendar months with the first Lease Year commencing on the date of the
commencement of the term of this Lease and each succeeding Lease Year
commencing upon the anniversary date of the first Lease Year; however, if this
Lease does not commence on the first day of a month, then, the first Lease Year
and each succeeding Lease Year shall commence on the first day of the first
month following each anniversary date of this Lease;
(2) "Bureau" shall mean the Bureau of Labor Statistics of the United
States Department of Labor or any successor agency that shall issue the Price
Index referred to in this Lease Agreement.
(3) "Price Index" shall mean the "Consumer Price Index-All Urban
Consumers-All Items (CPI-U) U.S. City Average (1982-84=100)" issued from time
to time by the Bureau. In the event the Price Index shall hereafter be
converted to a different standard reference base or otherwise revised, the
determination of the increase in the Price Index shall be made with the use of
such conversion factor, formula or table as may be published by Prentice-Hall,
Inc. or failing such publication, by another nationally recognized publisher of
similar statistical information. In the event the Price Index shall cease to
be published, then, for the purposes of this paragraph 4C there shall be
substituted for the Price Index such other index as the Landlord and the Tenant
shall agree upon, and if they are unable to agree within sixty (60) days after
the Price Index ceases to be published, such matter shall be determined by
arbitration in accordance with the Rules of the American Arbitration
Association.
(4) "Base Price Index" shall mean the Price Index released to the
public during the second calendar month preceding the commencement of this
Lease Agreement.
(5) "Revised Price Index" shall mean the Price Index released to the
public during the second calendar month preceding the Lease Year for which the
Base Annual Rental is to be adjusted;
(6) "Basic Monthly Rental" shall mean the Basic Monthly Rental set
forth in subparagraph 4A above. The rent adjustment formula used to calculate
the Adjusted Monthly Rental is as follows:
Adjusted Monthly = Revised Price Index X Base Monthly Rental
Rental -------------------
Base Price Index
(7) Notwithstanding anything contained to the contrary in this
Paragraph C, Tenant's annual increase shall be no greater than 5%.
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The Adjusted Monthly Rental as hereinabove provided shall continue to be
payable monthly as required in paragraph 4A above without necessity of any
further notice by the Landlord to the Tenant.
D. Total Net Lease. The Tenant understands and agrees that this
Lease is a total net lease (a "net, net, net lease"), whereby the Tenant has
the obligation to reimburse the Landlord for a share of all costs and expenses
(taxes, insurance, trash removal, Common Area operation and maintenance and
like costs and expenses), incurred by the Landlord as a result of the
Landlord's ownership and operation of the Area. Major capital improvements,
such as total replacement of the roof or parking lot are not considered to be
maintenance items as described in this Paragraph 6D.
5. Security Deposit. Landlord acknowledges receipt from the Tenant
of the sum of Fourteen Thousand, Three Hundred Twenty & No/100 Dollars ($
14,320.00 ) to be retained by Landlord without responsibility for payment of
interest thereon, as security for performance of all the terms and conditions
of this Lease Agreement to be performed by Tenant, including payment of all
rent due under the terms hereof. Deductions may be made by Landlord from the
amount so retained for the reasonable cost of repairs to the Leased Premises
(ordinary wear and tear excepted), for any rent delinquent under the terms
hereof and/or for any sum used in any manner to cure any default of Tenant
under the terms of this Lease. In the event deductions are so made, the Tenant
shall, upon notice from the Landlord, redeposit with the Landlord such amounts
so expended so as to maintain the deposit in the amount as herein provided for,
and failure to so redeposit shall be deemed a failure to pay rent under the
terms hereof. Nothing herein contained shall limit the liability of Tenant as
to any damage to the Leased Premises, and Tenant shall be responsible for the
total amount of any damage and/or loss occasioned by actions of Tenant.
Landlord may deliver the funds deposited hereunder by Tenant to any purchaser
of Landlord's interest in the Leased Premises in the event such interest shall
be sold, and thereupon Landlord shall be discharged from any further liability
with respect to such deposit.
6. Use of Premises. Tenant shall use the Leased Premises only for
Research, Development and Manufacture of Biopharmaceutical Products and for no
other purpose whatsoever except with the written consent of Landlord. Tenant
shall not allow any accumulation of trash or debris on the Leased Premises or
within any portion of the Area. All receiving and delivery of goods and
merchandise and all removal of garbage and refuse shall be made only by way of
the rear and/or other service door provided therefore. In the event the Leased
Premises shall have no such door, then these matters shall be handled in a
manner satisfactory to Landlord. No storage of any material outside of the
Leased Premises shall be allowed unless first approved by Landlord in writing,
and then in only such areas as are designated by Landlord. Tenant shall not
commit or suffer any waste on the Leased Premises nor shall Tenant permit any
nuisance to be maintained on the Leased Premises or permit any disorderly
conduct or other activity having a tendency to annoy or disturb any occupants
of any part of the Area and/or any adjoining property.
7. Laws and Regulations. -- Tenant Responsibility. The Tenant shall,
at its sole cost and expense, comply with all laws and regulations of any
governmental entity, board, commission or agency having jurisdiction over the
Leased Premises. Tenant agrees not to install any electrical equipment that
overloads any electrical paneling, circuitry or wiring and further agrees to
comply with the requirements of the insurance underwriter or any governmental
authorities having jurisdiction thereof.
8. Landlord's Rules and Regulations. Landlord reserves the right to
adopt and promulgate rules and regulations applicable to the Leased Premises
and from time to time amend or supplement said rules or regulations. Notice of
such rules and regulations and amendments and supplements thereto shall be
given to Tenant, and Tenant agrees to comply with and observe such rules and
regulations and amendments and supplements thereto provided that the same apply
uniformly to all Tenants of the Landlord in the Area.
9. Parking. If the Landlord provides off street parking for the
common use of Tenants, employees and customers of the Area, the Tenant shall
park all vehicles of whatever type used by Tenant and/or Tenant's employees
only in such areas thereof as are designated by Landlord for this purpose, and
Tenant accepts the responsibility of seeing that Tenant's employees park only
in the areas so designated. Tenant shall, upon the request of the Landlord,
provide to the Landlord license numbers of the Tenant's vehicles and the
vehicles of Tenant's employees.
10. Control of Common Areas. -- Exclusive control of the Landlord.
All Common Areas shall at all times be subject to the exclusive control and
management of Landlord, notwithstanding that Tenant and/or Tenant's employees
and/or customers may have a nonexclusive right to the use thereof. Landlord
shall have the right from time to time to establish, modify and enforce rules
and regulations with respect to the use of said facilities and Common Areas.
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11. Taxes.
A. Real Property Taxes and Assessments. The Tenant shall pay
to the Landlord on the first day of each month, as additional rent, the
Tenant's Prorata Share of all real estate taxes and special assessments levied
and assessed against the Building in which the Leased Premises are located and
the Common Areas. If the first and last years of the Lease Term are not
calendar years, the obligations of the Tenant hereunder shall be prorated for
the number of days during the calendar year that this Lease is in effect. The
monthly payments for such taxes and assessments shall be $ 1,440.00 until the
Landlord receives the first tax statement for the referred to properties.
Thereafter, the monthly payments shall be based upon 1/12th of the prior year's
taxes and assessments. Once each year the Landlord shall determine the actual
Tenant's Prorata Share of taxes and assessments for the prior year and if the
Tenant has paid less than the Tenant's Prorata Share for the prior year the
Tenant shall pay the deficiency to the Landlord with the next payment of Base
Monthly Rent, or, if the Tenant has paid in excess of the Tenant's Prorata
Share for the prior year the Landlord shall forthwith refund said excess to the
Tenant.
B. Personal Property Taxes. Tenant shall be responsible for,
and shall pay promptly when due, any and all taxes and/or assessments levied
and/or assessed against any furniture, fixtures, equipment and items of a
similar nature installed and/or located in or about the Leased Premises by
Tenant.
C. Rent Tax. If a special tax, charge or assessment is
imposed or levied upon the rents paid or payable hereunder or upon the right of
the Landlord to receive rents hereunder (other than to the extent that such
rents are included as a part of the Landlord's income for the purpose of an
income tax), the Tenant shall reimburse the Landlord for the amount of such tax
within fifteen (15) days after demand therefore is made upon the Tenant by the
Landlord.
D. Should Landlord protest and win a reduction in the real
estate taxes for the Building and Area, Tenant shall be obligated to pay its
Prorata Share of the cost of such protest, if the protest is handled by a party
other than the Landlord.
12. Insurance.
A. Landlord's Insurance. The Landlord shall procure and
maintain fire and casualty coverage for full replacement value of building to
include, but not be limited to roofs and walls, loss of rents and liability
insurance as it, from time to time, deems proper and appropriate in reference
to the Building in which the Leased Premises are located and the Common Areas.
Such insurance shall not be required to cover any of the Tenant's property and
the Tenant shall have no interest in any of the proceeds of such insurance.
B. Tenant's Insurance. Tenant shall, at its sole cost and
expense, insure on a full replacement cost basis, Tenant's inventory, fixtures,
leasehold improvements and betterments located on the Leased Premises against
loss resulting from fire or other casualty. Tenant shall procure, pay for and
maintain, comprehensive public liability insurance providing coverage from and
against any loss or damage occasioned by an accident or casualty on, about or
adjacent to the Leased Premises. Said liability policy shall be written on an
"occurrence basis" with limits of not less than $1,000,000 combined single
limit coverage. Certificates for such insurance shall be delivered to Landlord
and shall provide that said insurance shall not be changed, modified, reduced
or cancelled without thirty (30) days prior written notice thereof being given
to Landlord.
C. Tenant's High Pressure Steam Boiler Insurance. If Tenant
makes use of any kind of steam or other high pressure boiler or other apparatus
which presents a risk of damage to the Leased Premises or to the Building or
other improvements of which the Leased Premises are a part or to the life or
limb of persons within such premises, Tenant shall secure and maintain
appropriate boiler insurance in an amount satisfactory to Landlord. The
Landlord shall be named insured in any such policy or policies. Certificates
for such insurance shall be delivered to Landlord and shall provide that said
insurance shall not be changed, modified, reduced or cancelled without thirty
(30) days prior written notice thereof being given to Landlord.
D. Tenant's Share of Landlord Insurance. Tenant shall pay
the Landlord as additional rent Tenant's Prorata Share of the insurance secured
by the Landlord pursuant to "12A" above. Payment shall be made on the first
day of each month as additional rent. The monthly payments for such insurance
shall be $96.00 until changed by Landlord as a result of an increase or decrease
in the cost of such insurance.
E. Mutual Subrogation Waiver. Landlord and Tenant hereby
grant to each other, on behalf of any insurer providing fire and extended
coverage to either of them covering the Leased Premises, Buildings or other
improvements thereon or contents thereof, a waiver of any right of subrogation
any such insurer of one party may acquire against the other or as against the
Landlord or
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Tenant by virtue of payments of any loss under such insurance. Such a waiver
shall be effective so long as the Landlord and Tenant are empowered to grant
such waiver under the terms of their respective insurance policy or policies
and such waiver shall stand mutually terminated as of the date either Landlord
or Tenant gives notice to the other that the power to grant such waiver has
been so terminated.
13. Utilities. Tenant shall be solely responsible for and promptly
pay all charges for heat, water, gas, electric, sewer service and any other
utility service used or consumed on the Leased Premises. Should Landlord elect
to supply all or any of the utility services to be used or consumed on the
Leased Premises, Tenant shall, within ten (10) days from presentation of the
statement for such utility service, pay to Landlord, as additional rent under
the terms hereof, the amount of said statement if it represents utility service
furnished to the Leased Premises only or its prorata share of said statement
if it includes utility service to an area greater than the Leased Premises.
Said proration of utilities shall be reviewed by Landlord and Tenant at the end
of the first year of occupancy, at which time Landlord shall determine if the
present percentage of said total utilities is equitable in relation to the use
of total services by all the Tenants and will be adjusted by Landlord, if
necessary. The Tenant shall forthwith upon taking occupancy of the Leased
Premises make arrangements with the Public Service Company, U.S. West or other
appropriate utility company to pay the utilities used on the Leased Premises
and to have the same billed to the Tenant at the address designated by the
Tenant. Should there be a time where the Landlord remains responsible for
utilities supplied to the Leased Premises, the Landlord shall bill the Tenant
therefore and the Tenant shall promptly reimburse the Landlord therefore. In
no event shall Landlord be liable for any interruption or failure in the supply
of any such utility to the Leased Premises.
In the event the utility company supplying water and/or sewer to the
Leased Premises determines that an additional service fee, impact fee, and/or
assessment, or any other type of payment or penalty is necessary due to
Tenant's use and occupancy of the Building, nature of operation and/or
consumption of utilities, said expense shall be borne solely by the Tenant.
Said expense shall be paid promptly and any repairs requested by the utility
company shall be performed by Tenant immediately and without any delay.
14. Maintenance Obligations of Landlord. Except as herein otherwise
specifically provided for, and not including capital improvement, Landlord
shall keep and maintain the roof and exterior of the Building of which the
Leased Premises are a part in good repair and condition. Tenant shall repair
and pay for any damage to roof, foundation and external walls caused by
Tenant's action, negligence or fault.
15. Maintenance Obligations of the Tenant. Subject only to the
maintenance obligations of the Landlord as herein provided for, the Tenant
shall, during the entire Lease Term, including all extensions thereof, at the
Tenant's sole cost and expense, keep and maintain the Leased Premises in good
condition and repair, including specifically the following:
A. Electrical Systems. Tenant agrees to maintain in good
working order and to make all required repairs and replacements to the
electrical systems for the Leased Premises. Tenant upon signing this Lease
acknowledges that Tenant has inspected the existing electrical systems and all
such systems are in good repair and working order.
B. Plumbing Systems. Tenant agrees to maintain in good
working order and to make all required repairs or replacements to the plumbing
systems for the Leased Premises. Tenant upon signing this Lease acknowledges
that Tenant has inspected the existing plumbing systems and all such systems
are in good repair and working order.
C. Inspections and Service. Upon termination of Lease
Agreement, Tenant agrees, before vacating premises, to employ at Tenant's sole
cost and expense, a licensed contractor to inspect, service and write a written
report on the systems referred to in "A" and "B" of this Paragraph. Landlord
shall have the right to order such an inspection if Tenant fails to provide
evidence of such inspection, and, to follow the recommendations of such reports
and to charge the expense thereof to the Tenant.
D. Tenant's Responsibility for Building and Area Repairs.
Tenant shall be responsible for any repairs required for any part of the
Building or Area of which the Leased Premises are a part if such repairs are
necessitated by the actions or inactions of Tenant.
E. Cutting Roof. Tenant must obtain in writing the
Landlord's approval prior to making any roof penetrations. Failure by Tenant
to obtain written permission to penetrate a roof shall relieve Landlord of any
roof repair obligations as set forth in Paragraph "14" hereof. Tenant further
agrees to repair, at its sole cost and expense, all roof penetrations made by
the Tenant and to use, if so requested by Landlord, a licensed contractor
selected by the Landlord to make such penetrations and repairs.
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F. Glass and Doors. The repair and replacement of all glass
and doors on the Leased Premises shall be the responsibility of the Tenant.
Any such replacements or repairs shall be promptly completed at the expense of
the Tenant.
G. Liability for Overload. Tenant shall be responsible for
the repair or replacement of any damage to the Leased Premises, the Building or
the Area which result from the Tenant's movement of heavy articles therein or
thereon. Tenant shall not overload the floors of any part of the Leased
Premises.
H. Liability for Overuse and Overload of Operating Systems.
Tenant shall be responsible for the repair, upgrade, modification, and/or
replacement of any operating systems servicing the Leased Premises and/or all
or part of the Building which is necessitated by Tenant's change or increase in
use of or non-disclosed use of all or a part of the Leased Premises. Operating
systems include, but are not limited to, electrical systems; plumbing systems
(both water and natural gas); heating, ventilating, and air conditioning
systems; telecommunications systems; computer and network systems; lighting
systems, fire sprinkler systems; security systems; and building control
systems, if any.
I. Inspection of Leased Premises-"As Is" Conditions. Tenant
has inspected the Leased Premises and accepts the Leased Premises in the
condition that they exist as of the date of this Lease, including, but not
limited to, all mechanical, plumbing and electrical systems and the conditions
of the interior except: Tenant shall have thirty (30) days to inspect the
condition of the mechanical, plumbing and electrical systems to ensure that
they are in good working order. If said systems are not found to be in good
working order as determined by a licensed contractor, Landlord shall be
responsible for making any necessary repairs.
J. Failure of Tenant to Maintain Premises. Should Tenant
neglect to keep and maintain the Leased Premises as required herein, the
Landlord shall have the right, but not the obligation, to have the work done
and any reasonable costs plus a ten percent (10%) overhead charge therefore
shall be charged to Tenant as additional rental and shall become payable by
Tenant with the payment of the rental next due.
16. Common Area Maintenance. Tenant shall be responsible for
Tenant's Prorata share of the total costs incurred for the operation,
maintenance and repair of the Common Areas, including, but not limited to, the
costs and expenses incurred for the operation, maintenance and repair of
parking areas (including restriping and repaving); removal of snow; utilities
for common lighting and signs; normal HVAC maintenance and elevator maintenance
(if applicable); trash removal; security to protect and secure the Area; common
entrances, exits, and lobbies of the Building; all common utilities, including
water to maintain landscaping; replanting in order to maintain a smart
appearance of landscape areas; supplies; depreciation on the machinery and
equipment used in such operation, maintenance and repair; the cost of personnel
to implement such services; the cost of maintaining in good working condition
the HVAC system(s) for the Leased premises; the cost of maintaining in good
working condition the elevator(s) for the Leased Premises, if applicable; and
Ten percent ( 10 %) of all such operational, maintenance and repair costs
to cover Landlord's administrative and overhead costs. These costs shall be
estimated on an annual basis by the Landlord and shall be adjusted upwards or
downwards depending on the actual costs for the preceding twelve months.
Tenant shall pay monthly, commencing with the first month of the Lease Term, as
additional rent due under the terms hereof, a sum equal to Tenant's Prorata
Share of the estimated costs for said twelve (12) month period, divided by 12.
The estimated initial monthly costs are $ 1,040.00. Once each year the
Landlord shall determine the actual costs of the foregoing expenses for the
prior year and if the actual costs are greater than the estimated costs, the
Tenant shall pay its Tenant's Prorata Share of the difference between the
estimated costs and the actual costs to the Landlord with the next payment of
Base Monthly Rent, or, if the actual costs are less than the estimated costs,
the Landlord shall forthwith refund the amount of the Tenant's excess payment
to the Tenant.
17. Inspection of and Right of Entry to Leased Premises--Regular,
Emergency, Reletting. Landlord and/or Landlord's agents and employees, shall
have the right to enter the Leased Premises at all times during regular
business hours and, at all times during emergencies, to examine the Leased
Premises, to make such repairs, alterations, improvements or additions as
Landlord deems necessary, and Landlord shall be allowed to take all materials
into and upon said Leased Premises that may be required therefore without the
same constituting an eviction of Tenant in whole or in part, and the rent
reserved shall in no way abate while such repairs, alterations, improvements or
additions are being made, by reason of loss or interruption of business of
Tenant or otherwise. During the six months prior to the expiration of the term
of this Lease or any renewal thereof, Landlord may exhibit the Leased Premises
to prospective tenants and/or purchasers and may place upon the Leased Premises
the usual notices indicating that the Leased Premises are for lease and/or
sale.
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18. Alteration-Changes and Additions-Responsibility. Unless the
Landlord's approval is first secured in writing, such approval not to be
unreasonably withheld, the Tenant shall not install or erect inside partitions,
add to existing electric power service, add telephone outlets, add light
fixtures, install additional heating and/or air conditioning or make any other
changes or alterations to the interior or exterior of the Leased Premises. Any
such changes or alterations shall be made at the sole cost and expense of the
Tenant. At the end of this Lease, all such fixtures, equipment, additions,
changes and/or alterations (except trade fixtures installed by Tenant) shall be
and remain the property of Landlord; provided, however, Landlord shall have the
option to require Tenant to remove any or all such fixtures, equipment,
additions and/or alterations and restore the Leased Premises to the condition
existing immediately prior to such change and/or installation, normal wear and
tear excepted, all at Tenant's cost and expense. All such work shall be done
in a good and workmanlike manner and shall consist of new materials unless
agreed to otherwise by Landlord. Any and all repairs, changes and/or
modifications thereto shall be the responsibility of, and at the cost of,
Tenant. Landlord may require adequate security from Tenant assuring no
mechanics' liens on account of work done on the Leased Premises by Tenant and
may post the Leased Premises, or take such other action as is then permitted by
law, to protect the Landlord and the Leased Premises against mechanics' liens.
Landlord may also require adequate security to assure Landlord that the Leased
Premises will be restored to their original condition upon termination of this
Lease.
19. Sign Approval. Except for signs which are located inside of the
Leased Premises and which are not attached to any part of the Leased Premises,
the Landlord must approve in writing any sign to be placed in or on the
interior or exterior of the Leased Premises, regardless of size or value.
Specifically, signs attached to windows of the Leased Premises must be so
approved by the Landlord. As a condition to the granting of such approval,
Landlord shall have the right to require Tenant to furnish a bond or other
security acceptable to Landlord sufficient to insure completion of and payment
for any such sign work to be so performed. Tenant shall, during the entire
Lease Term, maintain Tenant's signs in good condition and repair at Tenant's
sole cost and expense. Tenant shall, remove all signs at the termination of
this Lease, at Tenant's sole risk and expense and shall in a workmanlike manner
properly repair any damage and close any holes caused by the installation
and/or removal of Tenant's signs. Tenant shall give Landlord prior notice of
such removal so that a representative of Landlord shall have the opportunity of
being present when the signage is removed, or shall pre-approve the manner and
materials used to repair damage and close the holes caused by removal.
20. Right of Landlord to Make Changes and Additions. Landlord
reserves the right at any time to make alterations or additions to the Building
or Area of which the Leased Premises are a part. Landlord also reserves the
right to construct other buildings and/or improvements in the Area and to make
alterations or additions thereto, all as Landlord shall determine. Easements
for light and air are not included in the leasing of the Leased Premises to
Tenant. Landlord further reserves the exclusive right to the roof of the
Building of which the Leased Premises are a part. Landlord also reserves the
right at any time to relocate, vary and adjust the size of any of the
improvements or Common Areas located in the Area, provided, however, that all
such changes shall be in compliance with the requirements of governmental
authorities having jurisdiction over the Area. Nothing in this Lease will
require Tenant to indemnify, hold harmless or release Landlord for any claim,
loss, expense, cost judgement and/or demand, or fees, arising from the
negligence or willful misconduct of Landlord, its agents, employees or
contractors, or a breach of the obligations of Landlord hereunder.
21. Damage or Destruction of Leased Premises. In the event the
Leased Premises and/or the Building of which the Leased Premises are a part
shall be totally destroyed by fire or other casualty or so badly damaged that,
in the opinion of Landlord and Tenant, it is not feasible to repair or rebuild
same, Landlord shall have the right to terminate this Lease upon written notice
to Tenant. If the Leased Premises are partially damaged by fire or other
casualty, except if caused by Tenant's negligence, and said Leased Premises are
not rendered untenantable thereby, as determined by Landlord and Tenant, an
appropriate reduction of the rent shall be allowed for the unoccupied portion
of the Leased Premises until repair thereof shall be substantially completed.
If the Landlord elects to exercise the right herein vested in it to terminate
this Lease as a result of damage to or destruction of the Leased Premises or
the Building in which the Leased Premises are located, said election shall be
made by giving notice thereof to the Tenant within thirty (30) days after the
date of said damage or destruction.
22. Governmental Acquisition of Property. The parties agree that
Landlord shall have complete freedom of negotiation and settlement of all
matters pertaining to the acquisition of the Leased Premises, the Building, the
Area, or any part thereof, by any governmental body or other person or entity
via the exercise of the power of eminent domain, it being understood and agreed
that any financial settlement made or compensation paid respecting said land or
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improvements to be so taken, whether resulting from negotiation and agreement
or legal proceedings, shall be the exclusive property of Landlord, there being
no sharing whatsoever between Landlord and Tenant of any sum so paid. In the
event of any such taking, Landlord shall have the right to terminate this Lease
on the date possession is delivered to the condemning person or authority.
Such taking of the property shall not be a breach of this Lease by Landlord nor
give rise to any claims in Tenant for damages or compensation from Landlord.
Nothing herein contained shall be construed as depriving the Tenant of the
right to retain as its sole property any compensation paid for any tangible
personal property owned by the Tenant which is taken in any such condemnation
proceeding.
23. Assignment or Subletting. Tenant may not assign this Lease, or
sublet the Leased Premises or any part thereof, without the written consent of
Landlord, such consent not to be unreasonably withheld. No such assignment or
subletting if approved by the Landlord shall relieve Tenant of any of its
obligations hereunder, and, the performance or nonperformance of any of the
covenants herein contained by subtenants shall be considered as the performance
or the nonperformance by the Tenant. In the event of an acquisition, merger,
or reorganization, the assignment of the Lease shall not be unreasonably
withheld by Landlord.
24. Warranty of Title. Subject to the provisions of the following
three (3) paragraphs hereof, Landlord covenants it has good right to lease the
Leased Premises in the manner described herein and that Tenant shall peaceably
and quietly have, hold, occupy and enjoy the Leased Premises during the term of
the Lease.
25. Access. Landlord shall provide Tenant nonexclusive access to the
Leased Premises through and across land and/or other improvements owned by
Landlord. Landlord shall have the right, during the term of this Lease, to
designate, and to change, such nonexclusive access.
26. Subordination. Tenant agrees that this Lease shall be
subordinate to any mortgages, trust deeds or ground leases that may now exist
or which may hereafter be placed upon said Leased Premises and to any and all
advances to be made thereunder, and to the interest thereon, and all renewals,
replacements and extensions thereof. Tenant shall execute and deliver whatever
instruments may be required for the above purposes, and failing to do so within
ten (10) days after demand in writing, does hereby make, constitute and
irrevocably appoint Landlord as its attorney-in-fact and in its name, place and
stead so to do. Tenant shall in the event of the sale or assignment of
Landlord's interest in the Area or in the Building of which the Leased Premises
form a part, or in the event of any proceedings brought for the foreclosure of
or in the event of exercise of the power of sale under any mortgage made by
Landlord covering the Leased Premises, attorn to the purchaser and recognize
such purchaser as Landlord under this Lease.
27. Easements. The Landlord shall have the right to grant any
easement on, over, under and above the Area for such purposes as Landlord
determines, provided that such easements do not materially interfere with
Tenant's occupancy and use of the Leased Premises.
28. Tenant's Hold Harmless and Indemnification Agreement. Tenant
shall indemnify and hold Landlord harmless from and against any and all claims,
losses, expenses, costs, judgments, and/or demands, including court costs and
attorney's fees, suffered or incurred by the Landlord, arising from activities
of Tenant on the Leased Premises or in the Building or in the Area and/or on
account of any operation or action by Tenant and/or from and against all claims
arising from any breach or default on the part of Tenant or any act of
negligence of Tenant, it agents, contractors, servants, employees, licensees,
or invitees; or any accident, injury or death of any person or damage to any
property in or about the Leased Premises, the Building or the Area.
29. Acts or Omission of Others. The Landlord, or its employees or
agents, or any of them, shall not be responsible or liable to the Tenant or to
the Tenant's guests, invitees, employees, agents or any other person or entity,
for any loss or damage that may be caused by the acts or omissions of other
tenants, their guests or invitees, occupying any other part of the Area or by
persons who are trespassers on or in the Area, or for any loss or damage caused
or resulting from the bursting, stoppage, backing up or leaking of water, gas,
electricity or sewers or caused in any other manner whatsoever, unless such
loss or damage is caused by or results from the negligent acts of the Landlord,
its agents or contractors.
30. Interest on Past Due Obligations. Any amount due to Landlord not
paid when due shall bear interest at One and One Half (1 1/2%) percent per
month from due date until paid. Payment of such interest shall not excuse or
cure any default by Tenant under this Lease.
31. Holding Over-Double Last Month's Rent. If Tenant shall remain in
possession of the Leased Premises after the termination of this Lease, whether
by expiration of the Lease Term or otherwise, without a written agreement as to
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such possession, then Tenant shall be deemed a month-to-month Tenant. The rent
rate during such holdover tenancy shall be equivalent to double the monthly
rent paid for the last full month of tenancy under this Lease, excluding any
free rent concessions which may have been made for the last full month of the
Lease. No holding over by Tenant shall operate to renew or extend this Lease
without the written consent of Landlord to such renewal or extension having
been first obtained. Tenant shall indemnify Landlord against loss or liability
resulting from the delay by Tenant in surrendering possession of the Leased
Premises including, without limitation, any claims made with regard to any
succeeding occupancy bounded by such holdover period.
32. Modification or Extensions. No modification or extension of this
Lease shall be binding upon the parties hereto unless in writing and unless
signed by the parties hereto.
33. Notice Procedure. All notices, demands and requests which may be
or are required to be given by either party to the other shall be in writing
and such that are to be given to Tenant shall be deemed to have been properly
given if served on Tenant or an employee of Tenant or sent to Tenant by United
States registered or certified mail, return receipt requested, properly sealed,
stamped and addressed to Tenant at 1825 Sharp Point Drive, Fort Collins, CO
80525 or at such other place as Tenant may from time to time designate in a
written notice to Landlord; and, such as are to be given to Landlord shall be
deemed to have been properly given if personally served on Landlord or if sent
to Landlord, United States registered or certified mail, return receipt
requested, properly sealed, stamped and addressed to Landlord at 4875 Pearl
East Circle #300, Boulder, CO 80301 or at such other place as Landlord may from
time to time designate in a written notice to Tenant. Any notice given by
mailing shall be effective as of the date of mailing.
34. Memorandum of Lease-Notice to Mortgagee. The Landlord and Tenant
agree not to place this Lease of record, but upon the request of either party
to execute and acknowledge so the same may be recorded a short form lease
indicating the names and respective addresses of the Landlord and Tenant, the
Leased Premises, the Lease Term, the dates of the commencement and termination
of the Lease Term and options for renewal, if any, but omitting rent and other
terms of this Lease. Tenant agrees to an assignment by Landlord of rents and
of the Landlord's interest in this Lease to a mortgagee, if the same be made by
Landlord. Tenant further agrees if requested to do so by the Landlord that it
will give to said mortgagee a copy of any request for performance by Landlord
or notice of default by Landlord; and in the event Landlord fails to cure such
default, the Tenant will give said mortgagee a sixty (60) day period in which
to cure the same. Said period shall begin with the last day on which Landlord
could cure such default before Tenant has the right to exercise any remedy by
reason of such default. All notices to the mortgagee shall be sent by United
States registered or certified mail, postage prepaid, return receipt requested.
35. Controlling Law. The Lease, and all terms hereunder shall be
construed consistent with the laws of the State of Colorado. Any dispute
resulting in litigation hereunder shall be resolved in court proceedings
instituted in Larimer County and in no other jurisdiction.
36. Landlord Not a Partner With the Tenant. Nothing contained in
this Lease shall be deemed, held or construed as creating Landlord as a
partner, agent, associate of or in joint venture with Tenant in the conduct of
Tenant's business, it being expressly understood and agreed that the
relationship between the parties hereto is and shall at all times remain that
of Landlord and Tenant.
37. Partial Invalidity. If any term, covenant or condition of this
Lease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease or the
application of such term, covenant or condition to persons and circumstances
other than those to which it has been held invalid or unenforceable, shall not
be affected thereby, and each term, covenant and condition of this Lease shall
be valid and shall be enforced to the fullest extent permitted by law.
38. Default-Remedies of Landlord.
A. If Tenant shall default in the payment of rent or in the
keeping of any of the terms, covenants or conditions of this Lease to be kept
and/or performed by Tenant; and, has not cured such default within ten (10)
days after written notice from Landlord, Landlord may immediately, or at any
time thereafter, reenter the Leased Premises, remove all persons and property
therefrom, without being liable to indictment, prosecution for damage
therefore, or for forcible entry and detainer and repossess and enjoy the
Leased Premises, together with all additions thereto or alterations and
improvements thereof. Landlord may, at its option, at any time and from time
to time thereafter, relet the Leased Premises or any part thereof for the
account of Tenant or otherwise, and receive and collect the rents therefore and
apply the same first to the payment of such expenses as Landlord may have
incurred in recovering possession and for putting the same in good order and
condition for rerental, and expense, commissions and charges paid by Landlord
in reletting the Leased Premises. Any
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such reletting may be for the remainder of the term of this Lease or for a
longer or shorter period. In lieu of reletting such Leased Premises, Landlord
may occupy the same or cause the same to be occupied by others. Whether or not
the Leased Premises or any part thereof be relet, Tenant shall pay the Landlord
the rent and all other charges required to be paid by Tenant up to the time of
the expiration of this Lease or such recovered possession, as the case may be
and thereafter, Tenant, if required by Landlord, shall pay to Landlord until
the end of the term of this Lease, the equivalent of the amount of all rent
reserved herein and all other charges required to be paid by Tenant, less the
net amount received by Landlord for such reletting, if any, unless waived by
written notice from Landlord to Tenant. No action by Landlord to obtain
possession of the Leased Premises and/or to recover any amount due to Landlord
hereunder shall be taken as a waiver of Landlord's right to require full and
complete performance by Tenant of all terms hereof, including payment of all
amounts due hereunder or as an election on the part of Landlord to terminate
this Lease Agreement. If the Leased Premises shall be reoccupied by Landlord,
then, from and after the date of repossession, Tenant shall be discharged of
any obligations to Landlord under the provisions hereof for the payment of
rent. If the Leased Premises are reoccupied by the Landlord pursuant hereto,
and regardless of whether the Leased Premises shall be relet or possessed by
Landlord, all fixtures, additions, furniture, and the like then on the Leased
Premises, excluding any equipment, fixtures, and furniture that Tenant may be
leasing from a third party, may be retained by Landlord. In the event Tenant
is in default under the terms hereof and, by the sole determination of
Landlord, has abandoned the Leased Premises, Landlord shall have the right to
remove all the Tenant's property from the Leased Premises and dispose of said
property in such a manner as determined best by Landlord, at the sole cost and
expense of Tenant and without liability of Landlord for the actions so taken.
B. In the event an assignment of Tenant's business or
property shall be made for the benefit of creditors, or, if the Tenant's
leasehold interest under the terms of this Lease Agreement shall be levied upon
by execution or seized by virtue of any writ of any court of law, or, if
application be made for the appointment of a receiver for the business or
property of Tenant, or, if a petition in bankruptcy shall be filed by or
against Tenant, then and in any such case, at Landlord's option, with or
without notice, Landlord may terminate this Lease and immediately retake
possession of the Leased Premises without the same working any forfeiture of
the obligations of Tenant hereunder.
C. [Omitted because stricken by parties.]
D. In addition to remedy granted to Landlord by the terms
hereof, Landlord shall have available any and all rights and remedies available
under the statutes of the State of Colorado. No remedy herein or otherwise
conferred upon or reserved to Landlord shall be considered exclusive of any
other remedy but shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute. Further, all powers and remedies given by this Lease to Landlord may
be exercised, from time to time, and as often as occasion may arise or as may
be deemed expedient. No delay or omission of Landlord to exercise any right or
power arising from any default shall impair any such right or power or shall be
considered to be a waiver of any such default or acquiescence thereof. The
acceptance of rent by Landlord shall not be deemed to be a waiver of any breach
of any of the covenants herein contained or of any of the rights of Landlord to
any remedies herein given.
E. If Tenant shall, for any reason, vacate the Leased
Premises before the current expiration date, landlord shall have the right to
accelerate rental payments and any and all future rent payments due during the
course of the Lease Term shall become immediately payable in full to the
Landlord.
39. Legal Proceedings-Responsibilities. In the event of proceeding
at law or in equity by either party hereto, the defaulting party shall pay all
costs and expenses, including all reasonable attorney's fees incurred by the
non-defaulting party in pursuing such remedy, if such non-defaulting party is
awarded substantially the relief requested.
40. Administrative Charges. In the event any check, bank draft or
negotiable instrument given for any money payment hereunder shall be dishonored
at any time and from time to time, for any reason whatsoever not attributable
to Landlord, Landlord shall be entitled, in addition to any other remedy that
may be available, (1) to make an administrative charge of $100.00 or three
times the face value of the check, bank draft or negotiable instrument,
whichever is smaller, and (2) at Landlord's sole option, to require Tenant to
make all future rental payments in cash or cashiers check.
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41. Hazardous Materials and Environmental Considerations.
A. Tenant covenants and agrees that Tenant and its agents,
employees, contractors and invitees shall comply with all Hazardous Materials
Laws (as hereinafter defined). Without limiting the foregoing, Tenant
covenants and agrees that it will not use, generate, store or dispose of, nor
permit the use, generation, storage or disposal of Hazardous Materials (as
hereinafter defined) on, under or about the Leased Premises, nor will it
transport or permit the transportation of Hazardous Materials to or form the
Leased Premises, except in full compliance with any applicable Hazardous
Materials Laws. Any Hazardous Materials located on the Leased Premises shall
be handled in an appropriately controlled environment which shall include the
use of such equipment (at Tenant's expense) as is necessary to meet or exceed
standards imposed by any Hazardous Materials Laws and in such a way as not to
interfere with any other tenant's use of its premises. Upon breach of any
covenant contained herein, Tenant shall, at Tenant's sole expense, cure such
breach by taking all action prescribed by any applicable Hazardous Materials
Laws or by any governmental authority with jurisdiction over such matters.
B. Tenant shall inform Landlord at any time of (i) any
Hazardous Materials it intends to use, generate, handle, store or dispose of,
on or about or transport from, the Leased Premises and (ii) of Tenant's
discovery of any event or condition which constitutes a violation of any
applicable Hazardous Materials Laws. Tenant shall provide to Landlord copies
of all communications to or from any governmental authority or any other party
relating to Hazardous Materials affecting the Leased Premises.
C. Tenant shall indemnify and hold Landlord harmless from any
and all claims, judgments, damages, penalties, fines, costs, liabilities,
expenses or losses (including, without limitation, diminution on value of the
Leased Premises, damages for loss or restriction on use of all or part of the
Leased Premises, sums paid in settlement of claims, investigation of site
conditions, or any cleanup, removal or restoration work required by any
federal, state or local governmental agency, attorney's fees, consultant fees,
and expert fees) which arise as a result of or in connection with any breach of
the foregoing covenants or any other violation of any Hazardous Materials laws
by Tenant. The indemnification contained herein shall also accrue to the
benefit of the employees, agents, officers, directors and/or partners of
Landlord.
D. Upon termination of this Lease and/or vacation of the
Leased Premises, Tenant shall properly remove all Hazardous Materials and shall
then provide to Landlord a Phase I environmental audit report, prepared by a
professional consultant satisfactory to Landlord and at Tenant's sole expense,
certifying that the Leased Premises have not been subjected to environmental
harm caused by Tenant's use and occupancy of the Leased Premises. Landlord
shall grant to Tenant and its agents or contractors such access to the Leased
Premises as is necessary to accomplish such removal and prepare such report.
E. "Hazardous Materials" shall mean (a) any chemical,
material, substance or pollutant which poses a hazard to the Leased Premises or
to persons on or about the Leased Premises or would cause a violation of or is
regulated by any Hazardous Materials Laws, and (b) any chemical, material or
substance defined as or included in the definitions of "hazardous substances",
"hazardous wastes", "extremely hazardous waste", "restricted hazardous waste",
"toxic substances", "regulated substance", or words of similar import under any
applicable federal, state or local law or under the regulations adopted or
publications promulgated pursuant thereto, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, 42 U.S.C. Sec. 9601, et seq.; the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. Sec. 1801, et seq.; the Resource
Conservation and Recovery Act as amended, 42 U.S.C. Sec 6901, et seq.; the
Solid Waste Disposal Act, 42 U.S.C. Sec. 6991 et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Sec. 1251, et seq.; and Sections
25-15-101, et seq., 25-16- 101, et seq., 25-7-101, et seq., and 25-8-101, et
seq., of the Colorado Revised Statutes. "Hazardous Materials Laws" shall mean
any federal state or local laws, ordinances, rules, regulations, or policies
(including, but not limited to, those laws specified above) relating to the
environment, health and safety or the use, handling, transportation,
production, disposal, discharge or storage of Hazardous Materials, or to
industrial hygiene or the environmental conditions on, under or about the
Leased Premises. Said term shall be deemed to include all such laws as are now
in effect or as hereafter amended and all other such laws as may hereafter be
enacted or adopted during the term of this Lease.
F. All obligations of Tenant hereunder shall survive and
continue after the expiration of this Lease or its earlier termination for any
reason.
G. Tenant further covenants and agrees that it shall not
install any storage tank (whether above or below the ground) on the Leased
Premises without obtaining the prior written consent of the Landlord, which
consent may be conditioned upon further requirements imposed by Landlord with
respect to, among other things, compliance by Tenant with any applicable laws,
rules, regulations
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or ordinances and safety measures or financial responsibility requirements.
H. Should any local governmental entity having jurisdiction
over the Leased Premises require any type of environmental audit or report
prior to or during the occupancy of the Leased Premises by the Tenant, such
cost of the audit or report shall be the sole responsibility of the Tenant.
I. Notwithstanding anything to the contrary contained in this
Paragraph 41, Tenant shall not be responsible for any conditions which existed
prior to its tenancy, nor shall it be responsible if conditions which are
determined not to be caused by action or inaction of Tenant.
42. Entire Agreement. It is expressly understood and agree by and
between the parties hereto that this Lease sets forth all the promises,
agreements, conditions, and understandings between Landlord and/or its agents
and Tenant relative to the Leased Premises and that there are no promises,
agreements, conditions, or understandings either oral or written, between them
other than that are herein set forth.
43. [Omitted because stricken by parties.]
44. Estoppel Certificates. Within no more than 5 days after receipt
of written request, the Tenant shall furnish to the owner a certificate, duly
acknowledged, certifying, to the extent true:
A. That this Lease is in full force and effect.
B. That the Tenant knows of no default hereunder on the part of the
owner, or if it has reason to believe that such a default exists,
the nature thereof in reasonable detail.
C. The amount of the rent being paid and the last date to which rent
has been paid.
D. That this Lease has not been modified, or if it has been modified,
the terms and dates of such modifications.
E. That the term of this Lease has commenced.
F. The commencement and expiration dates.
G. Whether all work to be performed by the owner has been completed.
H. Whether the renewal term option has been exercised if applicable.
I. Whether there exist any claims or deductions from, or defenses to,
the payment of rent.
J. Such other matters as may be reasonably requested by owner.
If the Tenant fails to execute and deliver to the owner a completed certificate
as required under this section, the Tenant hereby appoints the owner as its
Attorney-In-Fact to execute and deliver such certificate for and on behalf of
the Tenant.
45. Financial Statements. As requested by the Landlord, Tenant shall
provide copies of its most recent financial statements and shall also provide
Landlord with up to three (3) prior years of financial statements, if so
requested.
46. Lease Exhibits Attached. This Lease includes the following Lease
Exhibits which are incorporated herein and made a part of this Lease Agreement:
Exhibit "A" - Site Plan Depicting Area
Exhibit "B" - Interior Space Plan
Exhibit "C" - Landlord and Tenant's Construction Obligations
Exhibit "D" - [Omitted because stricken by parties.]
Exhibit "E" - Additional Terms and Conditions
Exhibit "F" - Option to Renew
Exhibit "G" - Landlord's Waiver
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47. Miscellaneous. All marginal notations and paragraph headings are
for purposes of reference and shall not affect the true meaning and intent of
the terms hereof. Throughout this Lease, wherever the words "Landlord" and
"Tenant" are used they shall include and imply to the singular, plural, persons
both male and female, companies, partnerships and corporations, and in reading
said Lease, the necessary grammatical changes required to make the provisions
hereof mean and apply as aforesaid shall be made in the same manner as though
originally included in said Lease.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date hereof.
LANDLORD: SHARP POINT PROPERTIES, LLC
---------------------------------------------
By:
---------------------------------------------------
GERALD P. LEE
TENANT: PARAVAX, INC.
-----------------------------------------------
By:
---------------------------------------------------
DANIEL F. CAIN, C.E.O/PRESIDENT
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ENVIRONMENTAL INDEMNITY AGREEMENT
THIS INDEMNITY is given as of this 8th day of March , 1994, by Paravax,
Inc. ("Indemnitor," whether one or more), to and for the benefit of Paravax,
Inc. ("Landlord").
WHEREAS, Sharp Point Properties, LLC is Landlord under a proposed
Lease Agreement dated March 8, 1994, ("the Lease") in which Paravax , a
California Corporation is the proposed tenant ("Tenant"), regarding the
Leased Premises commonly known as 1825 Sharp Point Drive, Fort Collins, CO
80525 ("Leased Premises"); and
WHEREAS, Landlord is unwilling to enter into the Lease with Tenant
unless the Indemnitor agrees to the indemnities hereinafter provided.
NOW, THEREFORE, in consideration of the matters recited above and to
induce Landlord to enter into the Lease with Tenant, Indemnitor undertakes and
agrees as follows:
1. Indemnitor shall indemnify, defend and hold Landlord harmless from
and against any and all suits, actions, legal or administrative proceedings,
demands, claims, judgements, damages, penalties, fines, costs, liabilities,
expenses or losses which arise during or after the lease term as a result of or
in connection with the presence, use, storage, disposal, transportation by
Tenant, its agents, employees or contractors or discharge, by or on behalf of
Tenant, of any Hazardous Materials (as defined in the Lease) on, in or under or
affecting all or any portion of the Leased Premises or any surrounding areas,
or the disposition or transportation of any Hazardous Materials therefrom, or
any breach by Tenant of the provisions concerning Environmental Considerations
as contained in paragraph 41 of the Lease, or the failure of the Tenant to
comply with any applicable Hazardous Materials Laws (as defined in the Lease)
with regard to the storage, use, handling, including transportation, or
disposal of any Hazardous Material by Tenant, its agents, employees or
contractors, or otherwise resulting from or arising out of any action or
non-action of Tenant or Tenant's operations on the Leased Premises in
violations of the terms of this Lease.
Without limiting the generality of the foregoing, it is expressly
agreed by Indemnitor that such indemnity shall also include the following to
the extent attributable to the storage, use, handling or disposal, including
transportation, of any Hazardous Material by Tenant, its agents, employees or
contractors: diminution in value of the Leased Premises, damages for loss or
restriction on use of rental or useable space or any amenity of the Leased
Premises, damages arising from any adverse impact on marketing of space or
delay in delivering possession to a subsequent tenant or purchaser, restoration
of the Leased Premises to a condition not materially different from its
original contour, appearance and condition; costs incurred in connection with
any investigation of site conditions or any clean-up, remedial, removal or
restoration work required by any federal, state or local governmental agency,
political subdivision, court order or lender of the Landlord; costs of removal
and lawful disposal off site of all Hazardous Materials; all sums paid in
settlement of claims, attorneys' fees, consultant fees and expert fees.
The foregoing indemnities shall survive termination or expiration of
the Lease and shall also accrue to the benefit of the employees, agents,
officers, directors and/or partners of Landlord.
2. Indemnitor agrees to pay to Landlord, from time to time,upon
demand therefor, an amount equal to any and all expenses therefore incurred by
Landlord for which Landlord is entitled to indemnification. Any sums not so
paid shall thereafter bear interest at a rate of two percent (2%) per month
until paid in full.
3. The rights and remedies of Landlord under this indemnity shall be
in addition to any rights or remedies available to Landlord under the terms of
the Lease. The obligations of Indemnitor hereunder shall not be affected or
impaired by: (i) the assertion by Landlord against Tenant of any rights or
remedies reserved to Landlord pursuant to provisions of the Lease; (ii) the
commencement of summary or any other proceedings against Tenant; (iii) failure
of the Landlord to enforce any of its rights against Tenant pursuant to the
Lease or otherwise; (iv) the granting by Landlord of any extensions of time to
Tenant; (v) the assignment or transfer of the Lease by Tenant; (vi) with
release or discharge of Tenant from its obligations under the Lease in any
creditors', receivership, bankruptcy or other proceedings or the commencement
or pendency of any such proceedings; or (vii) the impairment, limitation or
modification of the liability of Tenant or the estate of Tenant in bankruptcy,
or of any remedy for the enforcement of tenant's liability under the Lease,
resulting from the operation of any present or future bankruptcy code or other
statute, or from the decision of any court.
4. Until all Tenant's obligations under the Lease are fully
performed, Indemnitor (i) waives any right of subrogation which it might have
against Tenant
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by reason of any payments or acts of performance by Indemnitor pursuant to its
obligations hereunder; (ii) waives any other right which Indemnitor may have
against Tenant by reason of any one or more payments or acts in compliance with
its obligations hereunder; and (iii) subordinates any liability or indebtedness
of tenant held by Indemnitor to the obligations of Tenant to Landlord under the
Lease.
5. All notices for or allowed hereunder shall be deemed given and
received with (a) personally delivered, or (b) at the time the same is
deposited in the United States mail, postage prepaid, first class mail, or
addressed to the applicable party at the address indicated below for such
party, or as to each party, at such other address as shall be designated by
such party in a written notice to the other party:
If to Indemnitor, to:
Paravax, Inc.
Sharp Point Drive
Collins, CO 80525
If to Landlord, to:
Sharp Point Properties, LLC
Pearl East Circle #300
CO 80301
6. In the event of default in its obligations hereunder, Indemnitor
agrees to reimburse Landlord for reasonable attorneys' fees and costs incurred
by Landlord in the enforcement of such obligations.
7. This Environmental Indemnity Agreement shall apply to the Lease
and any extension or renewal thereof, and any holdover term following the term
thereof, or any such extension or renewal.
8. This Environmental Indemnity Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado.
9. The covenants and agreements herein contained shall extend to and
be binding upon the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this
Environmental Indemnity Agreement on the day and year first above written.
/s/ PARAVAX -- DANIEL F. CAIN
-------------------------------------------
"Indemnitor"
/s/ GERALD P. LEE
-------------------------------------------
"Landlord"
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EXHIBIT "A"
[MAP]
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EXHIBIT "B"
INTERIOR SPACE PLAN
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EXHIBIT "C"
LANDLORD AND TENANT'S CONSTRUCTION OBLIGATIONS
Landlord shall, at no additional cost to Tenant, provide improvements to the
Premises as shown and described on Exhibit B.
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EXHIBIT "E"
ADDITIONAL TERMS AND CONDITIONS
I. This Lease is contingent upon approval of Paravax, Inc. Board of
Directors on March 21, 1994
II. This Lease is contingent upon Landlord signing a lease with Advanced
Energy Industries, Inc. on March 16, 1994 for the building located at
1625 Sharp Point Drive.
III. Landlord agrees to sign a waiver of lien on equipment currently leased
by Tenant from third parties and from time to time on future equipment
that Tenant may lease from third parties. The form utilized for this
purpose shall be mutually agreed upon by Landlord and Tenant.
IV. Landlord agrees that with the exception of two (2) fume hoods and two
(2) sections of work bench, Tenant may, at no additional cost, use all
laboratory equipment now located at 1625 Sharp Point Drive. It is,
however, expressly understood that Tenant shall be responsible for
payment for removal, moving, and reinstallation of such equipment.
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EXHIBIT "F"
Option to Extend
Tenant shall have the option to extend the Lease Agreement from 12:00 noon on
9/1/2004 to 12:00 noon on 9/1/2009. In the event the Tenant desires to
exercise said option, Tenant shall give written notice of such exercise to
Landlord not later than 9/1/2003. See below for Option Term Rent. In the event
of such exercise, the Lease Agreement, including all amendments, shall be
automatically extended for the additional term. Notwithstanding the foregoing,
this option shall be void and of no force or effect if the Tenant is in default
hereunder either as of the date of the Tenant's exercise of said option or as
of the date of the commencement of the option or additional term.
Option Term Rent: Tenant shall pay the following rent for the Leased Premises:
Landlord and Tenant will attempt to agree upon a Fair Market Rental Value of
the Leased Premises satisfactory to both parties within thirty (30) days of
Tenant's exercise of its option. If no agreement can be reached by the parties
during that period, then the Base Monthly Rental for the Option Term shall be
determined by the Fair Market Rental Value of the Leased Premises as determined
by comparison to premises of similar size located in or near the City of
Boulder, Colorado, having comparable development, use and density capability
and such other characteristics as may be deemed relevant by a subject appraiser
whose selection is outlined herein.
Landlord shall select an independent MAI real estate appraiser with at least
ten (10) years experience in appraising commercial real property in the City of
Boulder, Colorado (a "Qualified Appraiser"). The Qualified Appraiser selected
by the Landlord shall be referred to as the "Landlord's Appraiser". Within
thirty (30) days of being selected by the Landlord, the Landlord's Appraiser
shall determine the Fair Market Rental Value of the Leased Premises in
accordance with the appraisal standards set forth above and shall immediately
give the Landlord and the Tenant written notification of his determination.
If the Tenant agrees with the Landlord's Appraiser's determination of the Fair
Market Rental Value, the new Base Monthly Rental shall become effective
beginning with the first month of the Option Term. If the Tenant does not
agree with the Landlord's Appraiser's determination of Fair Market Rental
Value, the Tenant shall have the right to select its own Qualified Appraiser to
determine the Fair Market Rental Value. If the Tenant does elect to appoint a
Qualified Appraiser (the "Tenant's Appraiser"), the Tenant shall select the
Tenant's Appraiser within thirty (30) business days after receiving the
Landlord's Appraiser's determination of the Fair Market Rental Value. The
Tenant's Appraiser shall make his own determination of the Fair Market Rental
Value in accordance with the provisions set forth above, within 30 business
days of being selected by the Tenant and shall immediately give the Landlord
and the Tenant written notice of his determination.
If the Fair Market Rental Value as determined by the Landlord's Appraiser and
the Tenant's Appraiser, respectively, differ by an amount which is equal to or
less than 5% of the Fair Market Rental Value determined by the Landlord's
Appraiser, then the arithmetic mean of the two Fair Market Rental Values shall
constitute the Fair Market Rental Value used to calculate the new Base Monthly
Rental which will in effect for the Option Term. If the Fair Market Rental
Value determined by the Landlord's Appraiser and the Tenant's Appraiser,
respectively, differ by an amount which is greater than 5% then, within ten
(10) business days after the Landlord's Appraiser and the Tenant's Appraiser's
determination of the Fair Market Rental Value, the Landlord's Appraiser and the
Tenant's Appraiser shall agree upon and select a third Qualified Appraiser who
shall be independent of and have no prior or existing affiliation or
relationship with either the Landlord or the Tenant (the "Independent
Appraiser"). Within ten (10) business days of being appointed, the Independent
Appraiser shall, after exercising his best professional judgement, choose
either the Landlord's Appraiser's or the Tenant's Appraiser's determination of
Fair Market Rental Value which the Independent Appraiser believes, in his best
professional judgement, best represents the Fair Market Rental Value at that
point in time. Upon making such a selection, the Independent Appraiser shall
immediately give the Landlord and the Tenant written notice of this selection
of the Fair Market Rental Value. The Fair Market Rental Value selected by the
Independent Appraiser shall be used to calculate the new Base Monthly Rental
which will be in effect during the Extension Option, and such selection by the
Independent Appraiser shall be binding and conclusive upon the Landlord and the
Tenant.
All appraisal fees required hereunder shall be shared equally by the Landlord
and the Tenant.
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EXHIBIT "G"
LANDLORD'S WAIVER
Sharp Point Properties, LLC ("Landlord") is the owner of real property commonly
known as 1825 Sharp Point Drive, Fort Collins, CO 80525, (the "Premises") and
has leased the Premises to Paravax, Inc., ("Tenant").
1. Landlord acknowledges that it has received notice that Tenant
has or will enter into a master lease agreement with Dominion
Ventures, Inc., a California Corporation ("Dominion"), whereby
Tenant will lease from Dominion certain equipment (the
"Equipment"), all or part of which may be located upon for
fixed to the Premises.
2. Landlord waives and releases any and all rights it may have
against the Equipment for any rent or other sums due or to
become due, under any lease for the Premises or otherwise, and
all claims and demands of every kind against the Equipment.
3. Landlord agrees that the Equipment will remain personal
property and will not become part of the Premises, regardless
of the manner in which it may be affixed to real property, and
will allow Dominion to enter the Premises any time to remove
the Equipment in the exercise of its rights and remedies
arising under the aforesaid master lease agreement.
4. This Consent shall be binding upon heirs, administrators,
executors, successors and assigns of the Landlord, and shall
insure to the benefit of the successors and assigns of
Dominion.
IN WITNESS WHEREOF, the undersigned has executed and delivered this consent
this 8th day of March, 1994.
By: --------------------------------------
GERALD P. LEE
VICE PRESIDENT & CEO
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EXHIBIT 10.23
LEASE AGREEMENT
OFFICE AND INDUSTRIAL SPACE
This Lease Agreement is made and entered into as of the 27th day of June, 1996,
by and between GB Ventures ("Landlord"), whose address is 4875 Pearl East
Circle, Suite 300, Boulder, CO 80301, and Heska Corporation, a California
corporation("Tenant"), whose address is 1825 Sharp Point Drive, Fort Collins,
CO 80525 .
In consideration of the covenants, terms, conditions, agreements and payments
as herein set forth, the Landlord and Tenant hereby enter into the following
Lease:
1. Definitions. Whenever the following words or phrases are used in this
Lease, said words or phrases shall have the following meaning:
A. "Area" shall mean the parcel of land depicted on Exhibit "A"
attached hereto and commonly known and referred to as "Three Prospect" 1613
Prospect Parkway, Fort Collins, Colorado. The Area includes the Leased
Premises and one or more buildings. The Area may include Common Areas.
B. "Building" shall mean a building located in the Area.
C. "Common Areas" shall mean all entrances, exits, driveways, curbs,
walkways, hallways, parking areas, landscaped areas, restrooms, loading and
service areas, and like areas or facilities which are located in the Area and
which are designated by the Landlord as areas or facilities available for the
nonexclusive use in common by persons designated by the Landlord.
D. "Leased Premises" shall mean the premises herein leased to the
Tenant by the Landlord.
E. "Tenant's Prorata Share" as to the Building in which the Leased
Premises are located shall mean an amount (expressed as a percentage) equal to
the number of square feet included in the Leased Premises divided by the total
number of leasable square feet included in said Building. The Tenant's Prorata
Share as to Common Areas shall mean an amount (expressed as a percentage )
equal to the number of square feet included in the Leased Premises divided by
the total number of leasable square feet included in all Buildings located in
the Area. The Tenant's Prorata Share for Common Areas may change from time to
time as the leasable square footage in all Buildings located in the Area is
increased or decreased.
2. Leased Premises. The Landlord hereby leases unto the Tenant, and the
Tenant hereby leases from the Landlord, the following described premises:
Space All in Building 1613 Prospect Parkway
consisting of 16,800 square feet.
3. Base Term. The term of this Lease shall commence at 12:00 noon on September
1, 1996, and, unless sooner terminated as herein provided for, shall end at
12:00 noon on October 1, 2004 ("Lease Term"). Except as specifically provided
to the contrary herein, the Leased Premises shall, upon the termination of this
Lease, by virtue of the expiration of the Lease Term or otherwise, be returned
to the Landlord by the Tenant in the same [Omitted because stricken by parties.]
condition than when entered upon by the Tenant, ordinary wear and tear, acts of
God, casualties, condemnation, Hazardous Materials (other than those stored,
used or disposed of by Tenant in or about the Leased Premises in violation of
Hazardous Materials Laws) and Alterations with respect to which Landlord has not
reserved the right to require removal excepted. For Option Period see Exhibit F.
4. Rent. Tenant shall pay the following rent for the Leased Premises:
A. Base Monthly Rent. Tenant shall pay to Landlord, without notice
and without setoff, at the address of Landlord as herein set forth, the
following Base Monthly Rent ("Base Monthly Rent"), said Base Monthly Rent to be
paid in advance on the first day of each month during the term hereof. In the
event that this Lease commences on a date other than the first day of a month,
the Base Monthly Rent for the first month of the Lease Term shall be prorated
for said partial month. Below is a schedule of Base Monthly Rental payments as
agreed upon:
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During Lease Term
<TABLE>
<CAPTION>
FOR PERIOD TO PERIOD A BASE MONTHLY
STARTING ENDING RENT OF
<S> <C> <C>
September 1, 1996 October 1, 2004 $ 12,600.00
</TABLE>
B. Lease Term Adjustment. If, for any reason, other than delays
caused by the Tenant, the Leased Premises are not ready for Tenant's occupancy
on September 1, 1996, the Tenant's rental obligation and other monetary
expenses (i.e. taxes, utilities, etc.) shall be abated in direct proportion to
the number of days of delay. It is hereby agreed that the premises shall be
deemed ready for occupancy on the date of Substantial Completion of the Tenant
Improvements for the Leased Premises. "Substantial Completion" is defined in
Exhibit B, attached hereto and incorporated by reference herein. [Omitted
because stricken by parties.]
C. Cost of Living Adjustment. The Base Monthly Rental specified in
paragraph 4A above shall be recalculated for each Lease Year as defined
hereinafter following the first Lease Year of this Lease Agreement. The
recalculated Base Monthly Rental shall be hereinafter referred to as the
"Adjusted Monthly Rental". The Adjusted Monthly Rental for each Lease Year
after the first Lease Year shall be the greater of: (i) the amount of the
previous year's Adjusted Monthly Rental, (or the Base Monthly Rental if
calculating the Adjusted Monthly Rental for the second Lease Year), or (ii) an
amount calculated by the rent adjustment formula set forth below.
Notwithstanding the foregoing, in no event shall the increase in any Adjusted
Monthly Rental for any Lease Year be greater than six percent (6%) or less than
three percent (3%). In applying the rent adjustment formula, the following
definitions shall apply:
(1) "Lease Year" shall mean a period of twelve (12) consecutive full
calendar months with the first Lease Year commencing on the date of the
commencement of the term of this Lease and each succeeding Lease Year
commencing upon the anniversary date of the first Lease Year; however, if this
Lease does not commence on the first day of a month, then, the first Lease Year
and each succeeding Lease Year shall commence on the first day of the first
month following each anniversary date of this Lease;
(2) "Bureau" shall mean the Bureau of Labor Statistics of the United
States Department of Labor or any successor agency that shall issue the Price
Index referred to in this Lease Agreement.
(3) "Price Index" shall mean the "Consumer Price Index-All Urban
Consumers-All Items (CPI-U) U.S. City Average (1982-84=100)" issued from time
to time by the Bureau. In the event the Price Index shall hereafter be
converted to a different standard reference base or otherwise revised, the
determination of the increase in the Price Index shall be made with the use of
such conversion factor, formula or table as may be published by Prentice-Hall,
Inc. or failing such publication, by another nationally recognized publisher of
similar statistical information. In the event the Price Index shall cease to
be published, then, for the purposes of this paragraph 4C there shall be
substituted for the Price Index such other index as the Landlord and the Tenant
shall agree upon, and if they are unable to agree within sixty (60) days after
the Price Index ceases to be published, such matter shall be determined by
arbitration in accordance with the Rules of the American Arbitration
Association.
(4) "Base Price Index" shall mean the Price Index released to the
public during the second calendar month preceding the commencement of this
Lease Agreement.
(5) "Revised Price Index" shall mean the Price Index released to the
public during the second calendar month preceding the Lease Year for which the
Base Annual Rental is to be adjusted;
(6) "Basic Monthly Rental" shall mean the Basic Monthly Rental set
forth in subparagraph 4A above. The rent adjustment formula used to calculate
the Adjusted Monthly Rental is as follows:
Adjusted Monthly = Revised Price Index X Base Monthly Rental
Rental -------------------
Base Price Index
The Adjusted Monthly Rental as hereinabove provided shall continue to be
payable monthly as required in paragraph 4A above without necessity of any
further notice by the Landlord to the Tenant.
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D. Total Net Lease. The Tenant understands and agrees that this
Lease is a total net lease (a "net, net, net lease"), whereby the Tenant has
the obligation to reimburse the Landlord for a share of all costs and expenses
(taxes, insurance, trash removal, Common Area operation and maintenance and
like costs and expenses), incurred by the Landlord as a result of the
Landlord's ownership and operation of the Area. Major capital improvements,
such as total replacement of the roof or parking lot are not considered to be
maintenance items as described in this Paragraph 6D.
5. Security Deposit. Landlord acknowledges receipt from the Tenant
of the sum of Twelve Thousand, Six Hundred & No/100 Dollars ($ 12,600.00 ) to
be retained by Landlord without responsibility for payment of interest thereon,
as security for performance of all the terms and conditions of this Lease
Agreement to be performed by Tenant, including payment of all rent due under
the terms hereof. Deductions may be made by Landlord from the amount so
retained for the reasonable cost of repairs to the Leased Premises (ordinary
wear and tear, acts of God, casualties, condemnation, Hazardous Materials
(other than those stored, used or disposed of by Tenant in or about the Leased
Premises in violation of Hazardous Materials Laws) and Alterations with respect
to which Landlord has not reserved the right to require removal excepted), for
any rent delinquent under the terms hereof and/or for any sum used in any
manner to cure any default of Tenant under the terms of this Lease. In the
event deductions are so made, the Tenant shall, within ten (10) days after
receipt of notice from the Landlord, redeposit with the Landlord such amounts
so expended so as to maintain the deposit in the amount as herein provided for,
and failure to so redeposit shall be deemed a failure to pay rent under the
terms hereof. Nothing herein contained shall limit the liability of Tenant as
to any damage to the Leased Premises, and Tenant shall be responsible for the
total amount of any damage and/or loss occasioned by actions of Tenant.
Landlord may deliver the funds deposited hereunder by Tenant to any purchaser
of Landlord's interest in the Leased Premises in the event such interest shall
be sold, and thereupon Landlord shall be discharged from any further liability
with respect to such deposit. Landlord shall return the Security Deposit or
balance thereof to Tenant within thirty (30) days after Tenant vacates the
Leased Premises.
6. Use of Premises. Tenant shall use the Leased Premises only for
Research, Development and Manufacture of Biopharmaceutical Products and for no
other purpose whatsoever except with the written consent of Landlord. Tenant
shall not allow any accumulation of trash or debris on the Leased Premises or
within any portion of the Area. All receiving and delivery of goods and
merchandise and all removal of garbage and refuse shall be made only by way of
the rear and/or other service door provided therefore. In the event the Leased
Premises shall have no such door, then these matters shall be handled in a
manner reasonably satisfactory to Landlord. No storage of any material outside
of the Leased Premises shall be allowed unless first approved by Landlord in
writing, and then in only such areas as are designated by Landlord. Tenant
shall not commit or suffer any waste on the Leased Premises nor shall Tenant
permit any nuisance to be maintained on the Leased Premises or permit any
disorderly conduct or other activity that annoys or disturbs any occupants of
any part of the Area and/or any adjoining property.
7. Laws and Regulations. -- Tenant Responsibility. The Tenant shall,
at its sole cost and expense, comply with all laws and regulations of any
governmental entity, board, commission or agency relating to Tenant's particular
use of the Leased Premises [Omitted because stricken by parties.] Tenant agrees
not to install any electrical equipment that overloads any electrical paneling,
circuitry or wiring and further agrees to comply with the requirements of the
insurance underwriter or any governmental authorities having jurisdiction
thereof. Notwithstanding anything to the contrary contained in this Lease,
Tenant shall not be required to construct or pay the cost of complying with any
CC&R's, insurance underwriters' requirements or rules, regulations, statutes,
ordinances, laws and building codes (including, without limitation, the
Americans With Disabilities Act of 1990) (collectively, "Laws") (i) requiring
construction of improvements in the Leased Premises which are properly
capitalized under generally accepted accounting principles, unless such
compliance is necessitated solely because of Tenant's particular use of the
Leased Premises; (ii) regarding the presence of Hazardous Materials unless the
same were stored or disposed of by Tenant, its agents, employees or contractors
on or in the Leased Premises; or (iii) requiring the correction of any condition
existing on the Leased Premises as of the Commencement Date.
8. Landlord's Rules and Regulations. Landlord reserves the right to
adopt and promulgate rules and regulations applicable to the Leased Premises
and from time to time amend or supplement said rules or regulations. Notice of
such rules and regulations and amendments and supplements thereto shall be
given to Tenant, and Tenant agrees to comply with and observe such rules and
regulations and amendments and supplements thereto provided that the same apply
uniformly to all Tenants of the Landlord in the Area and do not unreasonably
interfere with Tenant's rights under this Lease.
9. Parking. If the Landlord provides off street parking for the
common use of Tenants, employees and customers of the Area, the Tenant shall
park all
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vehicles of whatever type used by Tenant and/or Tenant's employees only in such
areas thereof as are designated by Landlord for this purpose, and Tenant
accepts the responsibility of seeing that Tenant's employees park only in the
areas so designated. Tenant shall, upon the request of the Landlord, provide
to the Landlord license numbers of the Tenant's vehicles and the vehicles of
Tenant's employees. Notwithstanding anything to the contrary contained in this
Lease, without charge, Tenant shall have the exclusive use of one hundred
percent (100%) of all parking spaces within the parking area for the building
10. Control of Common Areas. -- Exclusive control of the Landlord.
All Common Areas shall at all times be subject to the exclusive control and
management of Landlord, notwithstanding that Tenant and/or Tenant's employees
and/or customers may have a nonexclusive right to the use thereof. Landlord
shall have the right from time to time to establish, modify and enforce rules
and regulations with respect to the use of said facilities and Common Areas.
11. Taxes.
A. Real Property Taxes and Assessments. The Tenant shall pay
to the Landlord on the first day of each month, as additional rent, the
Tenant's Prorata Share of all real estate taxes and special assessments levied
and assessed against the Building in which the Leased Premises are located and
the Common Areas. If the first and last years of the Lease Term are not
calendar years, the obligations of the Tenant hereunder shall be prorated for
the number of days during the calendar year that this Lease is in effect. The
monthly payments for such taxes and assessments shall be $ 1,292.62 until the
Landlord receives the first tax statement for the referred to properties.
Thereafter, the monthly payments shall be based upon 1/12th of the prior year's
taxes and assessments. Once each year the Landlord shall determine the actual
Tenant's Prorata Share of taxes and assessments for the prior year and if the
Tenant has paid less than the Tenant's Prorata Share for the prior year the
Tenant shall pay the deficiency to the Landlord with the next payment of Base
Monthly Rent, or, if the Tenant has paid in excess of the Tenant's Prorata
Share for the prior year the Landlord shall forthwith refund said excess to the
Tenant. Notwithstanding anything to the contrary contained in this Lease,
Tenant shall not be required to pay any portion of any tax or assessment
expense (i) levied on Landlord's rental income, unless such tax or assessment
expense is imposed in lieu of real property taxes; (ii) in excess of the amount
which would be payable if such tax or assessment expense were paid in
installments over the longest possible term; (iii) imposed on land and
improvements other than the Area; or (iv) attributable to Landlord's net
income, inheritance, gift, transfer, franchise, estate or state taxes. Tenant
may in good faith contest any tax or assessment, provided that Tenant
indemnifies Landlord from any loss or liability in connection therewith.
B. Personal Property Taxes. Tenant shall be responsible for,
and shall pay promptly when due, any and all taxes and/or assessments levied
and/or assessed against any furniture, fixtures, equipment and items of a
similar nature installed and/or located in or about the Leased Premises by
Tenant.
C. Rent Tax. If a special tax, charge or assessment is
imposed or levied upon the rents paid or payable hereunder or upon the right of
the Landlord to receive rents hereunder (other than to the extent that such
rents are included as a part of the Landlord's income for the purpose of an
income tax), the Tenant shall reimburse the Landlord for the amount of such tax
within fifteen (15) days after demand therefore is made upon the Tenant by the
Landlord.
D. Should Landlord protest and win a reduction in the real
estate taxes for the Building and Area, Tenant shall be obligated to pay its
Prorata Share of the cost of such protest, if the protest is handled by a party
other than the Landlord. Tenant also shall receive from Landlord a credit in
the amount of Tenant's Prorata Share of the reduction won by Landlord.
12. Insurance.
A. Landlord's Insurance. The Landlord shall procure and
maintain fire and casualty coverage for full replacement value of building to
include, but not be limited to, the Tenant Improvements constructed pursuant to
Exhibit B hereof, roofs and walls, loss of rents and liability insurance as it,
from time to time, deems proper and appropriate in reference to the Building in
which the Leased Premises are located and the Common Areas. Such insurance
shall not be required to cover any of the Tenant's property and the Tenant
shall have no interest in any of the proceeds of such insurance.
B. Tenant's Insurance. Tenant shall, at its sole cost and
expense, insure on a full replacement cost basis, Tenant's inventory, fixtures,
leasehold improvements (other than the Tenant Improvements constructed by
Landlord pursuant to Exhibit B) and betterments located on the Leased Premises
against loss resulting from fire or other casualty. Tenant shall procure, pay
for and maintain, comprehensive public liability insurance providing coverage
from and against any loss or damage occasioned by an accident or casualty on,
about or adjacent to the Leased Premises. Said liability policy shall be
written on an "occurrence basis" with limits of not less than $1,000,000
combined single limit
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coverage. Certificates for such insurance shall be delivered to Landlord and
shall provide that said insurance shall not be changed, modified, reduced or
cancelled without thirty (30) days prior written notice thereof being given to
Landlord.
C. Tenant's High Pressure Steam Boiler Insurance. If Tenant
makes use of any kind of steam or other high pressure boiler or other apparatus
which presents a risk of damage to the Leased Premises or to the Building or
other improvements of which the Leased Premises are a part or to the life or
limb of persons within such premises, Tenant shall secure and maintain
appropriate boiler insurance in an amount satisfactory to Landlord. The
Landlord shall be named insured in any such policy or policies. Certificates
for such insurance shall be delivered to Landlord and shall provide that said
insurance shall not be changed, modified, reduced or cancelled without thirty
(30) days prior written notice thereof being given to Landlord.
D. Tenant's Share of Landlord Insurance. Tenant shall pay
the Landlord as additional rent Tenant's Prorata Share of the insurance secured
by the Landlord pursuant to "12A" above. Payment shall be made on the first
day of each month as additional rent. The monthly payments for such insurance
shall be $ 58.94 until changed by Landlord as a result of an increase or
decrease in the cost of such insurance.
E. Mutual Subrogation Waiver. Landlord and Tenant hereby
grant to each other, on behalf of any insurer providing personal injury, fire
and extended coverage to either of them covering the Leased Premises, Buildings
or other improvements thereon or contents thereof, a waiver of any right of
subrogation any such insurer of one party may acquire against the other or as
against the Landlord or Tenant by virtue of payments of any loss under such
insurance. Such a waiver shall be effective so long as the Landlord and Tenant
are empowered to grant such waiver under the terms of their respective
insurance policy or policies and such waiver shall stand mutually terminated as
of the date either Landlord or Tenant gives notice to the other that the power
to grant such waiver has been so terminated.
13. Utilities. Tenant shall be solely responsible for and promptly pay all
charges for heat, water, gas, electric, sewer service and any other utility
service used or consumed on the Leased Premises. Should Landlord elect to
supply all or any of the utility services to be used or consumed on the Leased
Premises, Tenant shall, within [Omitted because stricken by parties.] twenty
(20) days [Omitted because stricken by parties.] after receipt of presentation
of the statement for such utility service, pay to Landlord, as additional rent
under the terms hereof, the amount of said statement if it represents utility
service furnished to the Leased Premises only or its prorata share of said
statement if it includes utility service to an area greater than the Leased
Premises. Said proration of utilities shall be reviewed by Landlord and Tenant
at the end of the first year of occupancy, at which time Landlord shall
determine if the present percentage of said total utilities is equitable in
relation to the use of total services by all the Tenants and will be adjusted
reasonably by Landlord, if necessary. The Tenant shall forthwith upon taking
occupancy of the Leased Premises make arrangements with the Public Service
Company, U.S. West or other appropriate utility company to pay the utilities
used on the Leased Premises and to have the same billed to the Tenant at the
address designated by the Tenant. Should there be a time where the Landlord
remains responsible for utilities supplied to the Leased Premises, the Landlord
shall bill the Tenant therefore and the Tenant shall promptly reimburse the
Landlord therefore. In no event shall Landlord be liable for any interruption
or failure in the supply of any such utility to the Leased Premises, except to
the extent caused by the negligence or willful misconduct of Landlord, its
agents, employees, contractors or invitees. Notwithstanding anything to the
contrary contained in this Lease, if the Leased Premises should become not
reasonably suitable for Tenant's use as a consequence of fire, casualty,
exercise of eminent domain, cessation of utilities or other services required
to be provided to the Leased Premises by Landlord, interference with access to
the Leased Premises, legal restrictions or the presence of any Hazardous
Material which does not result from the Tenant's use, storage or disposal of
such Hazardous Material in or about the Leased Premises in violation of
Hazardous Materials Laws, and in any of the foregoing cases the interference
with Tenant's use of the Leased Premises persists for seven (7) consecutive
calendar days, then Tenant shall be entitled to an equitable abatement of rent
to the extent of the interference with Tenant's use of the Leased Premises
occasioned thereby. If the interference persists for more than thirty (30)
consecutive calendar days, Tenant shall have the right to terminate this Lease.
In the event the utility company supplying water and/or sewer to the
Leased Premises determines that an additional service fee, impact fee, and/or
assessment, or any other type of payment or penalty is necessary due to
Tenant's use and occupancy of the Building, nature of operation and/or
consumption of utilities, said expense shall be borne solely by the Tenant.
Said expense shall be paid promptly and any repairs requested by the utility
company shall be performed by Tenant promptly [Omitted because stricken by
parties.] and without any delay.
14. Maintenance Obligations of Landlord. Except as herein otherwise
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specifically provided for, and not including capital improvement, Landlord
shall keep and maintain the roof, roof membrane, and exterior of the Building
of which the Leased Premises are a part in good repair and condition. Tenant
shall repair and pay for any damage to roof, foundation and external walls
caused by Tenant's action, negligence or fault.
15. Maintenance Obligations of the Tenant. Subject only to the
maintenance obligations of the Landlord as herein provided for, the Tenant
shall, during the entire Lease Term, including all extensions thereof, at the
Tenant's sole cost and expense, keep and maintain the Leased Premises in good
condition and repair, including specifically the following:
A. Electrical Systems. Tenant agrees to maintain in good
working order and to make all required repairs and replacements to the
electrical systems for the Leased Premises. Tenant upon signing this Lease
acknowledges that Tenant has inspected the existing electrical systems and all
such systems are in good repair and working order.
B. Plumbing Systems. Tenant agrees to maintain in good
working order and to make all required repairs or replacements to the plumbing
systems for the Leased Premises. Tenant upon signing this Lease acknowledges
that Tenant has inspected the existing plumbing systems and all such systems
are in good repair and working order.
C. Inspections and Service. Upon termination of Lease
Agreement, Tenant agrees, before vacating premises, to employ at Tenant's sole
cost and expense, a licensed contractor to inspect, service and write a written
report on the systems referred to in "A" and "B" of this Paragraph. Landlord
shall have the right to order such an inspection if Tenant fails to provide
evidence of such inspection, and, to follow the recommendations of such reports
and to charge the expense thereof to the Tenant.
D. Tenant's Responsibility for Building and Area Repairs.
Tenant shall be responsible for any repairs required for any part of the
Building or Area of which the Leased Premises are a part if such repairs are
necessitated by the negligence or willful misconduct [Omitted because stricken
by parties.] of Tenant.
E. Cutting Roof. Tenant must obtain in writing the
Landlord's approval prior to making any roof penetrations. Failure by Tenant
to obtain written permission to penetrate a roof shall relieve Landlord of any
roof repair obligations as set forth in Paragraph "14" hereof. Tenant further
agrees to repair, at its sole cost and expense, all roof penetrations made by
the Tenant and to use, if so requested by Landlord, a licensed contractor
reasonably selected by the Landlord to make such penetrations and repairs.
F. Glass and Doors. The repair and replacement of all glass
and doors on the Leased Premises shall be the responsibility of the Tenant.
Any such replacements or repairs shall be promptly completed at the expense of
the Tenant.
G. Liability for Overload. Tenant shall be responsible for
the repair or replacement of any damage to the Leased Premises, the Building or
the Area which result from the Tenant's movement of heavy articles therein or
thereon. Tenant shall not overload the floors of any part of the Leased
Premises.
H. Liability for Overuse and Overload of Operating Systems.
Tenant shall be responsible for the repair, upgrade, modification, and/or
replacement of any operating systems servicing the Leased Premises and/or all
or part of the Building which is necessitated by Tenant's change or increase in
use of or non-disclosed use of all or a part of the Leased Premises. Operating
systems include, but are not limited to, electrical systems; plumbing systems
(both water and natural gas); heating, ventilating, and air conditioning
systems; telecommunications systems; computer and network systems; lighting
systems, fire sprinkler systems; security systems; and building control
systems, if any.
I. Repair or Replacement of Capital Items. Notwithstanding
anything to the contrary contained in this lease, if any Operating System
required to be maintained by Tenant hereunder requires a repair or replacement
of a capital nature, as determined in accordance with generally accepted
accounting principles, Landlord shall pay for the capital repair or replacement
and Tenant shall reimburse to Landlord, as additional rent, the monthly
amortized cost of the item based on its useful life to the extent that the
useful life falls during the Term hereof, as extended.
[Omitted because stricken by parties.]
J. Failure of Tenant to Maintain Premises. Should Tenant
neglect to keep and maintain the Leased Premises as required herein, the
Landlord shall have the right, but not the obligation, to have the work done
and any reasonable
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costs plus a ten percent (10%) overhead charge therefore shall be charged to
Tenant as additional rental and shall become payable by Tenant with the payment
of the rental next due.
K. Operating Systems. Notwithstanding anything to the
contrary contained in this Lease, as of the Commencement Date and at no cost to
Tenant, the Operating Systems serving the Leased Premises shall be in good
working order and repair. If during the first thirty (30) days of the Term,
any Operating System is not in the condition required by the foregoing
sentence, Tenant shall notify Landlord of the need for repair and Landlord
promptly shall complete the repair at no cost to Tenant.
16. Common Area Maintenance. Tenant shall be responsible for
Tenant's Prorata share of the total costs incurred for the operation,
maintenance and repair of the Common Areas, including, but not limited to, the
costs and expenses incurred for the operation, maintenance and repair of
parking areas (including restriping and repaving); removal of snow; utilities
for common lighting and signs; normal HVAC maintenance and elevator maintenance
(if applicable); trash removal; security to protect and secure the Area; common
entrances, exits, and lobbies of the Building; all common utilities, including
water to maintain landscaping; replanting in order to maintain a smart
appearance of landscape areas; supplies; depreciation on the machinery and
equipment used in such operation, maintenance and repair; the cost of personnel
to implement such services; the cost of maintaining in good working condition
the HVAC system(s) for the Leased premises; the cost of maintaining in good
working condition the elevator(s) for the Leased Premises, if applicable; and
Ten percent (10%) of all such operational, maintenance and repair costs
to cover Landlord's administrative and overhead costs. These costs shall be
estimated on an annual basis by the Landlord and shall be adjusted upwards or
downwards depending on the actual costs for the preceding twelve months.
Tenant shall pay monthly, commencing with the first month of the Lease Term, as
additional rent due under the terms hereof, a sum equal to Tenant's Prorata
Share of the estimated costs for said twelve (12) month period, divided by 12.
The estimated initial monthly costs are $ 866.20. Once each year the Landlord
shall determine the actual costs of the foregoing expenses for the prior year
and if the actual costs are greater than the estimated costs, the Tenant shall
pay its Tenant's Prorata Share of the difference between the estimated costs
and the actual costs to the Landlord with the next payment of Base Monthly
Rent, or, if the actual costs are less than the estimated costs, the Landlord
shall forthwith refund the amount of the Tenant's excess payment to the Tenant.
Notwithstanding anything to the contrary contained in this Lease, in no event
shall Tenant have any obligation to perform, to pay directly, or to reimburse
Landlord for, all or any portion of the following repairs, maintenance,
improvements, replacements, premiums, claims, losses, fees, commissions,
charges, disbursements, attorneys' fees, costs and expenses (collectively,
"Costs"): (i) Costs occasioned by the act, omission or violation of Law by
Landlord, any other occupant of the Area, or their respective agents, employees
or contractors, or Costs to correct any construction defect or other condition
in the Leased Premises or the Building not in compliance with law as of the
Commencement Date; (ii) Costs occasioned by fire, acts of God or other
casualties, or by the exercise of the power of eminent domain; (iii) Costs
which Tenant pays directly to a third person or for which Landlord has a right
of reimbursement from others (iv) Costs (A) arising from the disproportionate
use of any utility or service supplied by Landlord to any other occupant of the
Area; or (B) associated with utilities and services of a type not provided to
Tenant; (v) Costs related to Hazardous Materials, excepted to the extent the
Cost is caused by the storage, use or disposal of the Hazardous Material in
question by Tenant in violation of Hazardous Materials Laws; (vi) Costs
incurred in connection with negotiations or disputes with other occupant(s) of
the Area; (vii) depreciation, amortization or other expense reserves; (viii)
interest, charges and fees incurred on dept, payments on mortgages and rent
under ground leases; or (ix) wages, salaries, compensation and labor burden for
any employee not stationed in the Area on a full-time basis, or any fee, profit
or compensation retained by Landlord or its affiliates for management and
administration of the Area in excess of the management fee which would be
charged by a professional management service for operation of comparable
projects in the vicinity of the Area. In addition, notwithstanding anything to
the contrary contained in this Lease, within thirty (30) days after receipt by
Tenant of Landlord's statement of Common Area costs for any prior calendar year
during the Term, Tenant or its authorized representative shall have the right
to inspect the books of Landlord during the business hours of Landlord at
Landlord's office in the Area, or, at Landlord's option, such other location as
Landlord reasonably may specify, for the purpose of verifying the information
contained in the statement. Unless Tenant asserts specific error within thirty
(30) days after receipt of the statement, the statement shall be deemed correct
as between Landlord and Tenant, except as to individual components subsequently
determined to be in error by a future audit.
17. Inspection of and Right of Entry to Leased Premises--Regular,
Emergency, Reletting. Landlord and/or Landlord's agents and employees, shall
have the right to enter the Leased Premises with reasonable prior notice at all
times during regular business hours and, at all times during emergencies, to
examine the Leased Premises, to make such repairs, alterations, improvements or
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additions as Landlord deems necessary, and Landlord shall be allowed to take
all materials into and upon said Leased Premises that may be required therefore
without the same constituting an eviction of Tenant in whole or in part, and
the rent reserved shall in no way abate while such repairs, alterations,
improvements or additions are being made, by reason of loss or interruption of
business of Tenant or otherwise. During the six months prior to the expiration
of the term of this Lease or any renewal thereof, Landlord may exhibit the
Leased Premises to prospective tenants and/or purchasers and may place upon the
Leased Premises the usual notices indicating that the Leased Premises are for
lease and/or sale. Notwithstanding anything to the contrary contained in this
Lease, any entry by Landlord and Landlord's agents shall not impair Tenant's
operations more than reasonably necessary, and Tenant shall have the right to
have an employee accompany Landlord and/or its agents at all times that
Landlord and/or its agents are present on the Leased Premises.
18. Alteration-Changes and Additions-Responsibility. Unless the
Landlord's approval is first secured in writing, such approval not to be
unreasonably withheld or delayed, the Tenant shall not install or erect inside
partitions, add to existing electric power service, add telephone outlets, add
light fixtures, install additional heating and/or air conditioning or make any
other changes or alterations to the interior or exterior of the Leased
Premises. Notwithstanding the foregoing, Tenant may make non-structural
alterations to the Leased Premises not in excess of Twenty-Five Thousand
Dollars ($25,000) per work of improvement without obtaining Landlord's prior
consent. Any such changes or alterations shall be made at the sole cost and
expense of the Tenant. At the end of this Lease, all such fixtures, equipment,
additions, changes and/or alterations (except trade fixtures installed by
Tenant) shall be and remain the property of Landlord; provided, however,
Landlord shall have the option, given in writing at the time that Tenant
requests Landlord's consent, or, if no consent is required, upon the expiration
or earlier termination of this Lease, to require Tenant to remove any or all
such fixtures, equipment, additions and/or alterations and restore the Leased
Premises to the condition existing immediately prior to such change and/or
installation, normal wear and tear, acts of God, casualties, condemnation,
Hazardous Materials (other than those stored, used or disposed of by Tenant in
or about the Leased premises in violation of Hazardous Materials Laws) and
Alterations with respect to which Landlord has not reserved the right to
require removal excepted, all at Tenant's cost and expense. All such work
shall be done in a good and workmanlike manner and shall consist of new
materials unless agreed to otherwise by Landlord. Any and all repairs, changes
and/or modifications thereto shall be the responsibility of, and at the cost
of, Tenant. Landlord may require adequate security from Tenant assuring no
mechanics' liens on account of work done on the Leased Premises by Tenant and
may post the Leased Premises, or take such other action as is then permitted by
law, to protect the Landlord and the Leased Premises against mechanics' liens.
Landlord may also require adequate security to assure Landlord that the Leased
Premises will be restored to their original condition upon termination of this
Lease.
19. Sign Approval. Except for signs which are located inside of the
Leased Premises and which are not attached to any part of the Leased Premises,
the Landlord must approve in writing any sign to be placed in or on the
interior or exterior of the Leased Premises, regardless of size or value.
Landlord's approval shall not be unreasonably withheld or delayed.
Specifically, signs attached to windows of the Leased Premises must be so
approved by the Landlord. As a condition to the granting of such approval,
Landlord shall have the right to require Tenant to furnish a bond or other
security acceptable to Landlord sufficient to insure completion of and payment
for any such sign work to be so performed. Tenant shall, during the entire
Lease Term, maintain Tenant's signs in good condition and repair at Tenant's
sole cost and expense. Tenant shall, remove all signs at the termination of
this Lease, at Tenant's sole risk and expense and shall in a workmanlike manner
properly repair any damage and close any holes caused by the installation
and/or removal of Tenant's signs. Tenant shall give Landlord prior notice of
such removal so that a representative of Landlord shall have the opportunity of
being present when the signage is removed, or shall pre-approve the manner and
materials used to repair damage and close the holes caused by removal.
20. Right of Landlord to Make Changes and Additions. Landlord
reserves the right at any time to make reasonable alterations or additions to
the Building or Area of which the Leased Premises are a part. Landlord also
reserves the right to construct other buildings and/or improvements in the Area
and to make alterations or additions thereto, all as Landlord shall determine.
Easements for light and air are not included in the leasing of the Leased
Premises to Tenant. Landlord further reserves the exclusive right to the roof
of the Building of which the Leased Premises are a part. Landlord also
reserves the right at any time to relocate, vary and adjust the size of any of
the improvements or Common Areas located in the Area, provided, however, that
all such changes shall be in compliance with the requirements of governmental
authorities having jurisdiction over the Area. Landlord shall use reasonable
efforts in exercising the foregoing rights to minimize interference with
Tenant's possession of and right to use the Leased Premises. Nothing in this
Lease will require Tenant to indemnify, hold harmless or release Landlord for,
and Landlord shall indemnify, defend with
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counsel reasonably acceptable to Tenant, protect and hold harmless Tenant with
respect to, any claim, loss, expense, cost judgement and/or demand, or fees,
arising from the negligence or willful misconduct of Landlord, its agents,
employees or contractors, or a breach of the obligations of Landlord hereunder,
or a violation of Law by Landlord.
21. Damage or Destruction of Leased Premises. In the event the Leased
Premises and/or the Building of which the Leased Premises are a part shall be
totally destroyed by fire or other casualty or so badly damaged that, in the
opinion of Landlord and Tenant, it is not feasible to repair or rebuild same,
Landlord shall have the right to terminate this Lease upon written notice to
Tenant. If the Leased Premises are partially damaged by fire or other casualty,
[Omitted because stricken by parties.] and said Leased Premises are not rendered
untenantable thereby, as determined by Landlord and Tenant, an appropriate
reduction of the rent shall be allowed for the unoccupied portion of the Leased
Premises until Landlord's repair thereof shall be substantially completed. If
the Landlord elects to exercise the right herein vested in it to terminate this
Lease as a result of damage to or destruction of the Leased Premises or the
Building in which the Leased Premises are located, said election shall be made
by giving notice thereof to the Tenant within thirty (30) days after the date of
said damage or destruction. Notwithstanding anything to the contrary contained
in this Lease:
(i) Landlord shall not have the right to terminate this Lease
if damage to or destruction of the Leased Premises results from a casualty
ordinarily covered by insurance required to be carried by Landlord under this
Lease.
(ii) In the event of damage to the Leased Premises which is
not required to be covered by insurance, and is not covered by insurance
actually carried, Landlord shall not have the right to terminate this Lease (A)
if the damage is relatively minor (e.g. repair or restoration would take fewer
than sixty (60) days or it would cost less than ten percent (10%) of the
replacement cost of the Leased Premises); or (B) if Tenant agrees to pay the
cost of repair in excess of ten percent (10%) of the then replacement cost of
the Leased Premises.
(iii) If the Leased Premises are damaged by any peril and
Landlord does not elect to terminate this Lease or its not entitled to
terminate this Lease pursuant to its terms, then as soon as reasonably
practicable, Landlord shall furnish Tenant with a written option of Landlord's
architect or construction consultant as to when the restoration work required
of Landlord may be completed. Tenant shall have the option to terminate this
Lease in the event any of the following occurs, which option may be exercised
by delivery to Landlord of a written notice of election to terminate within
thirty (30) days after Tenant receives from Landlord the estimate of the time
needed to complete such restoration: (A) the Leased Premises, with reasonable
diligence, cannot be fully repaired by Landlord within ninety (90) days after
the damage or destruction; or (B) if the Premises are damaged by any peril
within twelve (12) months of the last day of Term, and cannot be substantially
restored within sixty (60) days after the date of such damage.
(iv) If this Lease is not terminated by Landlord or Tenant as
provided herein, Landlord shall restore the Leased Premises and all Tenant
Improvements installed by Landlord to the condition in which they existed
immediately prior to the casualty.
22. Governmental Acquisition of Property. The parties agree that
Landlord shall have complete freedom of negotiation and settlement of all
matters pertaining to the acquisition of the Leased Premises, the Building, the
Area, or any part thereof, by any governmental body or other person or entity
via the exercise of the power of eminent domain, it being understood and agreed
that any financial settlement made or compensation paid respecting said land or
improvements to be so taken, whether resulting from negotiation and agreement
or legal proceedings, shall be the exclusive property of Landlord, there being
no sharing whatsoever between Landlord and Tenant of any sum so paid. In the
event of any such taking, Landlord shall have the right to terminate this Lease
on the date possession is delivered to the condemning person or authority.
Such taking of the property shall not be a breach of this Lease by Landlord nor
give rise to any claims in Tenant for damages or compensation from Landlord.
Nothing herein contained shall be construed as depriving the Tenant of the
right to retain as its sole property any compensation paid for any tangible
personal property owned by the Tenant which is taken in any such condemnation
proceeding, or a separate award made by the condemning authority for relocation
costs, moving expenses or loss of goodwill..
23. Assignment or Subletting. Tenant may not assign this Lease, or
sublet the Leased Premises or any part thereof, without the written consent of
Landlord, such consent not to be unreasonably withheld. No such assignment or
subletting if approved by the Landlord shall relieve Tenant of any of its
obligations hereunder, and, the performance or nonperformance of any of the
covenants herein contained by subtenants shall be considered as the performance
or the
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nonperformance by the Tenant. In the event of an acquisition, merger, or
reorganization, the assignment of the Lease shall not be unreasonably withheld
by Landlord. Notwithstanding anything to the contrary contained in this Lease,
Tenant, without Landlord's prior written consent, may sublet the Leased
Premises or assign this Lease to: (i) a subsidiary, affiliate, franchisee,
division or corporation controlling, controlled by or under common control with
Tenant; (ii) a successor corporation related to Tenant by merger,
consolidation, non-bankruptcy reorganization or government action; or (iii) a
purchaser of substantially all of Tenant's assets located at the Leased
Premises, with Landlord's right to reasonably approve the assignment. For
purposes of this Lease, a sale of Tenant's capital stock either privately or
through any public exchange shall not be deemed an assignment, subletting or
other transfer of this Lease or the Leased Premises requiring Landlord's
consent.
24. Warranty of Title. Subject to the provisions of the following
three (3) paragraphs hereof, Landlord covenants it has good right to lease the
Leased Premises in the manner described herein and that Tenant shall peaceably
and quietly have, hold, occupy and enjoy the Leased Premises during the term of
the Lease.
25. Access. Landlord shall provide Tenant nonexclusive access to the
Leased Premises through and across land and/or other improvements owned by
Landlord. Landlord shall have the right, during the term of this Lease, to
designate, and to change, such nonexclusive access, so long as Tenant's access
to the Leased Premises is not impaired thereby.
26. Subordination. Tenant agrees that this Lease shall be subordinate
to any mortgages, trust deeds or ground leases that may now exist or which may
hereafter be placed upon said Leased Premises and to any and all advances to be
made thereunder, and to the interest thereon, and all renewals, replacements and
extensions thereof. Tenant shall execute and deliver whatever instruments may
be required for the above purposes, and failing to do so within ten (10)
business days after demand in writing shall be deemed to be a breach of this
Lease [Omitted because stricken by parties.]. Tenant shall in the event of the
sale or assignment of Landlord's interest in the Area or in the Building of
which the Leased Premises form a part, or in the event of any proceedings
brought for the foreclosure of or in the event of exercise of the power of sale
under any mortgage made by Landlord covering the Leased Premises, attorn to the
purchaser and recognize such purchaser as Landlord under this Lease.
Notwithstanding anything to the contrary contained in this Lease, Tenant,
Landlord shall deliver to Tenant, within thirty (30) days after the date of this
Lease, a recognition agreement in standard form from the existing holder of any
deed of trust or similar instrument affecting the Leased Premises, whereby such
holder agrees to recognize the leasehold interest of Tenant following a
foreclosure of any such interest. Further, as a condition to Tenant's
obligation to subordinate its leasehold interest to a future ground lease or
instrument of security, Landlord shall obtain from any such ground lessors or
lenders a written recognition agreement in the holder's standard form, whereby
such holder agrees to recognize the leasehold interest of Tenant following a
foreclosure of any such interest.
27. Easements. The Landlord shall have the right to grant any
easement on, over, under and above the Area for such purposes as Landlord
determines, provided that such easements do not materially interfere with
Tenant's occupancy and use of the Leased Premises.
28. Tenant's Hold Harmless and Indemnification Agreement. Except to
the extent caused by the negligence or willful misconduct of Landlord, its
agents, employees, contractors or invitees, Tenant shall indemnify and hold
Landlord harmless from and against any and all claims, losses, expenses, costs,
judgments, and/or demands, including court costs and reasonable attorney's
fees, suffered or incurred by the Landlord, arising from activities of Tenant
on the Leased Premises or in the Building or in the Area and/or on account of
any operation or action by Tenant and/or from and against all claims arising
from any breach or default on the part of Tenant or any act of negligence of
Tenant, it agents, contractors, servants, employees, licensees, or invitees; or
any accident, injury or death of any person or damage to any property in or
about the Leased Premises, the Building or the Area.
29. Acts or Omission of Others. The Landlord, or its employees or
agents, or any of them, shall not be responsible or liable to the Tenant or to
the Tenant's guests, invitees, employees, agents or any other person or entity,
for any loss or damage that may be caused by the acts or omissions of other
tenants, their guests or invitees, occupying any other part of the Area or by
persons who are trespassers on or in the Area, or for any loss or damage caused
or resulting from the bursting, stoppage, backing up or leaking of water, gas,
electricity or sewers or caused in any other manner whatsoever, unless such
loss or damage is caused by or results from the negligent acts or willful
misconduct of the Landlord, its agents, employees or contractors.
30. Interest on Past Due Obligations. Any amount due to Landlord not
paid when due shall bear interest at One and One Half (1 1/2%) percent per
month from
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due date until paid. Payment of such interest shall not excuse or cure any
default by Tenant under this Lease.
31. Holding Over- Last Month's Rent. If Tenant shall remain in
possession of the Leased Premises after the termination of this Lease, whether
by expiration of the Lease Term or otherwise, without a written agreement as to
such possession, then Tenant shall be deemed a month-to-month Tenant. The rent
rate during such holdover tenancy shall be equivalent to one hundred fifty
percent (150%) [Omitted because stricken by parties.] the monthly rent paid for
the last full month of tenancy under this Lease, excluding any free rent
concessions which may have been made for the last full month of the Lease. No
holding over by Tenant shall operate to renew or extend this Lease without the
written consent of Landlord to such renewal or extension having been first
obtained. Tenant shall indemnify Landlord against loss or liability resulting
from the delay by Tenant in surrendering possession of the Leased Premises
including, without limitation, any claims made with regard to any succeeding
occupancy bounded by such holdover period.
32. Modification or Extensions. No modification or extension of this
Lease shall be binding upon the parties hereto unless in writing and unless
signed by the parties hereto.
33. Notice Procedure. All notices, demands and requests which may be
or are required to be given by either party to the other shall be in writing
and such that are to be given to Tenant shall be deemed to have been properly
given if served on Tenant or an employee of Tenant or sent by nationally
recognized overnight courier service or sent to Tenant by United States
registered or certified mail, return receipt requested, properly sealed,
stamped and addressed to Tenant at 1825 Sharp Point Drive, Fort Collins, CO
80525 or at such other place as Tenant may from time to time designate in a
written notice to Landlord; and, such as are to be given to Landlord shall be
deemed to have been properly given if personally served on Landlord or sent by
nationally recognized overnight courier service or if sent to Landlord, United
States registered or certified mail, return receipt requested, properly sealed,
stamped and addressed to Landlord at 4875 Pearl East Circle #300, Boulder, CO
80301 or at such other place as Landlord may from time to time designate in a
written notice to Tenant. Any notice given by mailing shall be effective as of
the date of mailing.
34. Memorandum of Lease-Notice to Mortgagee. The Landlord and Tenant
agree not to place this Lease of record, but upon the request of either party to
execute and acknowledge so the same may be recorded a short form lease
indicating the names and respective addresses of the Landlord and Tenant, the
Leased Premises, the Lease Term, the dates of the commencement and termination
of the Lease Term and options for renewal, if any, but omitting rent and other
terms of this Lease. Tenant agrees to an assignment by Landlord of rents and of
the Landlord's interest in this Lease to a mortgagee, if the same be made by
Landlord. Tenant further agrees if requested to do so by the Landlord, so long
as Tenant is provided with the address of the mortgagee, that it will give to
said mortgagee a copy of any request for performance by Landlord or notice of
default by Landlord; and in the event Landlord fails to cure such default, the
Tenant will give said mortgagee a thirty (30) [Omitted because stricken by
parties.] day period in which to cure the same. Said period shall begin with
the last day on which Landlord could cure such default before Tenant has the
right to exercise any remedy by reason of such default. All notices to the
mortgagee shall be sent by United States registered or certified mail, postage
prepaid, return receipt requested.
35. Controlling Law. The Lease, and all terms hereunder shall be
construed consistent with the laws of the State of Colorado. Any dispute
resulting in litigation hereunder shall be resolved in court proceedings
instituted in Larimer County and in no other jurisdiction.
36. Landlord Not a Partner With the Tenant. Nothing contained in
this Lease shall be deemed, held or construed as creating Landlord as a
partner, agent, associate of or in joint venture with Tenant in the conduct of
Tenant's business, it being expressly understood and agreed that the
relationship between the parties hereto is and shall at all times remain that
of Landlord and Tenant.
37. Partial Invalidity. If any term, covenant or condition of this
Lease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease or the
application of such term, covenant or condition to persons and circumstances
other than those to which it has been held invalid or unenforceable, shall not
be affected thereby, and each term, covenant and condition of this Lease shall
be valid and shall be enforced to the fullest extent permitted by law.
38. Default-Remedies of Landlord.
A. If Tenant shall fail to pay any sum due hereunder within
five (5) days after receipt of written notice from Landlord that such sum is
due, Tenant shall be in default under this Lease. If Tenant fails to keep any
of the other terms, covenants or conditions of this Lease, and has not cured
such breach within thirty (30) days after receipt of written notice from
Landlord (or, if the breach cannot be cured within thirty (30) days, Tenant
fails to commence the cure
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within the thirty (30)- day period or thereafter fails to diligently prosecute
the cure to completion), Tenant shall be in default under this Lease. In the
event of any such default, [Omitted because stricken by parties.] Landlord may
immediately, or at any time thereafter, reenter the Leased Premises, remove all
persons and property therefrom in compliance with applicable law, without being
liable to indictment, prosecution for damage therefore, or for forcible entry
and detainer and repossess and enjoy the Leased Premises, together with all
additions thereto or alterations and improvements thereof. Landlord may, at its
option, at any time and from time to time thereafter, relet the Leased Premises
or any part thereof for the account of Tenant or otherwise, and receive and
collect the rents therefore and apply the same first to the payment of such
expenses as Landlord may have incurred in recovering possession and for putting
the same in good order and condition for rerental, and expense, commissions and
charges paid by Landlord in reletting the Leased Premises. Any such reletting
may be for the remainder of the term of this Lease or for a longer or shorter
period. In lieu of reletting such Leased Premises, Landlord may occupy the same
or cause the same to be occupied by others. Whether or not the Leased Premises
or any part thereof be relet, Tenant shall pay the Landlord the rent and all
other charges required to be paid by Tenant up to the time of the expiration of
this Lease or such recovered possession, as the case may be and thereafter,
Tenant, if required by Landlord, shall pay to Landlord until the end of the term
of this Lease, the equivalent of the amount of all rent reserved herein and all
other charges required to be paid by Tenant, less the net amount received by
Landlord for such reletting, if any, unless waived by written notice from
Landlord to Tenant. No action by Landlord to obtain possession of the Leased
Premises and/or to recover any amount due to Landlord hereunder shall be taken
as a waiver of Landlord's right to require full and complete performance by
Tenant of all terms hereof, including payment of all amounts due hereunder or as
an election on the part of Landlord to terminate this Lease Agreement. If the
Leased Premises shall be reoccupied by Landlord, then, from and after the date
of repossession, Tenant shall be discharged of any obligations to Landlord under
the provisions hereof for the payment of rent. If the Leased Premises are
reoccupied by the Landlord pursuant hereto, and regardless of whether the Leased
Premises shall be relet or possessed by Landlord, all fixtures, additions,
furniture, and the like then on the Leased Premises, excluding any equipment,
fixtures, and furniture that Tenant may be leasing from a third party, may be
retained by Landlord. In the event Tenant is in default under the terms hereof
and, by the sole determination of Landlord, has abandoned the Leased Premises,
Landlord shall have the right to remove all the Tenant's property from the
Leased Premises and dispose of said property in such a manner as determined best
by Landlord, at the sole cost and expense of Tenant and without liability of
Landlord for the actions so taken, so long as the foregoing actions of Landlord
are taken in compliance with applicable Law.
B. In the event an assignment of Tenant's business or
property shall be made for the benefit of creditors, or, if the Tenant's
leasehold interest under the terms of this Lease Agreement shall be levied upon
by execution or seized by virtue of any writ of any court of law, or, if
application be made for the appointment of a receiver for the business or
property of Tenant, or, if a petition in bankruptcy shall be filed by or
against Tenant, and the foregoing are not resolved and/or dismissed within
sixty (60) days, then and in any such case, at Landlord's option, with or
without notice, Landlord may terminate this Lease and immediately retake
possession of the Leased Premises without the same working any forfeiture of
the obligations of Tenant hereunder.
C. [Omitted because stricken by parties.]
D. In addition to remedy granted to Landlord by the terms
hereof, Landlord shall have available any and all rights and remedies available
under the statutes of the State of Colorado. No remedy herein or otherwise
conferred upon or reserved to Landlord shall be considered exclusive of any
other remedy but shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute. Further, all powers and remedies given by this Lease to Landlord may
be exercised, from time to time, and as often as occasion may arise or as may
be deemed expedient. No delay or omission of Landlord to exercise any right or
power arising from any default shall impair any such right or power or shall be
considered to be a waiver of any such default or acquiescence thereof. The
acceptance of rent by Landlord shall not be deemed to be a waiver of any breach
of any of the covenants herein contained or of any of the rights of Landlord to
any remedies herein given.
E. If Tenant shall, for any reason, abandon [Omitted because
stricken by parties.] the Leased Premises before the current expiration date,
and such abandonment is accompanied by Tenant's failure to pay Monthly Base
Rent or additional rent hereunder,
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landlord shall have the right to accelerate rental payments and any and all
future rent payments due during the course of the Lease Term shall become
immediately payable in full to the Landlord.
39. Legal Proceedings-Responsibilities. In the event of proceeding
at law or in equity by either party hereto, the defaulting party shall pay all
costs and expenses, including all reasonable attorney's fees incurred by the
non-defaulting party in pursuing such remedy, if such non-defaulting party is
awarded substantially the relief requested.
40. Administrative Charges. In the event any check, bank draft or
negotiable instrument given for any money payment hereunder shall be dishonored
at any time and from time to time, for any reason whatsoever not attributable
to Landlord, Landlord shall be entitled, in addition to any other remedy that
may be available, (1) to make an administrative charge of $100.00 or three
times the face value of the check, bank draft or negotiable instrument,
whichever is smaller, and (2) at Landlord's sole option, to require Tenant to
make all future rental payments in cash or cashiers check.
41. Hazardous Materials and Environmental Considerations.
A. Tenant covenants and agrees that Tenant and its agents,
employees, contractors and invitees shall comply with all Hazardous Materials
Laws (as hereinafter defined) applicable to Tenant's business. Without limiting
the foregoing, Tenant covenants and agrees that it will not use, generate, store
or dispose of, nor permit the use, generation, storage or disposal of Hazardous
Materials (as hereinafter defined) on, under or about the Leased Premises, nor
will it transport or permit the transportation of Hazardous Materials to or form
the Leased Premises, except in full compliance with any applicable Hazardous
Materials Laws. If required by applicable Hazardous Materials Laws, any
Hazardous Materials located on the Leased Premises shall be handled in an
appropriately controlled environment which shall include the use of such
equipment (at Tenant's expense) as is necessary to meet [Omitted because
stricken by parties.] standards imposed by any applicable Hazardous Materials
Laws and in such a way as not to interfere with any other tenant's use of its
premises. Upon breach of any covenant contained herein, Tenant shall, at
Tenant's sole expense, cure such breach by taking all action prescribed by any
applicable Hazardous Materials Laws or by any governmental authority with
jurisdiction over such matters.
B. Tenant shall provide Landlord with a list of Hazardous
Materials that Tenant intends to use in the Leased Premises prior to the
Commencement Date and shall inform Landlord [Omitted because stricken by
parties.] of [Omitted because stricken by parties.] any Hazardous Materials it
intends to use, generate, handle, store or dispose of, on or about or transport
from, the Leased Premises Tenant also shall notify Landlord of [Omitted because
stricken by parties.] Tenant's discovery of any Hazardous Materials which differ
from those on the list. [Omitted because stricken by parties.] Tenant shall
provide to Landlord copies of all communications to or from any governmental
authority or any other party relating to Hazardous Materials affecting the
Leased Premises.
C. Tenant shall indemnify and hold Landlord harmless from any
and all claims, judgments, damages, penalties, fines, costs, liabilities,
expenses or losses (including, without limitation, diminution on value of the
Leased Premises, damages for loss or restriction on use of all or part of the
Leased Premises, sums paid in settlement of claims, investigation of site
conditions, or any cleanup, removal or restoration work required by any federal,
state or local governmental agency, reasonable attorney's fees, consultant fees,
and expert fees) which arise as a result of [Omitted because stricken by
parties.] any other violation of any Hazardous Materials laws by Tenant. The
indemnification contained herein shall also accrue to the benefit of the
employees, agents, officers, directors and/or partners of Landlord.
D. Upon termination of this Lease and/or vacation of the
Leased Premises, Tenant shall properly remove all Hazardous Materials and shall
then provide to Landlord a copy of the closure report filed with the agency with
jurisdiction over closure of the Leased Premises. [Omitted because stricken by
parties.] Landlord shall grant to Tenant and its agents or contractors such
access to the Leased Premises as is necessary to accomplish such removal and
prepare such report.
E. "Hazardous Materials" shall mean (a) any chemical,
material, substance or pollutant which poses a hazard to the Leased Premises or
to persons on or about the Leased Premises or which [Omitted because stricken by
parties.] is regulated by any Hazardous Materials Laws, and (b) any chemical,
material or substance defined as or included in the definitions of "hazardous
substances", "hazardous wastes", "extremely hazardous waste", "restricted
hazardous waste", "toxic substances", "regulated substance", or words of similar
import under any applicable federal, state or local law or under the regulations
adopted or publications promulgated pursuant thereto, including, but not limited
to, the
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Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, 42 U.S.C. Sec. 9601, et seq.; the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. Sec. 1801, et seq.; the Resource
Conservation and Recovery Act as amended, 42 U.S.C. Sec 6901, et seq.; the
Solid Waste Disposal Act, 42 U.S.C. Sec. 6991 et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Sec. 1251, et seq.; and Sections
25-15-101, et seq., 25-16-101, et seq., 25-7-101, et seq., and 25-8-101, et
seq., of the Colorado Revised Statutes. "Hazardous Materials Laws" shall mean
any federal state or local laws, ordinances, rules, regulations, or policies
(including, but not limited to, those laws specified above) relating to the
environment, health and safety or the use, handling, transportation,
production, disposal, discharge or storage of Hazardous Materials, or to
industrial hygiene or the environmental conditions on, under or about the
Leased Premises. Said term shall be deemed to include all such laws as are now
in effect or as hereafter amended and all other such laws as may hereafter be
enacted or adopted during the term of this Lease.
F. All obligations of Tenant in this Paragraph 41 [Omitted
because stricken by parties.] shall survive and continue after the expiration of
this Lease or its earlier termination for any reason.
G. Tenant further covenants and agrees that it shall not
install any storage tank (whether above or below the ground) on the Leased
Premises without obtaining the prior written consent of the Landlord, which
consent may be conditioned upon further reasonable requirements imposed by
Landlord with respect to, among other things, compliance by Tenant with any
applicable laws, rules, regulations or ordinances and safety measures or
financial responsibility requirements applicable to the proposed storage tank.
H. Should any local governmental entity having jurisdiction
over the Leased Premises require [Omitted because stricken by parties.] an
environmental audit or report if Tenant's operations [Omitted because stricken
by parties.] during the occupancy of the Leased Premises by the Tenant, such
cost of the audit or report shall be the sole responsibility of the Tenant.
I. Notwithstanding anything to the contrary contained in this
Paragraph 41, Tenant shall not be responsible for any conditions which existed
prior to its tenancy, nor shall it be responsible if conditions which are
determined not to be caused by action or inaction of Tenant.
42. Entire Agreement. It is expressly understood and agree by and
between the parties hereto that this Lease sets forth all the promises,
agreements, conditions, and understandings between Landlord and/or its agents
and Tenant relative to the Leased Premises and that there are no promises,
agreements, conditions, or understandings either oral or written, between them
other than that are herein set forth.
43. [Omitted because stricken by parties.]
44. Estoppel Certificates. Within no more than ten (10) business
days after receipt of written request, the Tenant shall furnish to the owner a
certificate, duly acknowledged, certifying, to the extent true:
A. That this Lease is in full force and effect.
B. That the Tenant knows of no default hereunder on the part of the
owner, or if it has reason to believe that such a default exists,
the nature thereof in reasonable detail.
C. The amount of the rent being paid and the last date to which rent
has been paid.
D. That this Lease has not been modified, or if it has been modified,
the terms and dates of such modifications.
E. That the term of this Lease has commenced.
F. The commencement and expiration dates.
G. Whether all work to be performed by the owner has been completed.
H. Whether the renewal term option has been exercised if applicable.
I. Whether there exist any claims or deductions from, or defenses to,
the payment of rent.
J. Such other matters as may be reasonably requested by owner.
If the Tenant fails to execute and deliver to the owner a completed certificate
as required under this section, Tenant's failure shall be deemed to be a
default hereunder. [Omitted because stricken by parties.]
45. Financial Statements. As reasonably requested by the Landlord,
and not more than once each calendar year, Tenant shall provide copies of its
most recent financial statements and shall also provide Landlord with up to
three (3) prior years of financial statements, if so requested. Landlord shall
keep all such financial statements confidential.
46. Lease Exhibits Attached. This Lease includes the following Lease
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Exhibits which are incorporated herein and made a part of this Lease Agreement:
Exhibit "A" - Site Plan Depicting Area
Exhibit "B" - Interior Space Plan
Exhibit "C" - Landlord and Tenant's Construction Obligations
Exhibit "D" - Sign Code Obligations
Exhibit "E" - [Omitted because stricken by parties.]
Exhibit "F" - Option to Renew
Exhibit "G" - Standard Specifications
47. Miscellaneous. All marginal notations and paragraph headings are
for purposes of reference and shall not affect the true meaning and intent of
the terms hereof. Throughout this Lease, wherever the words "Landlord" and
"Tenant" are used they shall include and imply to the singular, plural, persons
both male and female, companies, partnerships and corporations, and in reading
said Lease, the necessary grammatical changes required to make the provisions
hereof mean and apply as aforesaid shall be made in the same manner as though
originally included in said Lease.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date hereof.
LANDLORD: GB VENTURES
---------------------------------------------
By: /s/ GERALD P. LEE
---------------------------------------------------
GERALD P. LEE
TENANT: HESKA CORPORATION, A CALIFORNIA CORPORATION
-----------------------------------------------
By: /s/ FRED M. SCHARZER, PRESIDENT
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ENVIRONMENTAL INDEMNITY AGREEMENT
THIS INDEMNITY is given as of this 27th day of June, 1996, by Heska Corporation
("[Omitted because stricken by parties.] Tenant," whether one or more), to and
for the benefit of GB Ventures ("Landlord").
WHEREAS, GB VENTURES is Landlord under a proposed Lease Agreement
dated June 27, 1996, ("the Lease") in which Heska Corporation , a California
Corporation is the proposed tenant ("Tenant"), regarding the Leased Premises
commonly known as 1825 Sharp Point Drive, Fort Collins, CO 80525 ("Leased
Premises"); and
WHEREAS, Landlord is unwilling to enter into the Lease with Tenant
unless the [Omitted because stricken by parties.] Tenant agrees to the
indemnities hereinafter provided.
NOW, THEREFORE, in consideration of the matters recited above and to
induce Landlord to enter into the Lease with Tenant, Tenant [Omitted because
stricken by parties.] undertakes and agrees as follows:
1. Tenant [Omitted because stricken by parties.] shall indemnify,
defend and hold Landlord harmless from and against any and all suits, actions,
legal or administrative proceedings, demands, claims, judgements, damages,
penalties, fines, costs, liabilities, expenses or losses which arise during or
after the lease term as a result of or in connection with the presence, use,
storage, disposal, transportation by Tenant, its agents, employees or
contractors or discharge, by or on behalf of Tenant, of any Hazardous Materials
(as defined in the Lease) in violation of Hazardous Materials Laws on, in or
under [Omitted because stricken by parties.] all or any portion of the Leased
Premises or any surrounding areas, [Omitted because stricken by parties.] or any
breach by Tenant of the provisions concerning Environmental Considerations as
contained in paragraph 41 of the Lease, or the failure of the Tenant to comply
with any applicable Hazardous Materials Laws (as defined in the Lease) with
regard to the storage, use, handling, including transportation, or disposal of
any Hazardous Material by Tenant, its agents, employees or contractors, or
otherwise resulting from or arising out of any action or non-action of Tenant or
Tenant's operations on the Leased Premises in violation of the terms of this
Lease.
Without limiting the generality of the foregoing, it is expressly
agreed by [Omitted because stricken by parties.] Tenant that such indemnity
shall also include the following to the extent attributable to the storage, use,
handling or disposal, including transportation, of any Hazardous Material by
Tenant, its agents, employees or contractors: diminution in value of the Leased
Premises, damages for loss or restriction on use of rental or useable space or
any amenity of the Leased Premises, damages arising from any adverse impact on
marketing of space or delay in delivering possession to a subsequent tenant or
purchaser, restoration of the Leased Premises to a condition not materially
different from its original contour, appearance and condition; costs incurred in
connection with any investigation of site conditions or any clean-up, remedial,
removal or restoration work required by any federal, state or local governmental
agency, political subdivision, court order or lender of the Landlord; costs of
removal and lawful disposal off site of all Hazardous Materials; all sums paid
in settlement of claims, reasonable attorneys' fees, consultant fees and expert
fees.
The foregoing indemnities shall survive termination or expiration of
the Lease and shall also accrue to the benefit of the employees, agents,
officers, directors and/or partners of Landlord for a period of three (3)
years.
2. [Omitted because stricken by parties.] Tenant agrees to pay to
Landlord, from time to time, [Omitted because stricken by parties.] within
twenty (20) days after receipt of demand therefor, an amount equal to any and
all expenses therefore incurred by Landlord for which Landlord is entitled to
indemnification. Any sums not so paid shall thereafter bear interest at a rate
of two percent (2%) per month until paid in full.
3. The rights and remedies of Landlord under this indemnity shall be
in addition to any rights or remedies available to Landlord under the terms of
the Lease. The obligations of [Omitted because stricken by parties.] Tenant
hereunder shall not be affected or impaired by: (i) the assertion by Landlord
against Tenant of any rights or remedies reserved to Landlord pursuant to
provisions of the Lease; (ii) the commencement of summary or any other
proceedings against Tenant; (iii) failure of the Landlord to enforce any of its
rights against Tenant pursuant to the Lease or otherwise; (iv) the granting by
Landlord of any extensions of time to Tenant; (v) the assignment or transfer of
the Lease by Tenant; (vi) with release or discharge of Tenant from its
obligations under the Lease in any creditors', receivership, bankruptcy or other
proceedings or the commencement or pendency of any such proceedings; or (vii)
the impairment, limitation or modification of the liability of Tenant or the
estate of Tenant in bankruptcy, or of any remedy for the enforcement of tenant's
liability under the Lease, resulting from the operation of any present or future
bankruptcy code or other statute, or from the decision of any court.
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4. [Omitted because stricken by parties.]
5. All notices for or allowed hereunder shall be deemed given and
received with (a) personally delivered, or (b) at the time the same is
deposited in the United States mail, postage prepaid, first class mail, or
addressed to the applicable party at the address indicated below for such
party, or as to each party, at such other address as shall be designated by
such party in a written notice to the other party:
If to Tenant [Omitted because stricken by parties.], to:
Heska Corporation
1825 Sharp Point Drive
Fort Collins, CO 80525
Attn: President
If to Landlord, to:
GB Ventures
4875 Pearl East Circle #300
Boulder, CO 80301
6. In the event of default in its obligations hereunder, Tenant
[Omitted because stricken by parties.] agrees to reimburse Landlord for
reasonable attorneys' fees and costs incurred by Landlord in the enforcement of
such obligations.
7. This Environmental Indemnity Agreement shall apply to the Lease
and any extension or renewal thereof, and any holdover term following the term
thereof, or any such extension or renewal.
8. This Environmental Indemnity Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado.
9. The covenants and agreements herein contained shall extend to and
be binding upon the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this
Environmental Indemnity Agreement on the day and year first above written.
BY: FRED M. SCHWARZER
-----------------------------------------
[Omitted because stricken by parties.]
" Tenant" HESKA CORPORATION, A CALIFORNIA
CORPORATION
GERALD P. LEE
--------------------------------------------
"Landlord"
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EXHIBIT "A"
[MAP]
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EXHIBIT "B"
Landlord shall construct the space as mutually agreed upon by Landlord and
Tenant. Notwithstanding anything to the contrary contained in this Exhibit B
or the Lease, "Substantial Completion" of the construction contemplated by the
foregoing sentence shall be the date by which all of the following have
occurred: (i) Landlord has substantially completed the "Tenant Improvements"
(as defined below) in accordance with this Exhibit B; (ii) there remains no
incomplete or defective item of Tenant Improvements that would adversely affect
Tenant's intended use of the Premises; (iii) Landlord has delivered legal
possession of the Premises and the Tenant Improvements to Tenant; (iv) Tenant
shall have the right to enter the Leased Premises prior to the completion of
the Tenant Finish for the purpose of installing telephone and network cabling
and leasehold improvements. Such right shall in no way interfere with
Landlord's ability to complete the Tenant Improvements as scheduled. Such
entry shall be coordinated with Mike Blank of Rincon Development, Inc. who
shall be doing the Tenant Finish work. (v) Landlord has obtained all approvals
and permits from the appropriate governmental authorities required for the
legal occupancy of the Leased Premises and the Tenant Improvements for Tenant's
intended use.
"Substantial Completion" shall not be meant to include any i)
installation of lab furniture, fixtures and equipment; ii) installation of any
office furniture, fixtures and equipment required by Tenant.
Landlord shall provide an allowance for, and shall construct, the
improvements ("Tenant Improvements") described in the plans and specifications
attached to this Lease as Exhibit B-1. The allowance for such construction
("Tenant Improvements Allowance") shall not exceed the sum of Three Hundred Two
Thousand Four Hundred Dollars ($302,400). Notwithstanding anything to the
contrary contained in this Exhibit, the cost of the Tenant Improvements "Tenant
Improvements Cost") subject to the Allowance shall not include (and Tenant
shall have no responsibility for) the following:
(i) Costs attributable to (A) building shell construction; (B)
improvements installed outside the demising walls of the Leased Premises unless
(1) necessitated by Tenant Improvements made inside the demising walls of the
Leased Premises; or (2) requested by Tenant or as shown in the approved working
drawings; and (C) Improvements installed "off- site" (such as streets, curbs,
gutters, traffic lights, lights for parking and street lighting);
(ii) Costs for improvements which are not shown on or described in
the approved working drawings unless otherwise approved by Tenant.
(iii) Costs incurred to remove Hazardous Materials from the Leased
Premises or the surrounding area unless the presence of such materials was
caused by Tenant or its agents, contractors, employees or invitees in violation
of Hazardous Materials Laws (as defined in the Lease);
(iv) Attorneys' fees incurred in connection with negotiation of
construction contracts, and attorneys' fees, experts' fees and other costs of
legal and arbitration proceedings to resolve construction disputes with third
parties;
(v) Loan fees, mortgage brokerage fees, interest and other costs of
financing construction costs;
(vi) Costs incurred as a consequence of delay (unless the delay is
caused by Tenant, its agents, contractors, employees or invitees) or
construction defects;
(vii) Costs recoverable by Landlord upon account of warranties and
insurance;
(viii) Restoration costs in excess of insurance proceeds as a
consequence of casualties unless the casualty is caused by Tenant, its agents,
contractors, employees or invitees; and
(ix) Penalties and late charges attributable to the failure to pay
construction costs in accordance with this Exhibit except to the extent such
penalties and late charges arise due to delays caused by Tenant, its agents,
contractors, employees or invitees.
The Tenant Improvements shall be constructed in accordance with such
attached plans and specifications and all applicable Law (as defined in
Paragraph 7 of the Lease), in a good and workmanlike manner, free of defects
and using new materials and equipment of good quality. Within thirty (30) days
after the Commencement Date, Tenant shall have the right to submit a written
"punch list" to Landlord, setting forth any defective item of construction, and
Landlord shall promptly cause such items to be corrected.
Notwithstanding anything to the contrary contained in the Lease,
Tenant's acceptance of the Demised Premises or submission of a "punch list"
shall not be deemed a waiver of Tenant's right to have defects in the Tenant
Improvements or the Premises repaired at no cost to Tenant. Tenant shall give
notice to Landlord whenever any such defect becomes reasonably apparent, and
Landlord shall repair such defect as soon as practicable. Landlord also hereby
assigns to Tenant all warranties with respect to the Premises, including
warranties which would reduce Tenant's maintenance obligations under this
Lease, and shall cooperate with Tenant to enforce all such warranties.
Also notwithstanding anything to the contrary contained in the Lease,
at the Commencement Date, the Leased Premises shall conform to all requirements
of covenants, conditions, restrictions and encumbrances ("CC&R's"), all
underwriters' requirements and Laws (as defined in Paragraph 7 of the Lease)
applicable thereto, including, without limitation, all Laws governing Hazardous
Materials.
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EXHIBIT "C"
LANDLORD AND TENANT'S CONSTRUCTION OBLIGATIONS
LANDLORD
Landlord shall complete the Leased Premises per Exhibit "B" and per the
attached set of "Standard Lease Space Specifications" for Office Buildings.
TENANT
Tenant shall be responsible for the cost of any change order which increases
the cost of the work in excess of the Tenant Improvements Allowance shown on
Exhibit "B" or which increases the cost of the Landlords Standard Lease Space
Specifications. If Tenant should make any changes which increase such cost it
shall pay to the Landlord such sum within 15 days of occupancy of the Leased
Premises. Landlord shall have the obligation to notify Tenant in writing of
any changes which will obligate the Tenant to any such additional costs.
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EXHIBIT "D"
[PLANS]
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EXHIBIT "F"
OPTION TO EXTEND
Tenant shall have the option to extend the Lease Agreement from 12:00 noon on
10/1/2004 to 12:00 noon on 10/1/2007 ("Option Period One") and a second option
from 12:00 noon on 10/1/2007 to 12:00 noon on 10/1/2010 ("Option Period Two").
In the event the Tenant desires to exercise said option, Tenant shall give
written notice of such exercise to Landlord not later than 10/1/2003 for Option
Period One and 10/1/2006 for Option Period Two. See below for Option(s) Term
Rent. In the event of such exercise, the Lease Agreement, including all
amendments, shall be automatically extended for the additional term.
Notwithstanding the foregoing, this option shall be void and of no force or
effect if the Tenant is in default hereunder, beyond applicable cure periods,
either as of the date of the Tenant's exercise of said option or as of the date
of the commencement of the option or additional term.
Option Term Rent: Tenant shall pay the following rent for the Leased Premises:
Landlord and Tenant will attempt to agree upon a Fair Market Rental Value of
the Leased Premises satisfactory to both parties within thirty (30) days of
Tenant's exercise of its option. If no agreement can be reached by the parties
during that period, then the Base Monthly Rental for the Option Term shall be
determined by the Fair Market Rental Value of the Leased Premises as determined
by comparison to premises of similar size located in or near the City of
Boulder, Colorado, having comparable development, use and density capability
and such other characteristics as may be deemed relevant by a subject appraiser
whose selection is outlined herein.
Landlord shall select an independent MAI real estate appraiser with at least
ten (10) years experience in appraising commercial real property in the City of
Boulder, Colorado (a "Qualified Appraiser"). The Qualified Appraiser selected
by the Landlord shall be referred to as the "Landlord's Appraiser". Within
thirty (30) days of being selected by the Landlord, the Landlord's Appraiser
shall determine the Fair Market Rental Value of the Leased Premises in
accordance with the appraisal standards set forth above and shall immediately
give the Landlord and the Tenant written notification of his determination.
If the Tenant agrees with the Landlord's Appraiser's determination of the Fair
Market Rental Value, the new Base Monthly Rental shall become effective
beginning with the first month of the Option Term. If the Tenant does not
agree with the Landlord's Appraiser's determination of Fair Market Rental
Value, the Tenant shall have the right to select its own Qualified Appraiser to
determine the Fair Market Rental Value. If the Tenant does elect to appoint a
Qualified Appraiser (the "Tenant's Appraiser"), the Tenant shall select the
Tenant's Appraiser within thirty (30) business days after receiving the
Landlord's Appraiser's determination of the Fair Market Rental Value. The
Tenant's Appraiser shall make his own determination of the Fair Market Rental
Value in accordance with the provisions set forth above, within 30 business
days of being selected by the Tenant and shall immediately give the Landlord
and the Tenant written notice of his determination.
If the Fair Market Rental Value as determined by the Landlord's Appraiser and
the Tenant's Appraiser, respectively, differ by an amount which is equal to or
less than 5% of the Fair Market Rental Value determined by the Landlord's
Appraiser, then the arithmetic mean of the two Fair Market Rental Values shall
constitute the Fair Market Rental Value used to calculate the new Base Monthly
Rental which will in effect for the Option Term. If the Fair Market Rental
Value determined by the Landlord's Appraiser and the Tenant's Appraiser,
respectively, differ by an amount which is greater than 5% then, within ten
(10) business days after the Landlord's Appraiser and the Tenant's Appraiser's
determination of the Fair Market Rental Value, the Landlord's Appraiser and the
Tenant's Appraiser shall agree upon and select a third Qualified Appraiser who
shall be independent of and have no prior or existing affiliation or
relationship with either the Landlord or the Tenant (the "Independent
Appraiser"). Within ten (10) business days of being appointed, the Independent
Appraiser shall, after exercising his best professional judgement, choose
either the Landlord's Appraiser's or the Tenant's Appraiser's determination of
Fair Market Rental Value which the Independent Appraiser believes, in his best
professional judgement, best represents the Fair Market Rental Value at that
point in time. Upon making such a selection, the Independent Appraiser shall
immediately give the Landlord and the Tenant written notice of this selection
of the Fair Market Rental Value. The Fair Market Rental Value selected by the
Independent Appraiser shall be used to calculate the new Base Monthly Rental
which will be in effect during the Extension Option, and such selection by the
Independent Appraiser shall be binding and conclusive upon the Landlord and the
Tenant.
All appraisal fees required hereunder shall be shared equally by the Landlord
and the Tenant.
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EXHIBIT "G"
STANDARD LEASE SPACE SPECIFICATIONS
The following are standard specifications for the Leased Premises herein
defined.
GENERAL
A. The leased space design/layout will conform to the
Architectural drawings.
B. All work performed to complete the Leased Premises will be in
accordance with all applicable codes and regulations.
C. Demising, corridor and partition walls separating offices from
warehouse space to be 3-5/8" metal studs at 24" o.c. with 5/8"
gypsum wallboard on each side. Partitions to have acoustical
sealant at joints and sound attenuation batting between studs
from floor to structure above. Partitions to receive typical
partition finish.
D. 1) Building interior space may be divided into fire
containment areas. It is the responsibility of the Tenant to
conform to all applicable regulations and fire codes,
including, but not limited to, maintaining egress requirements
during the term of occupancy.
2) Fire containment walls to be 3-5/8" metal studs at 24" o.c.
with 5/8" gypsum wallboard on each side. Walls to extend from
floor to underside of structure above. Doors in fire
containment walls to be twenty minute fire rated, solid core
oak veneer with closer and metal jambs.
E. Tenant will be responsible for identifying any equipment or
areas requiring additional or special ventilation, lighting or
electrical service prior to space planning.
OFFICE AREAS
A. INTERIOR PARTITIONS.
1. 3-5/8" metal studs at 24" o.c. from floor to
underside of ceiling with 5/8" gypsum wallboard on
each side.
2. All concrete block walls in office area to be furred
and sheathed as interior partitions above unless
otherwise noted on Architectural drawings.
B. PARTITIONS FINISH
All interior partitions, not pre-finished, will receive paint.
Paint to be Landlord's standard, two finish coats over one
primer coat. Color to be selected by Tenant from among
choices pre-selected by Landlord.
C. CEILING
To be suspended acoustical tile, 2'X4' omni fissured. Tile
and metal grid to be white.
D. FLOOR COVERING
1. Carpet to be Landlord's standard. Installation to be
glue down. Color to be selected by Tenant from among
choices pre-selected by Landlord. Base at carpet to
be 2-1/2" high solid oak, finish to match doors.
2. Resilient flooring to be Landlord's standard.
12"X12"X1/8". Color to be selected by Tenant from
among choices pre-selected by Landlord. Base at
resilient flooring to be Roppe 2-1/2" rubber cove.
E. INTERIOR DOORS
All interior doors to be solid core flush panel oak veneer
with 3 coats natural color lacquer finish. Frames to be
timely metal. Door sizes to be 3'-0" X 7'-0" X 1-3/4" unless
otherwise noted on architectural drawings.
F. DOOR HARDWARE
To be sargent 6 line Orbital series, 26D brushed chrome or
equal.
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All entry doors to have keyed cylinder lock sets. All office,
conference, and storage room doors to have passage lock set.
Restrooms to have privacy lock. All doors to have 1-1/2 pair
4" hinges and 1 Ives concave wall stop $407 1/2, or equal,
stainless steel finish.
G. LIGHTING
To be 2' X 4' 4 lamp, recessed, fluorescent light fixture with
acrylic lens.
H. ELECTRICAL/PHONE
Outlet locations as shown on Architectural drawings. All
outlets, outlet covers, switches and switch plate covers to be
white.
I. COMPUTER/TELEPHONE OUTLETS
Outlets to consist of empty junction box with 1/2" conduit
stubbed above ceiling.
J. TELEPHONE/COMPUTER LINES AND CABLING
Wiring and installation to be provided by Tenant. 3/4"
plywood phone board to be provided and installed by Landlord
for telephone installation.
RESTROOMS
A. CONSTRUCTION AND FINISHES
To be per office area specifications except as follows:
1. Partitions and ceiling to receive 5/8" water
resistant gypsum wallboard.
2. Walls to have 2 coats of epoxy paint from floor to
4'-0" above floor. Remaining wall surface and
ceiling to have 2 finish coats of semi-gloss acrylic
over one primer coat. Color to be white.
3. Ceiling structure to be metal stud joists bearing on
partition wall. Ceiling structure to support unit
water heater for restroom. Ceiling height to be
maximum allowable.
4. Counter tops to have plastic laminate finish with
color to be selected by Tenant from among choices
pre-selected by Landlord.
B. PLUMBING FIXTURES
1. Toilet - Armitage Shanks, white, model #109 or equal.
2. Lavatory - Armitage Shanks model #308, white, 19"
shelf rimming china lavatory with Price Pfister
#H43-121 faucet or equal.
3. Lavatory - American Standard wall hung Royalyn
Vitreous China 3 hole #1024.121 (20" X 18") with
Delta handle faucet #2520 or equal.
4. Urinal - Kohler model #402, white with Zorn flush
valve or equal.
C. ACCESSORIES
1. Mirror - Full HGT and with mirror with metal edge
trim as shown on Architectural Drawings.
2. Mirror - Bobrick stainless steel channel frame mirror
#B-165-1830 (18" X 30") or equal.
3. Paper Towel Dispenser/Disposal - Bobrick B-369
recessed, stainless steel satin finish or equal.
4. Toilet Tissue Dispenser - Bobrick B-388 recessed,
stainless steel satin finish or equal.
5. Utility Hook - Bobrick #B-670 polished stainless
steel or equal mounted interior side of toilet and
shower stall doors (if applicable) 66" above finished
floor.
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6. Grab Bars - Bobrick #B-490, stainless steel satin
finished or equal.
D. LIGHTING
One surface mounted 2 tube fluorescent fixture with acrylic
lens in drywall light valance over lavatory. Ceiling fixture,
if called for in architectural drawings, to be 2 tube
fluorescent with acrylic wrap lens.
E. ELECTRICAL
MECHANICAL/ELECTRICAL
A. HEATING AND COOLING
The interior premises are heated and cooled by one or more
roof-mounted mechanical units. The sizing of the mechanical
units are designed to provide one (1) ton of cooling for every
three hundred and eighty-three (383) square feet of floor
area; provided that the internal load does not exceed three
(3) watts per square foot. Individual thermostat control
shall be centrally controlled allowing for automatic setback
capabilities with external dial-in monitoring provided for the
interior premises, with control areas not to exceed two
thousand (2,000) square feet in size. Based upon the above,
the system shall maintain a minimum temperature of 65 degrees
Fahrenheit and a maximum temperature of 75 degrees fahrenheit
in the separate rooms within the Leased Premises, so long as
the minimum exterior temperature shall not be below zero
degrees fahrenheit and the maximum exterior temperature shall
not be below zero degrees fahrenheit and the maximum exterior
temperature shall not be in excess of 100 degrees fahrenheit.
B. ELECTRICAL
Standard electrical service provided to the building to the
120/208 volt, three phase, four wire. No additional service
to be provided for Tenant equipment unless otherwise noted.
One (1) light switch per office is provided. Circuitry design
is normally laid out to allocate 6 to 8 duplex outlets per 20
amp circuit.
C. ELECTRICAL OUTLETS
Restrooms to have one duplex electrical outlet. See
Architectural drawings for outlet locations in other areas.
D. LIGHTING
Finished rooms, other than restrooms and storage areas will be
lighted with 2'X4' recessed, 4 lamp, fluorescent fixtures.
All fixtures to be provided initially with lamps. Lights and
switch locations will be shown on Architectural drawings.
SUPPLEMENTAL ITEMS
A. COFFEE BAR
1. Base and upper cabinets to be Merrillat brand with
style to be chosen by Landlord.
2. Countertop and splash to be plastic laminate finish
with color to be selected by Tenant from among
choices pre-selected by Landlord.
3. Kitchen sink, Dayton Kingsford #K-11515 single
compartment sink with Delta #2171 faucet or equal.
B. SHOWER STALL
Universal Rundle #6852, 36" unit fiberglass shower stall with
glass shower door or equal. When shoer stalls are provided
substitute a 30 gallon hot water heater for the standard 6
gallon hot water heater.
C. PARTIAL HEIGHT PARTITIONS
Partial height partitions to be 3-5/8" metal studs with 5/8"
gypsum wallboard on each side of 1X oak cap. Finish to match
full height partitions and oak base. See Architectural
drawings for detail. Vertical posts will be provided as
necessary for stability.
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LEASE ADDENDUM
This Lease Addendum is made and entered into the 19th day of July,
1996, by and between GB Ventures ("Landlord") and Heska Corporation, a
California corporation ("Tenant") as a supplement to the Lease Agreement by and
between Landlord and Tenant dated July 11, 1996.
PREMISES: An area of approximately 16,800 square feet commonly known as Four
Prospect, 1612 Specht Point Drive, Fort Collins, Colorado.
BASE TERM: The term of this Lease shall commence on February 1, 1997
and terminate on October 1, 2004. However, it is mutually
agreed that if Landlord can provide Tenant an early occupancy
of the Premises, Tenant agrees to take possession and begin
its rental obligations. Landlord will provide written notice
to tenant if the Premises will be deemed ready prior to
February 1, 1997.
OTHER TERMS AND CONDITIONS: All other terms and conditions of the Lease
Agreement dated July 11, 1996 shall remain the same.
LANDLORD: TENANT:
GB VENTURES HESKA CORPORATION, A
CALIFORNIA CORPORATION
/s/ WILLIAM REYNOLDS /s/ DEBORAH E. ROBBINS
- ------------------------------ -------------------------------
BY: BY: Vice President & General
Counsel
7-19-96 JULY 19, 1996
- ------------------------------ -------------------------------
DATE DATE
<PAGE> 1
EXHIBIT 10.24
LEASE AGREEMENT
OFFICE AND INDUSTRIAL SPACE
This Lease Agreement is made and entered into as of the 11th day of July,
1996, by and between GB Ventures ("Landlord"), whose address is 4875 Pearl
East Circle, Suite 300, Boulder, CO 80301, and Heska Corporation, a California
corporation ("Tenant"), whose address is 1825 Sharp Point Drive, Fort Collins,
CO 80525 .
In consideration of the covenants, terms, conditions, agreements and payments
as herein set forth, the Landlord and Tenant hereby enter into the following
Lease:
1. Definitions. Whenever the following words or phrases are used in this
Lease, said words or phrases shall have the following meaning:
A. "Area" shall mean the parcel of land depicted on Exhibit "A"
attached hereto and commonly known and referred to as "Four Prospect" 1612
Specht Point Drive, Fort Collins, Colorado. The Area includes the Leased
Premises and one or more buildings. The Area may include Common Areas.
B. "Building" shall mean a building located in the Area.
C. "Common Areas" shall mean all entrances, exits, driveways, curbs,
walkways, hallways, parking areas, landscaped areas, restrooms, loading and
service areas, and like areas or facilities which are located in the Area and
which are designated by the Landlord as areas or facilities available for the
nonexclusive use in common by persons designated by the Landlord.
D. "Leased Premises" shall mean the premises herein leased to the
Tenant by the Landlord.
E. "Tenant's Prorata Share" as to the Building in which the Leased
Premises are located shall mean an amount (expressed as a percentage) equal to
the number of square feet included in the Leased Premises divided by the total
number of leasable square feet included in said Building. The Tenant's Prorata
Share as to Common Areas shall mean an amount (expressed as a percentage )
equal to the number of square feet included in the Leased Premises divided by
the total number of leasable square feet included in all Buildings located in
the Area. The Tenant's Prorata Share for Common Areas may change from time to
time as the leasable square footage in all Buildings located in the Area is
increased or decreased.
2. Leased Premises. The Landlord hereby leases unto the Tenant, and the
Tenant hereby leases from the Landlord, the following described premises:
Space All in Building 1612 Specht Point Drive
consisting of 16,800 square feet.
3. Base Term. The term of this Lease shall commence at 12:00 noon on
February 1, 1997, and, unless sooner terminated as herein provided for, shall
end at 12:00 noon on October 1, 2004 ("Lease Term"). Except as specifically
provided to the contrary herein, the Leased Premises shall, upon the
termination of this Lease, by virtue of the expiration of the Lease Term or
otherwise, be returned to the Landlord by the Tenant in the same [omitted
because stricken by parties] condition than
when entered upon by the Tenant, ordinary wear and tear, acts of God,
casualties, condemnation, Hazardous Materials (other than those stored, used or
disposed of by Tenant in or about the Leased Premises in violation of Hazardous
Materials Laws) and Alterations with respect to which Landlord has not reserved
the right to require removal excepted. For Option Period see Exhibit F.
4. Rent. Tenant shall pay the following rent for the Leased Premises:
A. Base Monthly Rent. Tenant shall pay to Landlord, without notice
and without setoff, at the address of Landlord as herein set forth, the
following Base Monthly Rent ("Base Monthly Rent"), said Base Monthly Rent to be
paid in advance on the first day of each month during the term hereof. In the
event that this Lease commences on a date other than the first day of a month,
the Base Monthly Rent for the first month of the Lease Term shall be prorated
for said partial month. Below is a schedule of Base Monthly Rental payments as
agreed upon:
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During Lease Term
<TABLE>
<CAPTION>
FOR PERIOD TO PERIOD A BASE MONTHLY
STARTING ENDING RENT OF
<S> <C> <C>
February 1, 1997 October 1, 2004 $ 12,600.00
</TABLE>
B. Lease Term Adjustment. If, for any reason, other than delays
caused by the Tenant, the Leased Premises are not ready for Tenant's occupancy
on February 1, 1997, the Tenant's rental obligation and other monetary
expenses (i.e. taxes, utilities, etc.) shall be abated in direct proportion
to the number of days of delay. It is hereby agreed that the premises shall be
deemed ready for occupancy on the date of Substantial Completion of the Tenant
Improvements for the Leased Premises. "Substantial Completion" is defined in
Exhibit B, attached hereto and incorporated by reference herein. [omitted
because stricken by parties]
C. Cost of Living Adjustment. The Base Monthly Rental specified in
paragraph 4A above shall be recalculated for each Lease Year as defined
hereinafter following the first Lease Year of this Lease Agreement. The
recalculated Base Monthly Rental shall be hereinafter referred to as the
"Adjusted Monthly Rental". The Adjusted Monthly Rental for each Lease Year
after the first Lease Year shall be the greater of: (i) the amount of the
previous year's Adjusted Monthly Rental, (or the Base Monthly Rental if
calculating the Adjusted Monthly Rental for the second Lease Year), or (ii) an
amount calculated by the rent adjustment formula set forth below.
Notwithstanding the foregoing, in no event shall the increase in any Adjusted
Monthly Rental for any Lease Year be greater than six percent (6%) or less than
three percent (3%). In applying the rent adjustment formula, the following
definitions shall apply:
(1) "Lease Year" shall mean a period of twelve (12) consecutive full
calendar months with the first Lease Year commencing on the date of the
commencement of the term of this Lease and each succeeding Lease Year
commencing upon the anniversary date of the first Lease Year; however, if this
Lease does not commence on the first day of a month, then, the first Lease Year
and each succeeding Lease Year shall commence on the first day of the first
month following each anniversary date of this Lease;
(2) "Bureau" shall mean the Bureau of Labor Statistics of the United
States Department of Labor or any successor agency that shall issue the Price
Index referred to in this Lease Agreement.
(3) "Price Index" shall mean the "Consumer Price Index-All Urban
Consumers-All Items (CPI-U) U.S. City Average (1982-84=100)" issued from time
to time by the Bureau. In the event the Price Index shall hereafter be
converted to a different standard reference base or otherwise revised, the
determination of the increase in the Price Index shall be made with the use of
such conversion factor, formula or table as may be published by Prentice-Hall,
Inc. or failing such publication, by another nationally recognized publisher of
similar statistical information. In the event the Price Index shall cease to
be published, then, for the purposes of this paragraph 4C there shall be
substituted for the Price Index such other index as the Landlord and the Tenant
shall agree upon, and if they are unable to agree within sixty (60) days after
the Price Index ceases to be published, such matter shall be determined by
arbitration in accordance with the Rules of the American Arbitration
Association.
(4) "Base Price Index" shall mean the Price Index released to the
public during the second calendar month preceding the commencement of this
Lease Agreement.
(5) "Revised Price Index" shall mean the Price Index released to the
public during the second calendar month preceding the Lease Year for which the
Base Annual Rental is to be adjusted;
(6) "Basic Monthly Rental" shall mean the Basic Monthly Rental set
forth in subparagraph 4A above. The rent adjustment formula used to calculate
the Adjusted Monthly Rental is as follows:
Adjusted Monthly = Revised Price Index X Base Monthly Rental
Rental -------------------
Base Price Index
The Adjusted Monthly Rental as hereinabove provided shall continue to be
payable monthly as required in paragraph 4A above without necessity of any
further notice by the Landlord to the Tenant.
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D. Total Net Lease. The Tenant understands and agrees that this
Lease is a total net lease (a "net, net, net lease"), whereby the Tenant has
the obligation to reimburse the Landlord for a share of all costs and expenses
(taxes, insurance, trash removal, Common Area operation and maintenance and
like costs and expenses), incurred by the Landlord as a result of the
Landlord's ownership and operation of the Area. Major capital improvements,
such as total replacement of the roof or parking lot are not considered to be
maintenance items as described in this Paragraph 6D.
5. Security Deposit. Landlord acknowledges receipt from the Tenant
of the sum of Twelve Thousand, Six Hundred & No/100 Dollars ($ 12,600.00 ) to
be retained by Landlord without responsibility for payment of interest thereon,
as security for performance of all the terms and conditions of this Lease
Agreement to be performed by Tenant, including payment of all rent due under
the terms hereof. Deductions may be made by Landlord from the amount so
retained for the reasonable cost of repairs to the Leased Premises (ordinary
wear and tear, acts of God, casualties, condemnation, Hazardous Materials
(other than those stored, used or disposed of by Tenant in or about the Leased
Premises in violation of Hazardous Materials Laws) and Alterations with respect
to which Landlord has not reserved the right to require removal excepted), for
any rent delinquent under the terms hereof and/or for any sum used in any
manner to cure any default of Tenant under the terms of this Lease. In the
event deductions are so made, the Tenant shall, within ten (10) days after
receipt of notice from the Landlord, redeposit with the Landlord such amounts
so expended so as to maintain the deposit in the amount as herein provided for,
and failure to so redeposit shall be deemed a failure to pay rent under the
terms hereof. Nothing herein contained shall limit the liability of Tenant as
to any damage to the Leased Premises, and Tenant shall be responsible for the
total amount of any damage and/or loss occasioned by actions of Tenant.
Landlord may deliver the funds deposited hereunder by Tenant to any purchaser
of Landlord's interest in the Leased Premises in the event such interest shall
be sold, and thereupon Landlord shall be discharged from any further liability
with respect to such deposit. Landlord shall return the Security Deposit or
balance thereof to Tenant within thirty (30) days after Tenant vacates the
Leased Premises.
6. Use of Premises. Tenant shall use the Leased Premises only for
Research, Development and Manufacture of Biopharmaceutical Products and for no
other purpose whatsoever except with the written consent of Landlord. Tenant
shall not allow any accumulation of trash or debris on the Leased Premises or
within any portion of the Area. All receiving and delivery of goods and
merchandise and all removal of garbage and refuse shall be made only by way of
the rear and/or other service door provided therefore. In the event the Leased
Premises shall have no such door, then these matters shall be handled in a
manner reasonably satisfactory to Landlord. No storage of any material outside
of the Leased Premises shall be allowed unless first approved by Landlord in
writing, and then in only such areas as are designated by Landlord. Tenant
shall not commit or suffer any waste on the Leased Premises nor shall Tenant
permit any nuisance to be maintained on the Leased Premises or permit any
disorderly conduct or other activity that annoys or disturbs any occupants of
any part of the Area and/or any adjoining property.
7. Laws and Regulations. -- Tenant Responsibility. The Tenant shall,
at its sole cost and expense, comply with all laws and regulations of any
governmental entity, board, commission or agency relating to Tenant's
particular use of the Leased Premises Tenant agrees not to install any
electrical equipment that overloads any electrical paneling, circuitry or
wiring and further agrees to comply with the requirements of the insurance
underwriter or any governmental authorities having jurisdiction thereof.
Notwithstanding anything to the contrary contained in this Lease, Tenant shall
not be required to construct or pay the cost of complying with any CC&R's,
insurance underwriters' requirements or rules, regulations, statutes,
ordinances, laws and building codes (including, without limitation, the
Americans With Disabilities Act of 1990) (collectively, "Laws") (i) requiring
construction of improvements in the Leased Premises which are properly
capitalized under generally accepted accounting principles, unless such
compliance is necessitated solely because of Tenant's particular use of the
Leased Premises; (ii) regarding the presence of Hazardous Materials unless the
same were stored or disposed of by Tenant, its agents, employees or contractors
on or in the Leased Premises; or (iii) requiring the correction of any
condition existing on the Leased Premises as of the Commencement Date.
8. Landlord's Rules and Regulations. Landlord reserves the right to
adopt and promulgate rules and regulations applicable to the Leased Premises
and from time to time amend or supplement said rules or regulations. Notice of
such rules and regulations and amendments and supplements thereto shall be
given to Tenant, and Tenant agrees to comply with and observe such rules and
regulations and amendments and supplements thereto provided that the same apply
uniformly to all Tenants of the Landlord in the Area and do not unreasonably
interfere with Tenant's rights under this Lease.
9. Parking. If the Landlord provides off street parking for the
common use of Tenants, employees and customers of the Area, the Tenant shall
park all
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vehicles of whatever type used by Tenant and/or Tenant's employees only in such
areas thereof as are designated by Landlord for this purpose, and Tenant
accepts the responsibility of seeing that Tenant's employees park only in the
areas so designated. Tenant shall, upon the request of the Landlord, provide
to the Landlord license numbers of the Tenant's vehicles and the vehicles of
Tenant's employees. Notwithstanding anything to the contrary contained in this
Lease, without charge, Tenant shall have the exclusive use of one hundred
percent (100%) of all parking spaces within the parking area for the building
10. Control of Common Areas. -- Exclusive control of the Landlord.
All Common Areas shall at all times be subject to the exclusive control and
management of Landlord, notwithstanding that Tenant and/or Tenant's employees
and/or customers may have a nonexclusive right to the use thereof. Landlord
shall have the right from time to time to establish, modify and enforce rules
and regulations with respect to the use of said facilities and Common Areas.
11. Taxes.
A. Real Property Taxes and Assessments. The Tenant shall pay
to the Landlord on the first day of each month, as additional rent, the
Tenant's Prorata Share of all real estate taxes and special assessments levied
and assessed against the Building in which the Leased Premises are located and
the Common Areas. If the first and last years of the Lease Term are not
calendar years, the obligations of the Tenant hereunder shall be prorated for
the number of days during the calendar year that this Lease is in effect. The
monthly payments for such taxes and assessments shall be $ 1,292.62 until the
Landlord receives the first tax statement for the referred to properties.
Thereafter, the monthly payments shall be based upon 1/12th of the prior year's
taxes and assessments. Once each year the Landlord shall determine the actual
Tenant's Prorata Share of taxes and assessments for the prior year and if the
Tenant has paid less than the Tenant's Prorata Share for the prior year the
Tenant shall pay the deficiency to the Landlord with the next payment of Base
Monthly Rent, or, if the Tenant has paid in excess of the Tenant's Prorata
Share for the prior year the Landlord shall forthwith refund said excess to the
Tenant. Notwithstanding anything to the contrary contained in this Lease,
Tenant shall not be required to pay any portion of any tax or assessment
expense (i) levied on Landlord's rental income, unless such tax or assessment
expense is imposed in lieu of real property taxes; (ii) in excess of the amount
which would be payable if such tax or assessment expense were paid in
installments over the longest possible term; (iii) imposed on land and
improvements other than the Area; or (iv) attributable to Landlord's net
income, inheritance, gift, transfer, franchise, estate or state taxes. Tenant
may in good faith contest any tax or assessment, provided that Tenant
indemnifies Landlord from any loss or liability in connection therewith.
B. Personal Property Taxes. Tenant shall be responsible for,
and shall pay promptly when due, any and all taxes and/or assessments levied
and/or assessed against any furniture, fixtures, equipment and items of a
similar nature installed and/or located in or about the Leased Premises by
Tenant.
C. Rent Tax. If a special tax, charge or assessment is
imposed or levied upon the rents paid or payable hereunder or upon the right of
the Landlord to receive rents hereunder (other than to the extent that such
rents are included as a part of the Landlord's income for the purpose of an
income tax), the Tenant shall reimburse the Landlord for the amount of such tax
within fifteen (15) days after demand therefore is made upon the Tenant by the
Landlord.
D. Should Landlord protest and win a reduction in the real
estate taxes for the Building and Area, Tenant shall be obligated to pay its
Prorata Share of the cost of such protest, if the protest is handled by a party
other than the Landlord. Tenant also shall receive from Landlord a credit in
the amount of Tenant's Prorata Share of the reduction won by Landlord.
12. Insurance.
A. Landlord's Insurance. The Landlord shall procure and
maintain fire and casualty coverage for full replacement value of building to
include, but not be limited to, the Tenant Improvements constructed pursuant to
Exhibit B hereof, roofs and walls, loss of rents and liability insurance as it,
from time to time, deems proper and appropriate in reference to the Building in
which the Leased Premises are located and the Common Areas. Such insurance
shall not be required to cover any of the Tenant's property and the Tenant
shall have no interest in any of the proceeds of such insurance.
B. Tenant's Insurance. Tenant shall, at its sole cost and
expense, insure on a full replacement cost basis, Tenant's inventory, fixtures,
leasehold improvements (other than the Tenant Improvements constructed by
Landlord pursuant to Exhibit B) and betterments located on the Leased Premises
against loss resulting from fire or other casualty. Tenant shall procure, pay
for and maintain, comprehensive public liability insurance providing coverage
from and against any loss or damage occasioned by an accident or casualty on,
about or adjacent to the Leased Premises. Said liability policy shall be
written on an "occurrence basis" with limits of not less than $1,000,000
combined single limit
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coverage. Certificates for such insurance shall be delivered to Landlord and
shall provide that said insurance shall not be changed, modified, reduced or
cancelled without thirty (30) days prior written notice thereof being given to
Landlord.
C. Tenant's High Pressure Steam Boiler Insurance. If Tenant
makes use of any kind of steam or other high pressure boiler or other apparatus
which presents a risk of damage to the Leased Premises or to the Building or
other improvements of which the Leased Premises are a part or to the life or
limb of persons within such premises, Tenant shall secure and maintain
appropriate boiler insurance in an amount satisfactory to Landlord. The
Landlord shall be named insured in any such policy or policies. Certificates
for such insurance shall be delivered to Landlord and shall provide that said
insurance shall not be changed, modified, reduced or cancelled without thirty
(30) days prior written notice thereof being given to Landlord.
D. Tenant's Share of Landlord Insurance. Tenant shall pay
the Landlord as additional rent Tenant's Prorata Share of the insurance secured
by the Landlord pursuant to "12A" above. Payment shall be made on the first
day of each month as additional rent. The monthly payments for such insurance
shall be $58.94 until changed by Landlord as a result of an increase or decrease
in the cost of such insurance.
E. Mutual Subrogation Waiver. Landlord and Tenant hereby
grant to each other, on behalf of any insurer providing personal injury, fire
and extended coverage to either of them covering the Leased Premises, Buildings
or other improvements thereon or contents thereof, a waiver of any right of
subrogation any such insurer of one party may acquire against the other or as
against the Landlord or Tenant by virtue of payments of any loss under such
insurance. Such a waiver shall be effective so long as the Landlord and Tenant
are empowered to grant such waiver under the terms of their respective
insurance policy or policies and such waiver shall stand mutually terminated as
of the date either Landlord or Tenant gives notice to the other that the power
to grant such waiver has been so terminated.
13. Utilities. Tenant shall be solely responsible for and promptly
pay all charges for heat, water, gas, electric, sewer service and any other
utility service used or consumed on the Leased Premises. Should Landlord elect
to supply all or any of the utility services to be used or consumed on the
Leased Premises, Tenant shall, within twenty (20) days after receipt of
presentation of the statement for such utility service, pay to Landlord, as
additional rent under the terms hereof, the amount of said statement if it
represents utility service furnished to the Leased Premises only or its
prorata share of said statement if it includes utility service to an area
greater than the Leased Premises. Said proration of utilities shall be
reviewed by Landlord and Tenant at the end of the first year of occupancy, at
which time Landlord shall determine if the present percentage of said total
utilities is equitable in relation to the use of total services by all the
Tenants and will be adjusted reasonably by Landlord, if necessary. The Tenant
shall forthwith upon taking occupancy of the Leased Premises make arrangements
with the Public Service Company, U.S. West or other appropriate utility company
to pay the utilities used on the Leased Premises and to have the same billed to
the Tenant at the address designated by the Tenant. Should there be a time
where the Landlord remains responsible for utilities supplied to the Leased
Premises, the Landlord shall bill the Tenant therefore and the Tenant shall
promptly reimburse the Landlord therefore. In no event shall Landlord be
liable for any interruption or failure in the supply of any such utility to the
Leased Premises, except to the extent caused by the negligence or willful
misconduct of Landlord, its agents, employees, contractors or invitees.
Notwithstanding anything to the contrary contained in this Lease, if the Leased
Premises should become not reasonably suitable for Tenant's use as a
consequence of fire, casualty, exercise of eminent domain, cessation of
utilities or other services required to be provided to the Leased Premises by
Landlord, interference with access to the Leased Premises, legal restrictions
or the presence of any Hazardous Material which does not result from the
Tenant's use, storage or disposal of such Hazardous Material in or about the
Leased Premises in violation of Hazardous Materials Laws, and in any of the
foregoing cases the interference with Tenant's use of the Leased Premises
persists for seven (7) consecutive calendar days, then Tenant shall be entitled
to an equitable abatement of rent to the extent of the interference with
Tenant's use of the Leased Premises occasioned thereby. If the interference
persists for more than thirty (30) consecutive calendar days, Tenant shall have
the right to terminate this Lease.
In the event the utility company supplying water and/or sewer to the
Leased Premises determines that an additional service fee, impact fee, and/or
assessment, or any other type of payment or penalty is necessary due to
Tenant's use and occupancy of the Building, nature of operation and/or
consumption of utilities, said expense shall be borne solely by the Tenant.
Said expense shall be paid promptly and any repairs requested by the utility
company shall be performed by Tenant promptly [omitted because stricken by
parties] and without any delay.
14. Maintenance Obligations of Landlord. Except as herein otherwise
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specifically provided for, and not including capital improvement, Landlord
shall keep and maintain the roof, roof membrane, and exterior of the Building
of which the Leased Premises are a part in good repair and condition. Tenant
shall repair and pay for any damage to roof, foundation and external walls
caused by Tenant's action, negligence or fault.
15. Maintenance Obligations of the Tenant. Subject only to the
maintenance obligations of the Landlord as herein provided for, the Tenant
shall, during the entire Lease Term, including all extensions thereof, at the
Tenant's sole cost and expense, keep and maintain the Leased Premises in good
condition and repair, including specifically the following:
A. Electrical Systems. Tenant agrees to maintain in good
working order and to make all required repairs and replacements to the
electrical systems for the Leased Premises. Tenant upon signing this Lease
acknowledges that Tenant has inspected the existing electrical systems and all
such systems are in good repair and working order.
B. Plumbing Systems. Tenant agrees to maintain in good
working order and to make all required repairs or replacements to the plumbing
systems for the Leased Premises. Tenant upon signing this Lease acknowledges
that Tenant has inspected the existing plumbing systems and all such systems
are in good repair and working order.
C. Inspections and Service. Upon termination of Lease
Agreement, Tenant agrees, before vacating premises, to employ at Tenant's sole
cost and expense, a licensed contractor to inspect, service and write a written
report on the systems referred to in "A" and "B" of this Paragraph. Landlord
shall have the right to order such an inspection if Tenant fails to provide
evidence of such inspection, and, to follow the recommendations of such reports
and to charge the expense thereof to the Tenant.
D. Tenant's Responsibility for Building and Area Repairs.
Tenant shall be responsible for any repairs required for any part of the
Building or Area of which the Leased Premises are a part if such repairs are
necessitated by the negligence or willful misconduct of Tenant.
E. Cutting Roof. Tenant must obtain in writing the
Landlord's approval prior to making any roof penetrations. Failure by Tenant
to obtain written permission to penetrate a roof shall relieve Landlord of any
roof repair obligations as set forth in Paragraph "14" hereof. Tenant further
agrees to repair, at its sole cost and expense, all roof penetrations made by
the Tenant and to use, if so requested by Landlord, a licensed contractor
reasonably selected by the Landlord to make such penetrations and repairs.
F. Glass and Doors. The repair and replacement of all glass
and doors on the Leased Premises shall be the responsibility of the Tenant.
Any such replacements or repairs shall be promptly completed at the expense of
the Tenant.
G. Liability for Overload. Tenant shall be responsible for
the repair or replacement of any damage to the Leased Premises, the Building or
the Area which result from the Tenant's movement of heavy articles therein or
thereon. Tenant shall not overload the floors of any part of the Leased
Premises.
H. Liability for Overuse and Overload of Operating Systems.
Tenant shall be responsible for the repair, upgrade, modification, and/or
replacement of any operating systems servicing the Leased Premises and/or all
or part of the Building which is necessitated by Tenant's change or increase in
use of or non-disclosed use of all or a part of the Leased Premises. Operating
systems include, but are not limited to, electrical systems; plumbing systems
(both water and natural gas); heating, ventilating, and air conditioning
systems; telecommunications systems; computer and network systems; lighting
systems, fire sprinkler systems; security systems; and building control
systems, if any.
I. Repair or Replacement of Capital Items. Notwithstanding
anything to the contrary contained in this lease, if any Operating System
required to be maintained by Tenant hereunder requires a repair or replacement
of a capital nature, as determined in accordance with generally accepted
accounting principles, Landlord shall pay for the capital repair or replacement
and Tenant shall reimburse to Landlord, as additional rent, the monthly
amortized cost of the item based on its useful life to the extent that the
useful life falls during the Term hereof, as extended.
I. [omitted because stricken by parties]
J. Failure of Tenant to Maintain Premises. Should Tenant
neglect to keep and maintain the Leased Premises as required herein, the
Landlord shall have the right, but not the obligation, to have the work done
and any reasonable
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costs plus a ten percent (10%) overhead charge therefore shall be charged to
Tenant as additional rental and shall become payable by Tenant with the payment
of the rental next due.
K. Operating Systems. Notwithstanding anything to the
contrary contained in this Lease, as of the Commencement Date and at no cost to
Tenant, the Operating Systems serving the Leased Premises shall be in good
working order and repair. If during the first thirty (30) days of the Term,
any Operating System is not in the condition required by the foregoing
sentence, Tenant shall notify Landlord of the need for repair and Landlord
promptly shall complete the repair at no cost to Tenant.
16. Common Area Maintenance. Tenant shall be responsible for
Tenant's Prorata share of the total costs incurred for the operation,
maintenance and repair of the Common Areas, including, but not limited to, the
costs and expenses incurred for the operation, maintenance and repair of
parking areas (including restriping and repaving); removal of snow; utilities
for common lighting and signs; normal HVAC maintenance and elevator maintenance
(if applicable); trash removal; security to protect and secure the Area; common
entrances, exits, and lobbies of the Building; all common utilities, including
water to maintain landscaping; replanting in order to maintain a smart
appearance of landscape areas; supplies; depreciation on the machinery and
equipment used in such operation, maintenance and repair; the cost of personnel
to implement such services; the cost of maintaining in good working condition
the HVAC system(s) for the Leased premises; the cost of maintaining in good
working condition the elevator(s) for the Leased Premises, if applicable; and
Ten percent ( 10 %) of all such operational, maintenance and repair costs
to cover Landlord's administrative and overhead costs. These costs shall be
estimated on an annual basis by the Landlord and shall be adjusted upwards or
downwards depending on the actual costs for the preceding twelve months.
Tenant shall pay monthly, commencing with the first month of the Lease Term, as
additional rent due under the terms hereof, a sum equal to Tenant's Prorata
Share of the estimated costs for said twelve (12) month period, divided by 12.
The estimated initial monthly costs are $ 866.20. Once each year the Landlord
shall determine the actual costs of the foregoing expenses for the prior year
and if the actual costs are greater than the estimated costs, the Tenant shall
pay its Tenant's Prorata Share of the difference between the estimated costs
and the actual costs to the Landlord with the next payment of Base Monthly
Rent, or, if the actual costs are less than the estimated costs, the Landlord
shall forthwith refund the amount of the Tenant's excess payment to the Tenant.
Notwithstanding anything to the contrary contained in this Lease, in no event
shall Tenant have any obligation to perform, to pay directly, or to reimburse
Landlord for, all or any portion of the following repairs, maintenance,
improvements, replacements, premiums, claims, losses, fees, commissions,
charges, disbursements, attorneys' fees, costs and expenses (collectively,
"Costs"): (i) Costs occasioned by the act, omission or violation of Law by
Landlord, any other occupant of the Area, or their respective agents, employees
or contractors, or Costs to correct any construction defect or other condition
in the Leased Premises or the Building not in compliance with law as of the
Commencement Date; (ii) Costs occasioned by fire, acts of God or other
casualties, or by the exercise of the power of eminent domain; (iii) Costs
which Tenant pays directly to a third person or for which Landlord has a right
of reimbursement from others (iv) Costs (A) arising from the disproportionate
use of any utility or service supplied by Landlord to any other occupant of the
Area; or (B) associated with utilities and services of a type not provided to
Tenant; (v) Costs related to Hazardous Materials, excepted to the extent the
Cost is caused by the storage, use or disposal of the Hazardous Material in
question by Tenant in violation of Hazardous Materials Laws; (vi) Costs
incurred in connection with negotiations or disputes with other occupant(s) of
the Area; (vii) depreciation, amortization or other expense reserves; (viii)
interest, charges and fees incurred on dept, payments on mortgages and rent
under ground leases; or (ix) wages, salaries, compensation and labor burden for
any employee not stationed in the Area on a full-time basis, or any fee, profit
or compensation retained by Landlord or its affiliates for management and
administration of the Area in excess of the management fee which would be
charged by a professional management service for operation of comparable
projects in the vicinity of the Area. In addition, notwithstanding anything to
the contrary contained in this Lease, within thirty (30) days after receipt by
Tenant of Landlord's statement of Common Area costs for any prior calendar year
during the Term, Tenant or its authorized representative shall have the right
to inspect the books of Landlord during the business hours of Landlord at
Landlord's office in the Area, or, at Landlord's option, such other location as
Landlord reasonably may specify, for the purpose of verifying the information
contained in the statement. Unless Tenant asserts specific error within thirty
(30) days after receipt of the statement, the statement shall be deemed correct
as between Landlord and Tenant, except as to individual components subsequently
determined to be in error by a future audit.
17. Inspection of and Right of Entry to Leased Premises--Regular,
Emergency, Reletting. Landlord and/or Landlord's agents and employees, shall
have the right to enter the Leased Premises with reasonable prior notice at all
times during regular business hours and, at all times during emergencies, to
examine the Leased Premises, to make such repairs, alterations, improvements or
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additions as Landlord deems necessary, and Landlord shall be allowed to take
all materials into and upon said Leased Premises that may be required therefore
without the same constituting an eviction of Tenant in whole or in part, and
the rent reserved shall in no way abate while such repairs, alterations,
improvements or additions are being made, by reason of loss or interruption of
business of Tenant or otherwise. During the six months prior to the expiration
of the term of this Lease or any renewal thereof, Landlord may exhibit the
Leased Premises to prospective tenants and/or purchasers and may place upon the
Leased Premises the usual notices indicating that the Leased Premises are for
lease and/or sale. Notwithstanding anything to the contrary contained in this
Lease, any entry by Landlord and Landlord's agents shall not impair Tenant's
operations more than reasonably necessary, and Tenant shall have the right to
have an employee accompany Landlord and/or its agents at all times that
Landlord and/or its agents are present on the Leased Premises.
18. Alteration-Changes and Additions-Responsibility. Unless the
Landlord's approval is first secured in writing, such approval not to be
unreasonably withheld or delayed, the Tenant shall not install or erect inside
partitions, add to existing electric power service, add telephone outlets, add
light fixtures, install additional heating and/or air conditioning or make any
other changes or alterations to the interior or exterior of the Leased
Premises. Notwithstanding the foregoing, Tenant may make non-structural
alterations to the Leased Premises not in excess of Twenty-Five Thousand
Dollars ($25,000) per work of improvement without obtaining Landlord's prior
consent. Any such changes or alterations shall be made at the sole cost and
expense of the Tenant. At the end of this Lease, all such fixtures, equipment,
additions, changes and/or alterations (except trade fixtures installed by
Tenant) shall be and remain the property of Landlord; provided, however,
Landlord shall have the option, given in writing at the time that Tenant
requests Landlord's consent, or, if no consent is required, upon the expiration
or earlier termination of this Lease, to require Tenant to remove any or all
such fixtures, equipment, additions and/or alterations and restore the Leased
Premises to the condition existing immediately prior to such change and/or
installation, normal wear and tear, acts of God, casualties, condemnation,
Hazardous Materials (other than those stored, used or disposed of by Tenant in
or about the Leased premises in violation of Hazardous Materials Laws) and
Alterations with respect to which Landlord has not reserved the right to
require removal excepted, all at Tenant's cost and expense. All such work
shall be done in a good and workmanlike manner and shall consist of new
materials unless agreed to otherwise by Landlord. Any and all repairs, changes
and/or modifications thereto shall be the responsibility of, and at the cost
of, Tenant. Landlord may require adequate security from Tenant assuring no
mechanics' liens on account of work done on the Leased Premises by Tenant and
may post the Leased Premises, or take such other action as is then permitted by
law, to protect the Landlord and the Leased Premises against mechanics' liens.
Landlord may also require adequate security to assure Landlord that the Leased
Premises will be restored to their original condition upon termination of this
Lease.
19. Sign Approval. Except for signs which are located inside of the
Leased Premises and which are not attached to any part of the Leased Premises,
the Landlord must approve in writing any sign to be placed in or on the
interior or exterior of the Leased Premises, regardless of size or value.
Landlord's approval shall not be unreasonably withheld or delayed.
Specifically, signs attached to windows of the Leased Premises must be so
approved by the Landlord. As a condition to the granting of such approval,
Landlord shall have the right to require Tenant to furnish a bond or other
security acceptable to Landlord sufficient to insure completion of and payment
for any such sign work to be so performed. Tenant shall, during the entire
Lease Term, maintain Tenant's signs in good condition and repair at Tenant's
sole cost and expense. Tenant shall, remove all signs at the termination of
this Lease, at Tenant's sole risk and expense and shall in a workmanlike manner
properly repair any damage and close any holes caused by the installation
and/or removal of Tenant's signs. Tenant shall give Landlord prior notice of
such removal so that a representative of Landlord shall have the opportunity of
being present when the signage is removed, or shall pre-approve the manner and
materials used to repair damage and close the holes caused by removal.
20. Right of Landlord to Make Changes and Additions. Landlord
reserves the right at any time to make reasonable alterations or additions to
the Building or Area of which the Leased Premises are a part. Landlord also
reserves the right to construct other buildings and/or improvements in the Area
and to make alterations or additions thereto, all as Landlord shall determine.
Easements for light and air are not included in the leasing of the Leased
Premises to Tenant. Landlord further reserves the exclusive right to the roof
of the Building of which the Leased Premises are a part. Landlord also
reserves the right at any time to relocate, vary and adjust the size of any of
the improvements or Common Areas located in the Area, provided, however, that
all such changes shall be in compliance with the requirements of governmental
authorities having jurisdiction over the Area. Landlord shall use reasonable
efforts in exercising the foregoing rights to minimize interference with
Tenant's possession of and right to use the Leased Premises. Nothing in this
Lease will require Tenant to indemnify, hold harmless or release Landlord for,
and Landlord shall indemnify, defend with
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counsel reasonably acceptable to Tenant, protect and hold harmless Tenant with
respect to, any claim, loss, expense, cost judgement and/or demand, or fees,
arising from the negligence or willful misconduct of Landlord, its agents,
employees or contractors, or a breach of the obligations of Landlord hereunder,
or a violation of Law by Landlord.
21. Damage or Destruction of Leased Premises. In the event the
Leased Premises and/or the Building of which the Leased Premises are a part
shall be totally destroyed by fire or other casualty or so badly damaged that,
in the opinion of Landlord and Tenant, it is not feasible to repair or rebuild
same, Landlord shall have the right to terminate this Lease upon written notice
to Tenant. If the Leased Premises are partially damaged by fire or other
casualty, [omitted because stricken by parties] and said Leased Premises are
not rendered untenantable thereby, as determined by Landlord and Tenant, an
appropriate reduction of the rent shall be allowed for the unoccupied portion
of the Leased Premises until Landlord's repair thereof shall be substantially
completed. If the Landlord elects to exercise the right herein vested in it to
terminate this Lease as a result of damage to or destruction of the Leased
Premises or the Building in which the Leased Premises are located, said
election shall be made by giving notice thereof to the Tenant within thirty
(30) days after the date of said damage or destruction. Notwithstanding
anything to the contrary contained in this Lease:
(i) Landlord shall not have the right to terminate this Lease
if damage to or destruction of the Leased Premises results from a casualty
ordinarily covered by insurance required to be carried by Landlord under this
Lease.
(ii) In the event of damage to the Leased Premises which is
not required to be covered by insurance, and is not covered by insurance
actually carried, Landlord shall not have the right to terminate this Lease (A)
if the damage is relatively minor (e.g. repair or restoration would take fewer
than sixty (60) days or it would cost less than ten percent (10%) of the
replacement cost of the Leased Premises); or (B) if Tenant agrees to pay the
cost of repair in excess of ten percent (10%) of the then replacement cost of
the Leased Premises.
(iii) If the Leased Premises are damaged by any peril and
Landlord does not elect to terminate this Lease or its not entitled to
terminate this Lease pursuant to its terms, then as soon as reasonably
practicable, Landlord shall furnish Tenant with a written option of Landlord's
architect or construction consultant as to when the restoration work required
of Landlord may be completed. Tenant shall have the option to terminate this
Lease in the event any of the following occurs, which option may be exercised
by delivery to Landlord of a written notice of election to terminate within
thirty (30) days after Tenant receives from Landlord the estimate of the time
needed to complete such restoration: (A) the Leased Premises, with reasonable
diligence, cannot be fully repaired by Landlord within ninety (90) days after
the damage or destruction; or (B) if the Premises are damaged by any peril
within twelve (12) months of the last day of Term, and cannot be substantially
restored within sixty (60) days after the date of such damage.
(iv) If this Lease is not terminated by Landlord or Tenant as
provided herein, Landlord shall restore the Leased Premises and all Tenant
Improvements installed by Landlord to the condition in which they existed
immediately prior to the casualty.
22. Governmental Acquisition of Property. The parties agree that
Landlord shall have complete freedom of negotiation and settlement of all
matters pertaining to the acquisition of the Leased Premises, the Building, the
Area, or any part thereof, by any governmental body or other person or entity
via the exercise of the power of eminent domain, it being understood and agreed
that any financial settlement made or compensation paid respecting said land or
improvements to be so taken, whether resulting from negotiation and agreement
or legal proceedings, shall be the exclusive property of Landlord, there being
no sharing whatsoever between Landlord and Tenant of any sum so paid. In the
event of any such taking, Landlord shall have the right to terminate this Lease
on the date possession is delivered to the condemning person or authority.
Such taking of the property shall not be a breach of this Lease by Landlord nor
give rise to any claims in Tenant for damages or compensation from Landlord.
Nothing herein contained shall be construed as depriving the Tenant of the
right to retain as its sole property any compensation paid for any tangible
personal property owned by the Tenant which is taken in any such condemnation
proceeding, or a separate award made by the condemning authority for relocation
costs, moving expenses or loss of goodwill..
23. Assignment or Subletting. Tenant may not assign this Lease, or
sublet the Leased Premises or any part thereof, without the written consent of
Landlord, such consent not to be unreasonably withheld. No such assignment or
subletting if approved by the Landlord shall relieve Tenant of any of its
obligations hereunder, and, the performance or nonperformance of any of the
covenants herein contained by subtenants shall be considered as the performance
or the
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nonperformance by the Tenant. In the event of an acquisition, merger, or
reorganization, the assignment of the Lease shall not be unreasonably withheld
by Landlord. Notwithstanding anything to the contrary contained in this Lease,
Tenant, without Landlord's prior written consent, may sublet the Leased
Premises or assign this Lease to: (i) a subsidiary, affiliate, franchisee,
division or corporation controlling, controlled by or under common control with
Tenant; (ii) a successor corporation related to Tenant by merger,
consolidation, non-bankruptcy reorganization or government action; or (iii) a
purchaser of substantially all of Tenant's assets located at the Leased
Premises, with Landlord's right to reasonably approve the assignment. For
purposes of this Lease, a sale of Tenant's capital stock either privately or
through any public exchange shall not be deemed an assignment, subletting or
other transfer of this Lease or the Leased Premises requiring Landlord's
consent.
24. Warranty of Title. Subject to the provisions of the following
three (3) paragraphs hereof, Landlord covenants it has good right to lease the
Leased Premises in the manner described herein and that Tenant shall peaceably
and quietly have, hold, occupy and enjoy the Leased Premises during the term of
the Lease.
25. Access. Landlord shall provide Tenant nonexclusive access to the
Leased Premises through and across land and/or other improvements owned by
Landlord. Landlord shall have the right, during the term of this Lease, to
designate, and to change, such nonexclusive access, so long as Tenant's access
to the Leased Premises is not impaired thereby.
26. Subordination. Tenant agrees that this Lease shall be
subordinate to any mortgages, trust deeds or ground leases that may now exist
or which may hereafter be placed upon said Leased Premises and to any and all
advances to be made thereunder, and to the interest thereon, and all renewals,
replacements and extensions thereof. Tenant shall execute and deliver whatever
instruments may be required for the above purposes, and failing to do so within
ten (10) business days after demand in writing shall be deemed to be a breach
of this Lease [omitted because stricken by parties]. Tenant shall in the event
of the sale or assignment of Landlord's interest in the Area or in the Building
of which the Leased Premises form a part, or in the event of any proceedings
brought for the foreclosure of or in the event of exercise of the power of sale
under any mortgage made by Landlord covering the Leased Premises, attorn to the
purchaser and recognize such purchaser as Landlord under this Lease.
Notwithstanding anything to the contrary contained in this Lease, Tenant,
Landlord shall deliver to Tenant, within thirty (30) days after the date of
this Lease, a recognition agreement in standard form from the existing holder
of any deed of trust or similar instrument affecting the Leased Premises,
whereby such holder agrees to recognize the leasehold interest of Tenant
following a foreclosure of any such interest. Further, as a condition to
Tenant's obligation to subordinate its leasehold interest to a future ground
lease or instrument of security, Landlord shall obtain from any such ground
lessors or lenders a written recognition agreement in the holder's standard
form, whereby such holder agrees to recognize the leasehold interest of Tenant
following a foreclosure of any such interest.
27. Easements. The Landlord shall have the right to grant any
easement on, over, under and above the Area for such purposes as Landlord
determines, provided that such easements do not materially interfere with
Tenant's occupancy and use of the Leased Premises.
28. Tenant's Hold Harmless and Indemnification Agreement. Except to
the extent caused by the negligence or willful misconduct of Landlord, its
agents, employees, contractors or invitees, Tenant shall indemnify and hold
Landlord harmless from and against any and all claims, losses, expenses, costs,
judgments, and/or demands, including court costs and reasonable attorney's
fees, suffered or incurred by the Landlord, arising from activities of Tenant
on the Leased Premises or in the Building or in the Area and/or on account of
any operation or action by Tenant and/or from and against all claims arising
from any breach or default on the part of Tenant or any act of negligence of
Tenant, it agents, contractors, servants, employees, licensees, or invitees; or
any accident, injury or death of any person or damage to any property in or
about the Leased Premises, the Building or the Area.
29. Acts or Omission of Others. The Landlord, or its employees or
agents, or any of them, shall not be responsible or liable to the Tenant or to
the Tenant's guests, invitees, employees, agents or any other person or entity,
for any loss or damage that may be caused by the acts or omissions of other
tenants, their guests or invitees, occupying any other part of the Area or by
persons who are trespassers on or in the Area, or for any loss or damage caused
or resulting from the bursting, stoppage, backing up or leaking of water, gas,
electricity or sewers or caused in any other manner whatsoever, unless such
loss or damage is caused by or results from the negligent acts or willful
misconduct of the Landlord, its agents, employees or contractors.
30. Interest on Past Due Obligations. Any amount due to Landlord not
paid when due shall bear interest at One and One Half (1 1/2%) percent per
month from
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due date until paid. Payment of such interest shall not excuse or cure any
default by Tenant under this Lease.
31. Holding Over- Last Month's Rent. If Tenant shall remain in
possession of the Leased Premises after the termination of this Lease, whether
by expiration of the Lease Term or otherwise, without a written agreement as to
such possession, then Tenant shall be deemed a month-to-month Tenant. The rent
rate during such holdover tenancy shall be equivalent to one hundred fifty
percent (150%) [omitted because stricken by parties] the monthly rent paid for
the last full month of tenancy under this Lease, excluding any free rent
concessions which may have been made for the last full month of the Lease. No
holding over by Tenant shall operate to renew or extend this Lease without the
written consent of Landlord to such renewal or extension having been first
obtained. Tenant shall indemnify Landlord against loss or liability resulting
from the delay by Tenant in surrendering possession of the Leased Premises
including, without limitation, any claims made with regard to any succeeding
occupancy bounded by such holdover period.
32. Modification or Extensions. No modification or extension of this
Lease shall be binding upon the parties hereto unless in writing and unless
signed by the parties hereto.
33. Notice Procedure. All notices, demands and requests which may be
or are required to be given by either party to the other shall be in writing
and such that are to be given to Tenant shall be deemed to have been properly
given if served on Tenant or an employee of Tenant or sent by nationally
recognized overnight courier service or sent to Tenant by United States
registered or certified mail, return receipt requested, properly sealed,
stamped and addressed to Tenant at 1825 Sharp Point Drive, Fort Collins, CO
80525 or at such other place as Tenant may from time to time designate in a
written notice to Landlord; and, such as are to be given to Landlord shall be
deemed to have been properly given if personally served on Landlord or sent by
nationally recognized overnight courier service or if sent to Landlord, United
States registered or certified mail, return receipt requested, properly sealed,
stamped and addressed to Landlord at 4875 Pearl East Circle #300, Boulder, CO
80301 or at such other place as Landlord may from time to time designate in a
written notice to Tenant. Any notice given by mailing shall be effective as of
the date of mailing.
34. Memorandum of Lease-Notice to Mortgagee. The Landlord and Tenant
agree not to place this Lease of record, but upon the request of either party
to execute and acknowledge so the same may be recorded a short form lease
indicating the names and respective addresses of the Landlord and Tenant, the
Leased Premises, the Lease Term, the dates of the commencement and termination
of the Lease Term and options for renewal, if any, but omitting rent and other
terms of this Lease. Tenant agrees to an assignment by Landlord of rents and
of the Landlord's interest in this Lease to a mortgagee, if the same be made by
Landlord. Tenant further agrees if requested to do so by the Landlord, so long
as Tenant is provided with the address of the mortgagee, that it will give to
said mortgagee a copy of any request for performance by Landlord or notice of
default by Landlord; and in the event Landlord fails to cure such default, the
Tenant will give said mortgagee a thirty (30) day period in which to cure the
same. Said period shall begin with the last day on which Landlord could cure
such default before Tenant has the right to exercise any remedy by reason of
such default. All notices to the mortgagee shall be sent by United States
registered or certified mail, postage prepaid, return receipt requested.
35. Controlling Law. The Lease, and all terms hereunder shall be
construed consistent with the laws of the State of Colorado. Any dispute
resulting in litigation hereunder shall be resolved in court proceedings
instituted in Larimer County and in no other jurisdiction.
36. Landlord Not a Partner With the Tenant. Nothing contained in
this Lease shall be deemed, held or construed as creating Landlord as a
partner, agent, associate of or in joint venture with Tenant in the conduct of
Tenant's business, it being expressly understood and agreed that the
relationship between the parties hereto is and shall at all times remain that
of Landlord and Tenant.
37. Partial Invalidity. If any term, covenant or condition of this
Lease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease or the
application of such term, covenant or condition to persons and circumstances
other than those to which it has been held invalid or unenforceable, shall not
be affected thereby, and each term, covenant and condition of this Lease shall
be valid and shall be enforced to the fullest extent permitted by law.
38. Default-Remedies of Landlord.
A. If Tenant shall fail to pay any sum due hereunder within
five (5) days after receipt of written notice from Landlord that such sum is
due, Tenant shall be in default under this Lease. If Tenant fails to keep any
of the other terms, covenants or conditions of this Lease, and has not cured
such breach within thirty (30) days after receipt of written notice from
Landlord (or, if the breach cannot be cured within thirty (30) days, Tenant
fails to commence the cure
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within the thirty (30) - day period or thereafter fails to diligently prosecute
the cure to completion), Tenant shall be in default under this Lease. In the
event of any such default, [omitted because stricken by parties] Landlord may
immediately, or at any time thereafter, reenter the Leased Premises, remove
all persons and property therefrom in compliance with applicable law, without
being liable to indictment, prosecution for damage therefore, or for forcible
entry and detainer and repossess and enjoy the Leased Premises, together with
all additions thereto or alterations and improvements thereof. Landlord may,
at its option, at any time and from time to time thereafter, relet the Leased
Premises or any part thereof for the account of Tenant or otherwise, and
receive and collect the rents therefore and apply the same first to the payment
of such expenses as Landlord may have incurred in recovering possession and for
putting the same in good order and condition for rerental, and expense,
commissions and charges paid by Landlord in reletting the Leased Premises. Any
such reletting may be for the remainder of the term of this Lease or for a
longer or shorter period. In lieu of reletting such Leased Premises, Landlord
may occupy the same or cause the same to be occupied by others. Whether or not
the Leased Premises or any part thereof be relet, Tenant shall pay the Landlord
the rent and all other charges required to be paid by Tenant up to the time of
the expiration of this Lease or such recovered possession, as the case may be
and thereafter, Tenant, if required by Landlord, shall pay to Landlord until
the end of the term of this Lease, the equivalent of the amount of all rent
reserved herein and all other charges required to be paid by Tenant, less the
net amount received by Landlord for such reletting, if any, unless waived by
written notice from Landlord to Tenant. No action by Landlord to obtain
possession of the Leased Premises and/or to recover any amount due to Landlord
hereunder shall be taken as a waiver of Landlord's right to require full and
complete performance by Tenant of all terms hereof, including payment of all
amounts due hereunder or as an election on the part of Landlord to terminate
this Lease Agreement. If the Leased Premises shall be reoccupied by Landlord,
then, from and after the date of repossession, Tenant shall be discharged of
any obligations to Landlord under the provisions hereof for the payment of
rent. If the Leased Premises are reoccupied by the Landlord pursuant hereto,
and regardless of whether the Leased Premises shall be relet or possessed by
Landlord, all fixtures, additions, furniture, and the like then on the Leased
Premises, excluding any equipment, fixtures, and furniture that Tenant may be
leasing from a third party, may be retained by Landlord. In the event Tenant
is in default under the terms hereof and, by the sole determination of
Landlord, has abandoned the Leased Premises, Landlord shall have the right to
remove all the Tenant's property from the Leased Premises and dispose of said
property in such a manner as determined best by Landlord, at the sole cost and
expense of Tenant and without liability of Landlord for the actions so taken,
so long as the foregoing actions of Landlord are taken in compliance with
applicable Law.
B. In the event an assignment of Tenant's business or
property shall be made for the benefit of creditors, or, if the Tenant's
leasehold interest under the terms of this Lease Agreement shall be levied upon
by execution or seized by virtue of any writ of any court of law, or, if
application be made for the appointment of a receiver for the business or
property of Tenant, or, if a petition in bankruptcy shall be filed by or
against Tenant, and the foregoing are not resolved and/or dismissed within
sixty (60) days, then and in any such case, at Landlord's option, with or
without notice, Landlord may terminate this Lease and immediately retake
possession of the Leased Premises without the same working any forfeiture of
the obligations of Tenant hereunder.
C. [omitted because stricken by parties]
D. In addition to remedy granted to Landlord by the terms
hereof, Landlord shall have available any and all rights and remedies available
under the statutes of the State of Colorado. No remedy herein or otherwise
conferred upon or reserved to Landlord shall be considered exclusive of any
other remedy but shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute. Further, all powers and remedies given by this Lease to Landlord may
be exercised, from time to time, and as often as occasion may arise or as may
be deemed expedient. No delay or omission of Landlord to exercise any right or
power arising from any default shall impair any such right or power or shall be
considered to be a waiver of any such default or acquiescence thereof. The
acceptance of rent by Landlord shall not be deemed to be a waiver of any breach
of any of the covenants herein contained or of any of the rights of Landlord to
any remedies herein given.
E. If Tenant shall, for any reason, abandon [omitted because
stricken by parties] the Leased Premises before the current expiration date,
and such abandonment is accompanied by Tenant's failure to pay Monthly Base
Rent or additional rent hereunder,
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landlord shall have the right to accelerate rental payments and any and all
future rent payments due during the course of the Lease Term shall become
immediately payable in full to the Landlord.
39. Legal Proceedings-Responsibilities. In the event of proceeding
at law or in equity by either party hereto, the defaulting party shall pay all
costs and expenses, including all reasonable attorney's fees incurred by the
non-defaulting party in pursuing such remedy, if such non-defaulting party is
awarded substantially the relief requested.
40. Administrative Charges. In the event any check, bank draft or
negotiable instrument given for any money payment hereunder shall be dishonored
at any time and from time to time, for any reason whatsoever not attributable
to Landlord, Landlord shall be entitled, in addition to any other remedy that
may be available, (1) to make an administrative charge of $100.00 or three
times the face value of the check, bank draft or negotiable instrument,
whichever is smaller, and (2) at Landlord's sole option, to require Tenant to
make all future rental payments in cash or cashiers check.
41. Hazardous Materials and Environmental Considerations.
A. Tenant covenants and agrees that Tenant and its agents,
employees, contractors and invitees shall comply with all Hazardous Materials
Laws (as hereinafter defined) applicable to Tenant's business. Without
limiting the foregoing, Tenant covenants and agrees that it will not use,
generate, store or dispose of, nor permit the use, generation, storage or
disposal of Hazardous Materials (as hereinafter defined) on, under or about the
Leased Premises, nor will it transport or permit the transportation of
Hazardous Materials to or form the Leased Premises, except in full compliance
with any applicable Hazardous Materials Laws. If required by applicable
Hazardous Materials Laws, any Hazardous Materials located on the Leased
Premises shall be handled in an appropriately controlled environment which
shall include the use of such equipment (at Tenant's expense) as is necessary
to meet standards imposed by any applicable Hazardous Materials Laws and in
such a way as not to interfere with any other tenant's use of its premises.
Upon breach of any covenant contained herein, Tenant shall, at Tenant's sole
expense, cure such breach by taking all action prescribed by any applicable
Hazardous Materials Laws or by any governmental authority with jurisdiction
over such matters.
B. Tenant shall provide Landlord with a list of Hazardous
Materials that Tenant intends to use in the Leased Premises prior to the
Commencement Date and shall inform Landlord [omitted because stricken by
parties] of [omitted because stricken by parties] any Hazardous Materials it
intends to use, generate, handle, store or dispose of, on or about or transport
from, the Leased Premises Tenant also shall notify Landlord of [omitted because
stricken by parties] Tenant's discovery of any Hazardous Materials which
differ from those on the list. [omitted because stricken by parties] Tenant
shall provide to Landlord copies of all communications to or from any
governmental authority or any other party relating to Hazardous Materials
affecting the Leased Premises.
C. Tenant shall indemnify and hold Landlord harmless from any
and all claims, judgments, damages, penalties, fines, costs, liabilities,
expenses or losses (including, without limitation, diminution on value of the
Leased Premises, damages for loss or restriction on use of all or part of the
Leased Premises, sums paid in settlement of claims, investigation of site
conditions, or any cleanup, removal or restoration work required by any
federal, state or local governmental agency, reasonable attorney's fees,
consultant fees, and expert fees) which arise as a result of [omitted because
stricken by parties] any other violation of any Hazardous Materials laws by
Tenant. The indemnification contained herein shall also accrue to the benefit
of the employees, agents, officers, directors and/or partners of Landlord.
D. Upon termination of this Lease and/or vacation of the
Leased Premises, Tenant shall properly remove all Hazardous Materials and shall
then provide to Landlord a copy of the closure report filed with the agency
with jurisdiction over closure of the Leased Premises. [omitted because
stricken by parties] Landlord shall grant to Tenant and its agents or
contractors such access to the Leased Premises as is necessary to accomplish
such removal and prepare such report.
E. "Hazardous Materials" shall mean (a) any chemical,
material, substance or pollutant which poses a hazard to the Leased Premises or
to persons on or about the Leased Premises or which [omitted because stricken
by parties] is regulated by any Hazardous Materials Laws, and (b) any chemical,
material or substance defined as or included in the definitions of "hazardous
substances", "hazardous wastes", "extremely hazardous waste", "restricted
hazardous waste", "toxic substances", "regulated substance", or words of
similar import under any applicable federal, state or local law or under the
regulations adopted or publications promulgated pursuant thereto, including,
but not limited to, the
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Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, 42 U.S.C. Sec. 9601, et seq.; the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. Sec. 1801, et seq.; the Resource
Conservation and Recovery Act as amended, 42 U.S.C. Sec 6901, et seq.; the
Solid Waste Disposal Act, 42 U.S.C. Sec. 6991 et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Sec. 1251, et seq.; and Sections
25-15-101, et seq., 25-16- 101, et seq., 25-7-101, et seq., and 25-8-101, et
seq., of the Colorado Revised Statutes. "Hazardous Materials Laws" shall mean
any federal state or local laws, ordinances, rules, regulations, or policies
(including, but not limited to, those laws specified above) relating to the
environment, health and safety or the use, handling, transportation,
production, disposal, discharge or storage of Hazardous Materials, or to
industrial hygiene or the environmental conditions on, under or about the
Leased Premises. Said term shall be deemed to include all such laws as are now
in effect or as hereafter amended and all other such laws as may hereafter be
enacted or adopted during the term of this Lease.
F. All obligations of Tenant in this Paragraph 4I shall
survive and continue after the expiration of this Lease or its earlier
termination for any reason.
G. Tenant further covenants and agrees that it shall not
install any storage tank (whether above or below the ground) on the Leased
Premises without obtaining the prior written consent of the Landlord, which
consent may be conditioned upon further reasonable requirements imposed by
Landlord with respect to, among other things, compliance by Tenant with any
applicable laws, rules, regulations or ordinances and safety measures or
financial responsibility requirements applicable to the proposed storage tank.
H. Should any local governmental entity having jurisdiction
over the Leased Premises require an environmental audit or report if Tenant's
operations during the occupancy of the Leased Premises by the Tenant, such cost
of the audit or report shall be the sole responsibility of the Tenant.
I. Notwithstanding anything to the contrary contained in this
Paragraph 41, Tenant shall not be responsible for any conditions which existed
prior to its tenancy, nor shall it be responsible if conditions which are
determined not to be caused by action or inaction of Tenant.
42. Entire Agreement. It is expressly understood and agree by and
between the parties hereto that this Lease sets forth all the promises,
agreements, conditions, and understandings between Landlord and/or its agents
and Tenant relative to the Leased Premises and that there are no promises,
agreements, conditions, or understandings either oral or written, between them
other than that are herein set forth.
43. [omitted because stricken by parties]
44. Estoppel Certificates. Within no more than ten (10) business
days after receipt of written request, the Tenant shall furnish to the owner a
certificate, duly acknowledged, certifying, to the extent true:
A. That this Lease is in full force and effect.
B. That the Tenant knows of no default hereunder on the part of the
owner, or if it has reason to believe that such a default exists,
the nature thereof in reasonable detail.
C. The amount of the rent being paid and the last date to which rent
has been paid.
D. That this Lease has not been modified, or if it has been modified,
the terms and dates of such modifications.
E. That the term of this Lease has commenced.
F. The commencement and expiration dates.
G. Whether all work to be performed by the owner has been completed.
H. Whether the renewal term option has been exercised if applicable.
I. Whether there exist any claims or deductions from, or defenses to,
the payment of rent.
J. Such other matters as may be reasonably requested by owner.
If the Tenant fails to execute and deliver to the owner a completed certificate
as required under this section, Tenant's failure shall be deemed to be a
default hereunder. [omitted because stricken by parties]
45. Financial Statements. As reasonably requested by the Landlord,
and not more than once each calendar year, Tenant shall provide copies of its
most recent financial statements and shall also provide Landlord with up to
three (3) prior years of financial statements, if so requested. Landlord shall
keep all such financial statements confidential.
46. Lease Exhibits Attached. This Lease includes the following Lease
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Exhibits which are incorporated herein and made a part of this Lease Agreement:
Exhibit "A" - Site Plan Depicting Area
Exhibit "B" - Interior Space Plan
Exhibit "C" - Landlord and Tenant's Construction Obligations
Exhibit "D" - Sign Code Obligations
Exhibit "E" - Additional Terms and Conditions
Exhibit "F" - Option to Renew
Exhibit "G" - Standard Specifications
47. Miscellaneous. All marginal notations and paragraph headings are
for purposes of reference and shall not affect the true meaning and intent of
the terms hereof. Throughout this Lease, wherever the words "Landlord" and
"Tenant" are used they shall include and imply to the singular, plural, persons
both male and female, companies, partnerships and corporations, and in reading
said Lease, the necessary grammatical changes required to make the provisions
hereof mean and apply as aforesaid shall be made in the same manner as though
originally included in said Lease.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date hereof.
LANDLORD: GB VENTURES
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By: /s/ GERALD P. LEE
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GERALD P. LEE
TENANT: HESKA CORPORATION, A CALIFORNIA CORPORATION
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By: /s/ DEBORAH E. ROLLINS, Vice President & General Counsel
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ENVIRONMENTAL INDEMNITY AGREEMENT
THIS INDEMNITY is given as of this 11th day of July, 1996, by Heska Corporation
([omitted because stricken by parties] " Tenant," whether one or more), to and
for the benefit of GB Ventures ("Landlord").
WHEREAS, GB VENTURES is Landlord under a proposed Lease Agreement
dated July 11, 1996, ("the Lease") in which Heska Corporation, a California
Corporation is the proposed tenant ("Tenant"), regarding the Leased Premises
commonly known as 1825 Sharp Point Drive, Fort Collins, CO 80525 ("Leased
Premises"); and
WHEREAS, Landlord is unwilling to enter into the Lease with Tenant
unless the Tenant agrees to the indemnities hereinafter provided.
NOW, THEREFORE, in consideration of the matters recited above and to
induce Landlord to enter into the Lease with Tenant, Tenant undertakes and
agrees as follows:
1. Tenant shall indemnify, defend and hold Landlord harmless from
and against any and all suits, actions, legal or administrative proceedings,
demands, claims, judgements, damages, penalties, fines, costs, liabilities,
expenses or losses which arise during or after the lease term as a result of or
in connection with the presence, use, storage, disposal, transportation by
Tenant, its agents, employees or contractors or discharge, by or on behalf of
Tenant, of any Hazardous Materials (as defined in the Lease) in violation of
Hazardous Materials Laws on, in or under [omitted because stricken by parties]
all or any portion of the Leased Premises or any surrounding areas, [omitted
because stricken by parties] or any breach by Tenant of the provisions
concerning Environmental Considerations as contained in paragraph 41 of the
Lease, or the failure of the Tenant to comply with any applicable Hazardous
Materials Laws (as defined in the Lease) with regard to the storage, use,
handling, including transportation, or disposal of any Hazardous Material by
Tenant, its agents, employees or contractors, or otherwise resulting from or
arising out of any action or non-action of Tenant or Tenant's operations on the
Leased Premises in violation of the terms of this Lease.
Without limiting the generality of the foregoing, it is expressly
agreed by [omitted because stricken by parties] Tenant that such indemnity
shall also include the following to the extent attributable to the storage,
use, handling or disposal, including transportation, of any Hazardous Material
by Tenant, its agents, employees or contractors: diminution in value of the
Leased Premises, damages for loss or restriction on use of rental or useable
space or any amenity of the Leased Premises, damages arising from any adverse
impact on marketing of space or delay in delivering possession to a subsequent
tenant or purchaser, restoration of the Leased Premises to a condition not
materially different from its original contour, appearance and condition; costs
incurred in connection with any investigation of site conditions or any
clean-up, remedial, removal or restoration work required by any federal, state
or local governmental agency, political subdivision, court order or lender of
the Landlord; costs of removal and lawful disposal off site of all Hazardous
Materials; all sums paid in settlement of claims, reasonable attorneys' fees,
consultant fees and expert fees.
The foregoing indemnities shall survive termination or expiration of
the Lease and shall also accrue to the benefit of the employees, agents,
officers, directors and/or partners of Landlord for a period of three (3)
years.
2. [omitted because stricken by parties] Tenant agrees to pay to
Landlord, from time to time, within twenty (20) days after receipt of demand
therefor, an amount equal to any and all expenses therefore incurred by
Landlord for which Landlord is entitled to indemnification. Any sums not so
paid shall thereafter bear interest at a rate of two percent (2%) per month
until paid in full.
3. The rights and remedies of Landlord under this indemnity shall be
in addition to any rights or remedies available to Landlord under the terms of
the Lease. The obligations of [omitted because stricken by parties] Tenant
hereunder shall not be affected or impaired by: (i) the assertion by Landlord
against Tenant of any rights or remedies reserved to Landlord pursuant to
provisions of the Lease; (ii) the commencement of summary or any other
proceedings against Tenant; (iii) failure of the Landlord to enforce any of its
rights against Tenant pursuant to the Lease or otherwise; (iv) the granting by
Landlord of any extensions of time to Tenant; (v) the assignment or transfer of
the Lease by Tenant; (vi) with release or discharge of Tenant from its
obligations under the Lease in any creditors', receivership, bankruptcy or
other proceedings or the commencement or pendency of any such proceedings; or
(vii) the impairment, limitation or modification of the liability of Tenant or
the estate of Tenant in bankruptcy, or of any remedy for the enforcement of
tenant's liability under the Lease, resulting from the operation of any present
or future bankruptcy code or other statute, or from the decision of any court.
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4. [omitted because stricken by parties]
5. All notices for or allowed hereunder shall be deemed given and
received with (a) personally delivered, or (b) at the time the same is
deposited in the United States mail, postage prepaid, first class mail, or
addressed to the applicable party at the address indicated below for such
party, or as to each party, at such other address as shall be designated by
such party in a written notice to the other party:
If to Tenant, to:
Heska Corporation
1825 Sharp Point Drive
Fort Collins, CO 80525
Attn: President
If to Landlord, to:
GB Ventures
4875 Pearl East Circle #300
Boulder, CO 80301
5. In the event of default in its obligations hereunder, Tenant
agrees to reimburse Landlord for reasonable attorneys' fees and costs incurred
by Landlord in the enforcement of such obligations.
6. This Environmental Indemnity Agreement shall apply to the Lease
and any extension or renewal thereof, and any holdover term following the term
thereof, or any such extension or renewal.
7. This Environmental Indemnity Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado.
8. The covenants and agreements herein contained shall extend to and
be binding upon the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this
Environmental Indemnity Agreement on the day and year first above written.
BY: /s/ DEBORAH E. ROBBINS, Vice President & General Counsel
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" Tenant" HESKA CORPORATION, A CALIFORNIA CORPORATION
/s/ GERALD P. LEE
--------------------------------
"Landlord"
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EXHIBIT "A"
[MAP]
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EXHIBIT "B"
INTERIOR SPACE PLAN
Landlord shall construct the space as mutually agreed upon by Landlord and
Tenant. Notwithstanding anything to the contrary contained in this Exhibit B
or the Lease, "Substantial Completion" of the construction contemplated by the
foregoing sentence shall be the date by which all of the following have
occurred: (i) Landlord has substantially completed the "Tenant Improvements"
(as defined below) in accordance with this Exhibit B; (ii) there remains no
incomplete or defective item of Tenant Improvements that would adversely affect
Tenant's intended use of the Premises; (iii) Landlord has delivered legal
possession of the Premises and the Tenant Improvements to Tenant; (iv) Tenant
shall have the right to enter the Leased Premises prior to the completion of
the Tenant Finish for the purpose of installing telephone and network cabling
and leasehold improvements. Such right shall in no way interfere with
Landlord's ability to complete the Tenant Improvements as scheduled. Such
entry shall be coordinated with Mike Blank of Rincon Development, Inc. who
shall be doing the Tenant Finish work. (v) Landlord has obtained all
approvals and permits from the appropriate governmental authorities required
for the legal occupancy of the Leased Premises and the Tenant Improvements for
Tenant's intended use.
"Substantial Completion" shall not be meant to include any i)
installation of lab furniture, fixtures and equipment; ii) installation of any
office furniture, fixtures and equipment required by Tenant.
Landlord shall provide an allowance for, and shall construct, the
improvements ("Tenant Improvements") described in the plans and specifications
attached to this Lease as Exhibit B-1. The allowance for such construction
("Tenant Improvements Allowance") shall not exceed the sum of Three Hundred Two
Thousand Four Hundred Dollars ($302,400). Notwithstanding anything to the
contrary contained in this Exhibit, the cost of the Tenant Improvements "Tenant
Improvements Cost") subject to the Allowance shall not include (and Tenant
shall have no responsibility for) the following:
(i) Costs attributable to (A) building shell construction; (B)
improvements installed outside the demising walls of the Leased Premises unless
(1) necessitated by Tenant Improvements made inside the demising walls of the
Leased Premises; or (2) requested by Tenant or as shown in the approved working
drawings; and (C) Improvements installed "off- site" (such as streets, curbs,
gutters, traffic lights, lights for parking and street lighting);
(ii) Costs for improvements which are not shown on or described in
the approved working drawings unless otherwise approved by Tenant.
(iii) Costs incurred to remove Hazardous Materials from the Leased
Premises or the surrounding area unless the presence of such materials was
caused by Tenant or its agents, contractors, employees or invitees in violation
of Hazardous Materials Laws (as defined in the Lease);
(iv) Attorneys' fees incurred in connection with negotiation of
construction contracts, and attorneys' fees, experts' fees and other costs of
legal and arbitration proceedings to resolve construction disputes with third
parties;
(v) Loan fees, mortgage brokerage fees, interest and other costs of
financing construction costs;
(vi) Costs incurred as a consequence of delay (unless the delay is
caused by Tenant, its agents, contractors, employees or invitees) or
construction defects;
(vii) Costs recoverable by Landlord upon account of warranties and
insurance;
(viii) Restoration costs in excess of insurance proceeds as a
consequence of casualties unless the casualty is caused by Tenant, its agents,
contractors, employees or invitees; and
(ix) Penalties and late charges attributable to the failure to pay
construction costs in accordance with this Exhibit except to the extent such
penalties and late charges arise due to delays caused by Tenant, its agents,
contractors, employees or invitees.
The Tenant Improvements shall be constructed in accordance with such
attached plans and specifications and all applicable Law (as defined in
Paragraph 7 of the Lease), in a good and workmanlike manner, free of defects
and using new materials and equipment of good quality. Within thirty (30) days
after the Commencement Date, Tenant shall have the right to submit a written
"punch list" to Landlord, setting forth any defective item of construction, and
Landlord shall promptly cause such items to be corrected.
Notwithstanding anything to the contrary contained in the Lease,
Tenant's acceptance of the Demised Premises or submission of a "punch list"
shall not be deemed a waiver of Tenant's right to have defects in the Tenant
Improvements or the Premises repaired at no cost to Tenant. Tenant shall give
notice to Landlord whenever any such defect becomes reasonably apparent, and
Landlord shall repair such defect as soon as practicable. Landlord also hereby
assigns to Tenant all warranties with respect to the Premises, including
warranties which would reduce Tenant's maintenance obligations under this
Lease, and shall cooperate with Tenant to enforce all such warranties.
Also notwithstanding anything to the contrary contained in the Lease,
at the Commencement Date, the Leased Premises shall conform to all requirements
of covenants, conditions, restrictions and encumbrances ("CC&R's"), all
underwriters' requirements and Laws (as defined in Paragraph 7 of the Lease)
applicable thereto, including, without limitation, all Laws governing Hazardous
Materials.
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EXHIBIT "C"
LANDLORD AND TENANT'S CONSTRUCTION OBLIGATIONS
LANDLORD
Landlord shall complete the Leased Premises per Exhibit "B" and per the
attached set of "Standard Lease Space Specifications" for Office Buildings.
TENANT
Tenant shall be responsible for the cost of any change order which increases
the cost of the work in excess of the Tenant Improvements Allowance shown on
Exhibit "B" or which increases the cost of the Landlords Standard Lease Space
Specifications. If Tenant should make any changes which increase such cost it
shall pay to the Landlord such sum within 15 days of occupancy of the Leased
Premises. Landlord shall have the obligation to notify Tenant in writing of
any changes which will obligate the Tenant to any such additional costs.
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EXHIBIT "D"
[PLANS]
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EXHIBIT "E"
ADDITIONAL TERMS AND CONDITIONS
1. This Lease Agreement is contingent upon Landlord receiving a signed
and duly authorized and executed original of same on or before July
12, 1996. If a duly authorized and executed Lease Agreement is not
received by Landlord on or before said date, this Lease Agreement
shall be null and void and neither party shall be subject to any
further obligation or liability hereunder.
2. Tenant shall provide to Landlord all appropriate plans and
specifications, mutually approved by Tenant and Landlord, and in form
ready to submit to the City of Fort Collins for issuance of building
permit, not later than November 1, 1996. Notwithstanding any other
term or condition of this Lease Agreement to the contrary, if Tenant
does not timely provide such plans and specifications, or if such
plans and specifications are not in form ready for submittal to the
City, [omitted because stricken by parties] and as a result of Tenant's
failure in either instance substantial completion of the improvements
on the Leased Premises and/or delivery of possession of the Leased
Premises is delayed beyond February 1, 1997, Tenant shall be deemed
responsible for such delay, and consequently, Tenant's obligation for
payment of base rent under this Lease shall in such event commence on
February 1, 1997, without regard to whether the improvements are
substantially completed or possession of the Leased Premises has been
delivered to Tenant. Notwithstanding the forgoing, Tenant's obligation
to commence payment of base rent on February 1, 1997 shall not become
effective until substantial completion of the improvements if
substantial completion has not occurred by such date due to a force
majeure delay or to a delay caused solely by Landlord.
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EXHIBIT "F"
OPTION TO EXTEND
Tenant shall have the option to extend the Lease Agreement from 12:00 noon on
10/1/2004 to 12:00 noon on 10/1/2007 ("Option Period One") and a second option
from 12:00 noon on 10/1/2007 to 12:00 noon on 10/1/2010 ("Option Period Two").
In the event the Tenant desires to exercise said option, Tenant shall give
written notice of such exercise to Landlord not later than 10/1/2003 for Option
Period One and 10/1/2006 for Option Period Two. See below for Option(s) Term
Rent. In the event of such exercise, the Lease Agreement, including all
amendments, shall be automatically extended for the additional term.
Notwithstanding the foregoing, this option shall be void and of no force or
effect if the Tenant is in default hereunder, beyond applicable cure periods,
either as of the date of the Tenant's exercise of said option or as of the date
of the commencement of the option or additional term.
Option Term Rent: Tenant shall pay the following rent for the Leased Premises:
Landlord and Tenant will attempt to agree upon a Fair Market Rental Value of
the Leased Premises satisfactory to both parties within thirty (30) days of
Tenant's exercise of its option. If no agreement can be reached by the parties
during that period, then the Base Monthly Rental for the Option Term shall be
determined by the Fair Market Rental Value of the Leased Premises as determined
by comparison to premises of similar size located in or near the City of
Boulder, Colorado, having comparable development, use and density capability
and such other characteristics as may be deemed relevant by a subject appraiser
whose selection is outlined herein.
Landlord shall select an independent MAI real estate appraiser with at least
ten (10) years experience in appraising commercial real property in the City of
Boulder, Colorado (a "Qualified Appraiser"). The Qualified Appraiser selected
by the Landlord shall be referred to as the "Landlord's Appraiser". Within
thirty (30) days of being selected by the Landlord, the Landlord's Appraiser
shall determine the Fair Market Rental Value of the Leased Premises in
accordance with the appraisal standards set forth above and shall immediately
give the Landlord and the Tenant written notification of his determination.
If the Tenant agrees with the Landlord's Appraiser's determination of the Fair
Market Rental Value, the new Base Monthly Rental shall become effective
beginning with the first month of the Option Term. If the Tenant does not
agree with the Landlord's Appraiser's determination of Fair Market Rental
Value, the Tenant shall have the right to select its own Qualified Appraiser to
determine the Fair Market Rental Value. If the Tenant does elect to appoint a
Qualified Appraiser (the "Tenant's Appraiser"), the Tenant shall select the
Tenant's Appraiser within thirty (30) business days after receiving the
Landlord's Appraiser's determination of the Fair Market Rental Value. The
Tenant's Appraiser shall make his own determination of the Fair Market Rental
Value in accordance with the provisions set forth above, within 30 business
days of being selected by the Tenant and shall immediately give the Landlord
and the Tenant written notice of his determination.
If the Fair Market Rental Value as determined by the Landlord's Appraiser and
the Tenant's Appraiser, respectively, differ by an amount which is equal to or
less than 5% of the Fair Market Rental Value determined by the Landlord's
Appraiser, then the arithmetic mean of the two Fair Market Rental Values shall
constitute the Fair Market Rental Value used to calculate the new Base Monthly
Rental which will in effect for the Option Term. If the Fair Market Rental
Value determined by the Landlord's Appraiser and the Tenant's Appraiser,
respectively, differ by an amount which is greater than 5% then, within ten
(10) business days after the Landlord's Appraiser and the Tenant's Appraiser's
determination of the Fair Market Rental Value, the Landlord's Appraiser and the
Tenant's Appraiser shall agree upon and select a third Qualified Appraiser who
shall be independent of and have no prior or existing affiliation or
relationship with either the Landlord or the Tenant (the "Independent
Appraiser"). Within ten (10) business days of being appointed, the Independent
Appraiser shall, after exercising his best professional judgement, choose
either the Landlord's Appraiser's or the Tenant's Appraiser's determination of
Fair Market Rental Value which the Independent Appraiser believes, in his best
professional judgement, best represents the Fair Market Rental Value at that
point in time. Upon making such a selection, the Independent Appraiser shall
immediately give the Landlord and the Tenant written notice of this selection
of the Fair Market Rental Value. The Fair Market Rental Value selected by the
Independent Appraiser shall be used to calculate the new Base Monthly Rental
which will be in effect during the Extension Option, and such selection by the
Independent Appraiser shall be binding and conclusive upon the Landlord and the
Tenant.
All appraisal fees required hereunder shall be shared equally by the Landlord
and the Tenant.
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EXHIBIT "G"
STANDARD LEASE SPACE SPECIFICATIONS
The following are standard specifications for the Leased Premises herein
defined.
GENERAL
A. The leased space design/layout will conform to the
Architectural drawings.
B. All work performed to complete the Leased Premises will be in
accordance with all applicable codes and regulations.
C. Demising, corridor and partition walls separating offices from
warehouse space to be 3-5/8" metal studs at 24" o.c. with 5/8"
gypsum wallboard on each side. Partitions to have acoustical
sealant at joints and sound attenuation batting between studs
from floor to structure above. Partitions to receive typical
partition finish.
D. 1) Building interior space may be divided into fire
containment areas. It is the responsibility of the Tenant to
conform to all applicable regulations and fire codes,
including, but not limited to, maintaining egress requirements
during the term of occupancy.
2) Fire containment walls to be 3-5/8" metal studs at 24" o.c.
with 5/8" gypsum wallboard on each side. Walls to extend from
floor to underside of structure above. Doors in fire
containment walls to be twenty minute fire rated, solid core
oak veneer with closer and metal jambs.
E. Tenant will be responsible for identifying any equipment or
areas requiring additional or special ventilation, lighting or
electrical service prior to space planning.
OFFICE AREAS
A. INTERIOR PARTITIONS.
1. 3-5/8" metal studs at 24" o.c. from floor to
underside of ceiling with 5/8" gypsum wallboard on
each side.
2. All concrete block walls in office area to be furred
and sheathed as interior partitions above unless
otherwise noted on Architectural drawings.
B. PARTITIONS FINISH
All interior partitions, not pre-finished, will receive paint.
Paint to be Landlord's standard, two finish coats over one
primer coat. Color to be selected by Tenant from among
choices pre-selected by Landlord.
C. CEILING
To be suspended acoustical tile, 2'X4' omni fissured. Tile
and metal grid to be white.
D. FLOOR COVERING
1. Carpet to be Landlord's standard. Installation to be
glue down. Color to be selected by Tenant from among
choices pre-selected by Landlord. Base at carpet to
be 2-1/2" high solid oak, finish to match doors.
2. Resilient flooring to be Landlord's standard.
12"X12"X1/8". Color to be selected by Tenant from
among choices pre-selected by Landlord. Base at
resilient flooring to be Roppe 2-1/2" rubber cove.
E. INTERIOR DOORS
All interior doors to be solid core flush panel oak veneer
with 3 coats natural color lacquer finish. Frames to be
timely metal. Door sizes to be 3'-0" X 7'-0" X 1-3/4" unless
otherwise noted on architectural drawings.
F. DOOR HARDWARE
To be sargent 6 line Orbital series, 26D brushed chrome or
equal.
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All entry doors to have keyed cylinder lock sets. All office,
conference, and storage room doors to have passage lock set.
Restrooms to have privacy lock. All doors to have 1-1/2 pair
4" hinges and 1 Ives concave wall stop $407 1/2, or equal,
stainless steel finish.
G. LIGHTING
To be 2' X 4' 4 lamp, recessed, fluorescent light fixture with
acrylic lens.
H. ELECTRICAL/PHONE
Outlet locations as shown on Architectural drawings. All
outlets, outlet covers, switches and switch plate covers to be
white.
I. COMPUTER/TELEPHONE OUTLETS
Outlets to consist of empty junction box with 1/2" conduit
stubbed above ceiling.
J. TELEPHONE/COMPUTER LINES AND CABLING
Wiring and installation to be provided by Tenant. 3/4"
plywood phone board to be provided and installed by Landlord
for telephone installation.
RESTROOMS
A. CONSTRUCTION AND FINISHES
To be per office area specifications except as follows:
1. Partitions and ceiling to receive 5/8" water
resistant gypsum wallboard.
2. Walls to have 2 coats of epoxy paint from floor to
4'-0" above floor. Remaining wall surface and
ceiling to have 2 finish coats of semi-gloss acrylic
over one primer coat. Color to be white.
3. Ceiling structure to be metal stud joists bearing on
partition wall. Ceiling structure to support unit
water heater for restroom. Ceiling height to be
maximum allowable.
4. Counter tops to have plastic laminate finish with
color to be selected by Tenant from among choices
pre-selected by Landlord.
B. PLUMBING FIXTURES
1. Toilet - Armitage Shanks, white, model #109 or equal.
2. Lavatory - Armitage Shanks model #308, white, 19"
shelf rimming china lavatory with Price Pfister
#H43-121 faucet or equal.
3. Lavatory - American Standard wall hung Royalyn
Vitreous China 3 hole #1024.121 (20" X 18") with
Delta handle faucet #2520 or equal.
4. Urinal - Kohler model #402, white with Zorn flush
valve or equal.
C. ACCESSORIES
1. Mirror - Full HGT and with mirror with metal edge
trim as shown on Architectural Drawings.
2. Mirror - Bobrick stainless steel channel frame mirror
#B-165-1830 (18" X 30") or equal.
3. Paper Towel Dispenser/Disposal - Bobrick B-369
recessed, stainless steel satin finish or equal.
4. Toilet Tissue Dispenser - Bobrick B-388 recessed,
stainless steel satin finish or equal.
5. Utility Hook - Bobrick #B-670 polished stainless
steel or equal mounted interior side of toilet and
shower stall doors (if applicable) 66" above finished
floor.
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6. Grab Bars - Bobrick #B-490, stainless steel satin
finished or equal.
D. LIGHTING
One surface mounted 2 tube fluorescent fixture with acrylic
lens in drywall light valance over lavatory. Ceiling fixture,
if called for in architectural drawings, to be 2 tube
fluorescent with acrylic wrap lens.
E. ELECTRICAL
MECHANICAL/ELECTRICAL
A. HEATING AND COOLING
The interior premises are heated and cooled by one or more
roof-mounted mechanical units. The sizing of the mechanical
units are designed to provide one (1) ton of cooling for every
three hundred and eighty-three (383) square feet of floor
area; provided that the internal load does not exceed three
(3) watts per square foot. Individual thermostat control
shall be centrally controlled allowing for automatic setback
capabilities with external dial-in monitoring provided for the
interior premises, with control areas not to exceed two
thousand (2,000) square feet in size. Based upon the above,
the system shall maintain a minimum temperature of 65 degrees
Fahrenheit and a maximum temperature of 75 degrees fahrenheit
in the separate rooms within the Leased Premises, so long as
the minimum exterior temperature shall not be below zero
degrees fahrenheit and the maximum exterior temperature shall
not be below zero degrees fahrenheit and the maximum exterior
temperature shall not be in excess of 100 degrees fahrenheit.
B. ELECTRICAL
Standard electrical service provided to the building to the
120/208 volt, three phase, four wire. No additional service
to be provided for Tenant equipment unless otherwise noted.
One (1) light switch per office is provided. Circuitry design
is normally laid out to allocate 6 to 8 duplex outlets per 20
amp circuit.
C. ELECTRICAL OUTLETS
Restrooms to have one duplex electrical outlet. See
Architectural drawings for outlet locations in other areas.
D. LIGHTING
Finished rooms, other than restrooms and storage areas will be
lighted with 2'X4' recessed, 4 lamp, fluorescent fixtures.
All fixtures to be provided initially with lamps. Lights and
switch locations will be shown on Architectural drawings.
SUPPLEMENTAL ITEMS
A. COFFEE BAR
1. Base and upper cabinets to be Merrillat brand with
style to be chosen by Landlord.
2. Countertop and splash to be plastic laminate finish
with color to be selected by Tenant from among
choices pre-selected by Landlord.
3. Kitchen sink, Dayton Kingsford #K-11515 single
compartment sink with Delta #2171 faucet or equal.
B. SHOWER STALL
Universal Rundle #6852, 36" unit fiberglass shower stall with
glass shower door or equal. When shoer stalls are provided
substitute a 30 gallon hot water heater for the standard 6
gallon hot water heater.
C. PARTIAL HEIGHT PARTITIONS
Partial height partitions to be 3-5/8" metal studs with 5/8"
gypsum wallboard on each side of 1X oak cap. Finish to match
full height partitions and oak base. See Architectural
drawings for detail. Vertical posts will be provided as
necessary for stability.
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EXHIBIT 10.25
AMENDMENT TO LEASE
This Amendment to Lease is entered into as of September 1, 1995 between Bayer
Corporation, an Indiana corporation (formerly known as Miles, Inc.)("Landlord")
and Diamond Animal Health, Inc., ("Tenant") an Iowa corporation.
WITNESSETH
WHEREAS, Landlord and Tenant entered into that certain Lease dated as of
December 31, 1993 (the "Lease") for certain property and improvements located
in Des Moines, Polk County, Iowa, as more particularly described in the Lease
(the "Demised Premises"); and
WHEREAS, the initial term of the Lease commenced January 1, 1994 and ends on
December 31, 1998; and
WHEREAS, Tenant is granted the right to extend the term of the Lease for an
additional term of five (5) years and for one (1) additional term of one (1)
year, upon the terms and conditions set forth in the Lease; and
WHEREAS, Landlord has agreed to grant Tenant an additional option to extend the
term of the Lease for a period of five (5) years upon the terms and conditions
set forth herein; and
WHEREAS, Landlord and Tenant have agreed to amend the Lease to reflect the
additional renewal option, among other matters.
NOW THEREFORE, in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord and Tenant hereby agree to amend the Lease as follows:
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1. TERM.
a) Section 3.3 of the Lease is hereby deleted in its entirety and in
its place substituted the following:
SECTION 3.4 - CONDITIONAL EXTENDED TERM. Tenant shall have and
is hereby granted the right, at its option, to extend the term of
this Lease for one (1) additional term of one (1) year,
commencing on January 1, 2009 and ending on December 31, 2009,
subject to the following conditions:
(1) Tenant shall notify Landlord, on or before December 31,
2005, that Tenant intends to construct a new plant for use
in connection with Tenant's business; and
(2) On or before September 30, 2008, Tenant notifies Landlord
that it is not reasonably practicable for Tenant to occupy
its new plant on or before December 31, 2008 because of
Tenant's inability to obtain timely government regulatory
approval of its new plant.
The notices described in subsections (a) and (b) hereof shall be
given in the manner set forth in Article 21 hereof. Such
extension shall be upon the terms and conditions as for the
second Extended Term described in Section 3.3, including the
Basic Rent as provided in Section 4.2 hereof.
b) Article 3 of the Lease is hereby amended by adding the following
as new Section 3.3:
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<PAGE> 3
SECTION 3.3 - SECOND EXTENDED TERM. Tenant shall have and is
hereby granted the right, at its option, upon the expiration of
the Extended Term described in Section 3.2, to extend the term of
this Lease for a second additional term of five (5) years
commencing January 1, 2004, provided such option is exercised in
writing one hundred twenty (120) days prior to the end of the
first Extended Term. The notice described in the preceding
sentence shall be given in the manner set forth in Article 21 of
the Lease. Such extension shall be upon the terms and conditions
as for the original term and first Extended Term except that the
Basic Rent shall be as provided in Section 4.2 hereof.
2. RENT.
Article 4 of the Lease is hereby amended by adding the following to the
end of Section 4.2 thereof:
During the extended terms of the Lease described in Sections 3.3
and 3.4 above, if any, Tenant shall pay to Landlord, as annual
Basic Rent for the Demised Premises, without deduction, setoff,
prior notice or demand, the annual sum of Two Hundred Thousand
Dollars ($200,000), payable in monthly installments of Sixteen
Thousand Six Hundred and Sixty-Seven Dollars ($16,667) each,
commencing on January 1, 2004 and ending on December 31, 2008 if
Tenant has not exercised the renewal option described in Section
3.4 above, or commencing on January 1, 2004 and ending on
December 31, 2009 if Tenant has exercised the Section 3.4 renewal
option.
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<PAGE> 4
3. USE.
Section 5.3 the Lease is amended by adding the words "or 3.4" after the
words "Section 3.2 or 3.3" in the twenty-sixth line of Section 5.3.
4. MAINTENANCE AND REPAIRS
Section 9.4 of the Lease is amended by adding the words "or 3.4" after
the words "Section 3.2 or 3.3" in the last sentence of Section 9.4.
5. DEFAULT.
Section 17.1 of the Lease is amended by adding "; or" at the end of
subsection (h) and adding the following to the end of Section 17.1:
(i) Tenant shall be in default under the Promissory Note dated
as of September 1, 1995 in the original principal amount
of Four Hundred Thousand Dollars ($400,000) by Tenant in
favor of Landlord, and such default shall not be cured or
waived within the period of grace, if any, applicable
thereto, and Landlord shall have given notice of
acceleration thereto to Tenant.
6. DEFINED TERMS.
All capitalized terms not otherwise defined herein shall have the
meanings assigned to them in the Lease. References in the Lease to the
Manufacturing Agreement shall mean the Manufacturing Agreement as
amended and extended from time to time.
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<PAGE> 5
7. SUCCESSORS AND ASSIGNS.
The terms, covenants, and conditions of this Amendment shall be binding
upon and inure to the benefit of the parties hereto and their heirs,
executors, administrators, successors and (in the case of Tenant,
permitted) assigns.
8. LEASE OTHERWISE UNCHANGED.
Except as specifically set forth herein, the terms of the Lease are
unchanged and in full force and effect. In the event of any conflict
between the terms of this Amendment and the Lease, the terms of this
Amendment shall govern.
IN WITNESS WHEREOF, the parties have executed this Amendment to Lease to be
effective as of the date first above written.
LANDLORD: TENANT:
BAYER CORPORATION DIAMOND ANIMAL HEALTH, INC.
AGRICULTURE DIVISION
BY: /s/ LOUIS VAN DAELE
BY: /s/ GARY R. ZIMMERMAN -------------------------------
-------------------------------- TITLE: President
TITLE: Vice President New Business
Development
DATE: 10/4/95 DATE: 10/18/95
5
<PAGE> 6
December 31, 1993
LEASE
ARTICLE 1. PARTIES
This Lease is entered into as of the 31st day of December, 1993 between Miles
Inc., an Indiana corporation ("Landlord"), and Diamond Animal Health, Inc., an
Iowa corporation ("Tenant").
WITNESSETH
ARTICLE 2. DEMISED PREMISES
SECTION 2.1 - DESCRIPTION.
Landlord hereby leases to Tenant, and Tenant hereby hires and takes from
Landlord, that certain premises situated in Des Moines, Iowa, which is more
particularly described in Exhibit A attached hereto and made a part hereof,
together with all improvements located thereon (collectively, the "Demised
Premises").
SECTION 2.2 - CONDITION.
Subject to Article 25 hereof, Tenant acknowledges that (a) Tenant has inspected
the Demised Premises and accepts the same in its present "as is" condition, and
(b) no representations or warranties have been made by Landlord concerning the
condition, repair, remodeling, alteration or improvement of the Demised
Premises.
ARTICLE 3. TERM
SECTION 3.1 - INITIAL TERM.
The initial term of this Lease shall be for a period of five (5) years,
beginning on the 1st day of January, 1994 and ending on the 31st day of
December, 1998, unless sooner terminated as hereinafter provided.
SECTION 3.2- EXTENDED TERM.
Tenant shall have and is hereby granted the right, at its option, to extend the
term of this Lease for one (1) additional term of five (5) years, provided such
option is exercised in writing one hundred twenty (120) days prior to the end
of the initial term hereof. The notice described in the preceding sentence
shall be given in the manner set forth in Article 21 hereof. Such extension
shall be upon the terms and conditions as for the original term except that the
Basic Rent shall be as provided in Section 4.2 hereof.
SECTION 3.2 - CONDITIONAL EXTENDED TERM.
Tenant shall have and is hereby granted the right, at its option, to extend the
term of this Lease for one (1) additional term of one (1) year, commencing on
January 1, 2004 and ending December 31, 2004, subject to the following
conditions:
(a) Tenant shall notify Landlord, on or before December 31, 2000,
that Tenant intends to construct a new plant for use in connection with
Tenant's business; and
(b) On or before September 30, 2003, Tenant notifies Landlord that it
is not reasonably practicable for Tenant to occupy its new plant on or
before December 31, 2003 because of Tenant's inability to obtain timely
government regulatory approval of its new plant.
<PAGE> 7
The notices described in subsections (a) and (b) hereof shall be given in the
manner set forth in Article 21 hereof. Such extension shall be upon the terms
and conditions as for the Extended Term, including the Basic Rent as provided
in Section 4.2 hereof.
ARTICLE 4. RENT
SECTION 4.1 - BASIC RENT.
During the term set forth in Section 3.1 hereof, Tenant shall pay to Landlord,
as basic annual rent ("Basic Rent") for the Demised Premises, without
deduction, set-off, prior notice or demand, the sum of One Hundred Fifty
Thousand Dollars ($150,000.00) payable in monthly installments of Twelve
Thousand Five Hundred Dollars ($12,500.00) each, commencing on January 1, 1994
and ending on December 31, 1998. During the term of that certain Manufacturing
and Supply Agreement of even date herewith (the "Manufacturing Agreement")
entered into by and between Landlord, Tenant, Agrion Corporation ("Agrion") and
Diamond Scientific Co. ("Diamond Scientific"), respectively, the Basic Rent
reserved herein shall be paid by permitting Landlord to set off the amount of
the monthly installments of Basic Rent against the monthly payment due from
Landlord to Tenant under the Manufacturing Agreement.
SECTION 4.2 - BASIC RENT, EXTENDED TERM.
During the first extended term, if any, Tenant shall pay to Landlord, as Basic
Rent for the Demised Premises, without deduction, setoff, prior notice or
demand, the sum of One Hundred Seventy-Five Thousand Dollars ($175,000.00),
payable in monthly installments of Fourteen Thousand Five Hundred Fifty-One and
67/100 Dollars ($14,551.67) each, commencing on January 1, 1999 and ending on
December 31,2003.
SECTION 4.3 - ADDITIONAL RENT.
All other payments required to be made by Tenant to Landlord under this Lease
shall be deemed to be additional rent hereunder ("Additional Rent"). The Basic
Rent and Additional Rent are collectively referred to herein as "Rent." All
Rent shall be payable at the address of Landlord set forth in the Section
hereof which is entitled "Notices," or at such other place as Landlord may from
time to time direct. Any payment of Rent not made when due after applicable
cure periods shall bear interest from the due date thereof at a rate (the
"Default Rate") equal to four (4) points above the prime rate for Chase
Manhattan Bank, New York, New York. In addition, a late penalty of five percent
(5%) of any delinquent payment of Rent shall also be charged if any such
payment is more than five (5) days overdue.
SECTION 4.4- BASIC RENT TO BE NET.
Except as otherwise provided in this Lease, it is the intent of Tenant and
Landlord that the Basic Rent shall be absolutely net to Landlord so that,
during the term of the Lease, Tenant shall pay absolutely all items of cost and
expense relating to the operation, use and ownership of the Demised Premises,
and any portion thereof, to the extent that they are incurred during, or relate
to, the period included with the term of this Lease, including, without
limitation, all general and special real and personal property taxes and
assessments, insurance premiums, payments under any service contracts, license
and permit fees, maintenance, repair and replacement costs, costs of all
utilities and the costs of all other services which are used in connection with
operation, use or ownership of the Demised Premises, or any portion thereof;
provided, however, that in no event shall Tenant be liable for any "Covered
Claim" as set forth in Section 25.1(b).
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<PAGE> 8
ARTICLE 5. USE
SECTION 5.1 - AUTHORIZED.
The Demised Premises shall be used solely for the purposes of manufacturing
biological and pharmaceutical care products and for no other purpose. Tenant
may request a consent to change business use of the Demised Premises, which
consent shall not be unreasonably withheld (it being understood that consent
withheld due to Landlord's reasonable concern about impairment of the USDA
status of the Demised Premises shall automatically be deemed to be reasonable
for purposes of this Section).
SECTION 5.2 - LICENSES.
Tenant shall at its expense use its best efforts to obtain and shall at all
times maintain, any and all licenses and permits which may be necessary for the
use and operation of the Demised Premises, except in connection with the
Covered Claims as set forth in Section 25.1(b).
SECTION 5.3 - LAWFUL USE.
Tenant shall not use the Demised Premises, or permit the same to be used, in
whole or in part, for any unlawful purpose and shall comply with all laws,
statutes, ordinances, regulations, or rules of any public authority, agency or
organization applicable to the Demised Premises or the use thereof, including,
but not limited to, those pertaining to zoning, environmental protection,
hazardous substance, or OSHA. Except for Covered Claims as set forth in Section
25.1(b), Tenant shall promptly comply with all governmental orders and
directives of every nature whatsoever pertaining to the Demised Premises,
including, but not limited to, the correction, prevention and abatement of
nuisances in, upon, or connected with the Demised Premises, all at Tenant's
expense. Except for environmental problems caused by Tenant which are the
responsibility of Tenant pursuant to Section 25.1(a), if (i) the costs of
compliance in the aggregate as required by this Section for any calendar year
exceeds $4,000.00 times the number of months or parts thereof remaining until
the termination date of this Lease, and (ii) such compliance requirements are
not required due to Tenant's failure to maintain the Demised Premises or any
part thereof, then Tenant shall give Landlord written notice of the cost of
compliance as otherwise required by this Section. Thereupon, Landlord shall
pay the cost of compliance required by this Section (but in no event shall such
cost in the aggregate for any calendar year exceed $8,000.00 times the number
of months or parts thereof remaining until the termination date of this Lease),
in which event the Basic Rent shall be increased by an amount equal to the cost
of compliance required by this Section to accomplish such compliance, divided
by the useful life of such assets as determined under Section 167 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder, which amount shall be payable in equal monthly installments in the
manner set forth in Article 4 hereof for the number of months or parts thereof
remaining until the termination date of the then-effective Term, as and if
extended. In the event that Tenant exercises its option to extend this Lease as
provided in Section 3.2 or 3.3 hereof, the phrase "number of months or part
thereof remaining until the termination date" as used in this Section shall be
determined with reference to such extended term.
The provisions of this section shall not be applicable to European Unity
compliance requirements. The parties must mutually agree before proceeding to
satisfy such requirements and if they mutually agree to comply, they shall
further agree as to how the cost of compliance shall be shared.
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<PAGE> 9
The costs of compliance required for the manufacture of goods pursuant to
contract manufacturing agreements with purchasers other than Landlord shall be
the responsibility of the Tenant.
ARTICLE 6. TAXES
SECTION 6.1 - PERSONAL PROPERTY, BUSINESS, ETC.
Landlord shall present to Tenant all official bills for taxes attributable to
fixtures, equipment, inventory and all other personal property owned by Tenant,
as well as for all local business taxes, licenses, fees, and other charges or
assessments related to, or the result of, Tenant's property or business being
located or conducted on the Demised Premises, Tenant shall pay to Landlord the
amount of each such bill, or each installment thereof as reflected on such
bill, at least fifteen (15) days prior to the date upon which such installment
becomes delinquent.
SECTION 6.2 - REAL PROPERTY.
Landlord shall present to Tenant all official bills for all real estate taxes
and assessments imposed, charged or levied upon the Demised Premises during or
related to the term of this Lease, and Tenant shall pay to Landlord the amount
of each such bill, or each installment thereof as reflected on such bill, at
least fifteen (15) days prior to the date upon which such installment becomes
delinquent.
SECTION 6.3 - ACCRUED TAXES ON COMMENCEMENT OF LEASE.
The Tenant agrees to be responsible for all applicable Personal and Real
Property Taxes that accrue during the term of this Lease, regardless of when
such taxes are payable.
ARTICLE 7. INSURANCE
SECTION 7.1 - LIABILITY INSURANCE.
Tenant shall procure and maintain, throughout the term of this Lease, a policy
or policies of insurance at the Tenant's expense, insuring both Landlord and
Tenant against all claims, demands, or actions arising out of, or in connection
with, Tenant's use or occupancy of the Demised Premises, or from the condition
of said Demised Premises. The liability limits of such policy or policies
shall be in an amount not less than $1,000,000.00 in respect of injuries to or
death of any one person, and in an amount of not less than $2,000,000.00 in
respect of any one accident or disaster, and in an amount of not less than
$100,000.00 in respect of property damaged or destroyed, all of such liability
insurance to be written by insurers of recognized responsibility which are
authorized to do business in the State of Iowa. Such policies (or duly
executed certificates as to such policies) shall be promptly delivered to
Landlord, and renewals thereof, as required, shall be delivered to Landlord, at
least ten (10) days prior to the expiration of the respective policy terms.
SECTION 7.2 - CASUALTY INSURANCE.
Tenant shall procure and maintain, throughout the term of this Lease, at
Tenant's expense, casualty insurance insuring the Demised Premises against all
loss or damage by fire, vandalism, malicious mischief and all other hazards,
risks and perils in respect of which extended coverage and "all risk" insurance
is available, in an amount sufficient to prevent Tenant from becoming a co-
insurer under the applicable policy or policies and in any event in an amount
not less than Five Million Dollars ($5,000,000.00) of the improvements,
exclusive of foundations. Such insurance shall include coverage which will
enable Tenant to pay the rent due hereunder (which shall not abate) in the
event of any such casualty.
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<PAGE> 10
SECTION 7.3 - POLICIES.
The policies required by Sections 7.1 and 7.2 shall be with companies and in a
form satisfactory to Landlord and shall name Tenant and Landlord as insureds
thereunder. A certificate as to such insurance shall be presented to Landlord
upon Tenant's signing of this Lease. Tenant shall have the right to provide
such insurance coverage pursuant to blanket policies obtained by Tenant,
provided such blanket policies expressly or coverage to the Demised Premises,
and to Tenant as required by this Lease. A written obligation on the part of
any such insurance company to notify Landlord in writing of any delinquency in
premiums at least ten (10) days prior to any cancellation of such policy shall
also be presented to Landlord upon Tenant's signing of this Lease.
SECTION 7.4- WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive any and all right that they may have to
recover damages from the other for any loss incurred by them by reason of any
act or omission of the other, but only to the extent that the waiving party is
actually compensated therefor by insurance; provided that, this waiver shall be
effective only with respect to loss or damage occurring during such time as the
waiving party's coverage under the appropriate policy of insurance is not
adversely affected by this waiver. If, in order to avoid such adverse effect,
an endorsement must be added to any such insurance policy, Landlord and Tenant
each shall in good faith endeavor to cause such an endorsement to be added and
thereafter maintained through the term of this Lease.
ARTICLE 8. UTILITIES
SECTION 8.1 - PAYMENT BY TENANT.
Tenant, during the term of this Lease shall pay, when due, charges payable with
respect to all gas, heat, electricity, telephone, water, sewage, air
conditioning, ventilation, power, and fuel which may be furnished to or used in
and about the Demised Premises, or in connection therewith.
SECTION 8.2 - INTERRUPTION.
Landlord shall not be liable to Tenant in damages or otherwise for any
interruptions in service of gas, heat, electricity, telephone, water, sewage,
air conditioning, ventilation, power, or fuel resulting from any cause
whatsoever.
ARTICLE 9. MAINTENANCE AND REPAIRS
SECTION 9.1 - CONDITION ON COMMENCEMENT.
By accepting occupancy, Tenant shall be deemed to have agreed that the Demised
Premises are in a clean and sanitary condition and good state of repair, and in
a condition suitable for the use authorized under this Lease.
SECTION 9.2 - LANDLORD'S REPAIRS.
Landlord shall not be obligated to make, or pay for, any repairs, replacements
or improvements to the Demised Premises. Landlord shall not be liable for any
damage done or occasioned by or from electrical systems, the heating and/or air
conditioning systems, and the plumbing and sewer system in, above, upon, or
about the Demised Premises, nor for damages occasioned by water, snow, or ice
upon or coming through the roof, walls, windows, doors, or otherwise.
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SECTION 9.3 - TENANT'S REPAIRS.
Tenant, at its expense, shall maintain, repair and re p lace the interior,
exterior, landscaping, systems, fixtures and all other parts of the Demised
Premises so that they are, at all times, in a state of good condition and
repair.
SECTION 9.4- LIMITATIONS.
If structural repairs or repairs to systems such as heating, electrical, air
conditioning or plumbing, are necessary to enable Tenant to use the Demised
Premises, and (i) the cost of such repairs in aggregate, as required by this
Section for any calendar year, exceeds an amount equal to $4,000.00 times the
number of months or parts thereof remaining until termination date and (ii)
such repairs are not required due to Tenant's failure to maintain the Demised
Premises or any part thereof, then Tenant shall give Landlord written notice of
the cost of repair as otherwise required by this Section. Thereupon, Landlord
shall pay the cost of repair required by this Section (but in no event shall
such cost in aggregate for any calendar year exceed $8,000.00 times the number
of months or parts thereof remaining until the termination date of this Lease),
in which event the Basic Rent shall be increased by an amount equal to the cost
of repairs required by this Section divided by the useful life of such assets
as determined under Section 167 of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder, which amount shall be
payable m equal monthly installments in the manner set forth in Article 4
hereof for the number of months or parts thereof remaining until the
termination date of the then-effective Term, as and if extended. In the event
that Tenant exercise its option to extend this Lease as provided in Section 3.2
or 3.3 hereof, the phrase "number of months or parts thereof remaining until
the termination date" as used in this Section shall be determined with
reference to such extended term.
SECTION 9.5 - ALTERATIONS.
Tenant shall make no material alterations, additions, or improvements to the
Demised Premises without the written consent of the Landlord, which consent
shall not be unreasonably withheld. Tenant shall not be required to obtain
Landlord's consent to make any alterations, additions or improvement to the
Demised Premises that are required by regulatory agencies in connection with
Tenant's manufacture of biological and pharmaceutical care products, but Tenant
shall give Landlord sufficient prior notice of such alterations, additions, or
improvements to permit Landlord to make any regulatory notifications as may be
required by law. All alterations, additions or improvements made with
Landlord's written consent shall comply with all applicable governmental laws,
ordinances, regulations, and other requirements. Tenant shall keep the Demised
Premises free and clear of any liens or encumbrances arising out of any work
performed, material furnished, or obligations incurred by or through Tenant.
Any personal property, equipment, inventory, trade fixtures, appliances, and
any other property customarily used by and paid for by Tenant in its business
operations conducted on the Demised Premises, shall remain the property of
Tenant, and may be installed or removed by Tenant at any time during the term
of this Lease; provided, however, that Tenant, at the time of such removal,
shall repair, at its expense, any damage to the Demised Premises caused by such
removal. Upon the expiration or termination of this Lease, Tenant shall remove
all of the aforesaid property and shall repair, at its expense, any damage to
the Demised Premises occasioned by such removal. Any other improvements of a
permanent nature made to the Demised Premises, such as lighting, partitioning,
and alterations to the facilities or systems, which at any time form a part of
the Demised Premises, shall become a part thereof, and be surrendered therewith
by Tenant upon the termination or expiration of this Lease, unless the Landlord
shall require Tenant to remove any such improvements and/or alterations by
giving Tenant ten (10) days written notice thereof prior to the expiration or
termination date of this Lease in which event, Tenant, at its expense, shall
promptly
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<PAGE> 12
remove same and repair any damage, to the Demised Premises occasioned by such
removal. The fixtures described hereto in Schedule 9.5 shall be the property
of the Tenant.
ARTICLE 10. INSPECTION
Landlord and its agents and employees shall have the right, at any reasonable
time, to enter upon the Demised Premises for the purpose of inspecting, serving
or posting notices, showing to a prospective lender, purchaser or tenant, or
making any changes or era ons or repairs which the Landlord shall deem
necessary for the protection or preservation of the Demised Premises, or for
any other lawful purpose. For purposes of the immediately p receding sentence,
the term "reasonable time," shall mean during Tenant's regular business hours
and with at least twenty-four (24) hours' advance oral notice, except in the
case of an emergency, in which event no time or notice restrictions shall
apply. At any time after one hundred twenty (120) days prior to the expiration
of the term of this Lease, Landlord may place on the Demised Premises any "For
Lease" and/or "For Sale" signs which Landlord reasonably deems appropriate.
ARTICLE 11. ASSIGNMENT AND SUBLETTING
Tenant shall not voluntarily or by operation of law, assign this Lease, or any
rights hereunder, nor sublet the Demised Premises, or any part thereof, without
the prior written. consent of Landlord which consent shall not be unreasonably
withheld; provided, that Tenant may assign this Lease, or any rights hereunder,
or sublet the Demised Premises, or any part thereof, to any affiliate of
Tenant. Any such assignment or subletting which is made without obtaining the
written consent of Landlord, shall be void, and at the option of Landlord,
shall terminate this Lease.
ARTICLE 12. INDEMNIFICATION
SECTION 12.1 - TENANT'S OBLIGATION.
Tenant shall hold harmless, indemnify and defend Landlord and its agents and
employees against all claims, demands and actions for loss, liability, damage,
cost and expense (including attorneys' fees) resulting from injury or death to
any person and/or damage to property caused by the act or omission of any
person, except Landlord or its agents or employees, while in, upon, or
connected in any way with the Demised Premises during the term of this Lease or
any occupancy hereunder. Tenant's obligation to indemnify Landlord hereunder is
independent of, in addition to and subject to Landlord's obligations as set
forth in Article 25 hereof.
SECTION 12.2 - LANDLORD'S OBLIGATION.
Landlord shall hold harmless, indemnify and defend Tenant and its agents and
employees against all claims, demands and actions for loss, liability, damage,
cost and expense (including attorneys' fees) resulting from injury or death to
any person and/or damage to property caused by the act or omission of Landlord
or its agents or employees while in, upon, or connected in any way with the
Demised Premises during the term of this Lease or any occupancy hereunder.
Landlord's obligation to indemnify Tenant hereunder is independent of, in
addition to and subject to Landlord's obligations as set forth in Article 25
hereof.
ARTICLE 13. LOSS BY FIRE AND OTHER CASUALTY
If the Demised Premises or any part thereof are damaged by fire or other
casualty of any type, the Tenant will give prompt written notice thereof to the
Landlord. All proceeds payable under any insurance of the Demised Premises
should be paid to the Landlord. In
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<PAGE> 13
the case the building located upon the Premises is materially damaged by fire
or any other casualty to the extent that substantial alteration or
reconstruction of the building is required and the manufacture of
pharmaceuticals or biologicals upon the Demised Premises is materially impaired
by such fire or other casualty, the Landlord or Tenant may, at its option,
terminate this Lease by notifying the other in writing of such termination
within sixty (60) days after the date the Landlord received notice of such
damage. If this Lease is not terminated, Landlord will within sixty (60) days
after the date the Landlord receives notice of the damage commence repair and
restoration of the building to the extent insurance proceeds are available for
such. Landlord will restore the Demised Premises within one hundred eighty
(180) days thereafter to substantially the same condition in which the Demised
Premises were immediately prior to the happening of the casualty to the extent
insurance proceeds are available for such. Notwithstanding anything to the
contrary contained herein, Landlord is not required to rebuild, repair, or
replace any part of the Tenant's furniture or furnishing or fixtures and
equipment removal by Tenant under the provisions of this Lease.
ARTICLE 14. CONDEMNATION
SECTION 14.1 - TOTAL TAKING.
If the whole or any Substantial Part of the Demised Premises should be taken
for any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof, this Lease shall terminate and the Basic Rent shall be abated during
the unexpired portion of this Lease, effective when the physical taking of said
Demised Premises shall occur. For purposes of this Lease, the term
"Substantial Part" means any portion of the Demised Premises which, if taken,
would materially impair Tenant's ability to manufacture pharmaceuticals or
biologicals upon the Demised Premises.
SECTION 14.2 - PARTIAL TAKING.
If less than a Substantial Part of the Demised Premises should be taken for any
public or quasi-public use under any governmental law, ordinance or regulation,
or by right of eminent domain, or by private purchase in lieu thereof, this
Lease shall not terminate, but the Basic Rent payable hereunder during the
unexpired portion of this Lease shall be reduced to such an extent as may be
fair and reasonable under all of the circumstances.
SECTION 14.3 - AWARD OR PAYMENT.
If any such taking or private purchase in lieu thereof occurs, any award or
payment therefor shall be the property of the Lindlord, whether such award or
payment shall be made as compensation for diminution in value of the leasehold
or for the taking of the fee, or as severance damages; provided, however, that
Tenant shall be entitled to pursue its own claim and receive an award for loss
or damage to its trade fixtures and removal of personal property, loss or
damage attributable to the interruption of its business and loss or damage
resulting from the relocation of its business.
ARTICLE 15. HOLDING OVER
If Tenant holds over the Demised Premises or any part thereof, after the
termination or expiration of this Lease, such holding over shall constitute and
be construed as a tenancy from month-to-month only and, except for the term
thereof, shall be on the same terms and conditions specified herein so far as
applicable; provided, however, that the Basic Rent shall be one hundred fifty
percent (150%) the amount of the Basic Rent for the month of this Lease which
immediately preceded such termination or expiration. None of the
-8-
<PAGE> 14
provisions contained in this Section shall be construed as Landlord's
permission for Tenant to hold over.
ARTICLE 16. QUIET ENJOYMENT
Landlord represents and warrants that it has full right and authority to enter
into this Lease and that Tenant, upon paying the rental herein set forth and
performing all of its other covenants and agreements set forth in this Lease,
shall peaceably and quietly have, hold and enjoy the Demised Premises, for the
term hereof, without hindrance or molestation from Landlord, subject, however,
to the terms and provisions of this Lease and the following matters
(collectively, the "Permitted Encumbrances"): (a) all laws and ordinances,
including, without limitation, all zoning and building code ordinances and all
other as governmental regulations which now or hereafter relate to the Demised
Premises; (b) all easements, restrictions and other matters of record as of the
date hereof; (c) any easements, restrictions or other matters of record filed
after the date hereof, unless such matter is caused or created by Lindlord and
has a material adverse impact on the value of or use of the Demised Premises;
(d) any matter caused or created by Tenant; and (e) as permitted by Section
25.3.
ARTICLE 17. DEFAULT
SECTION 17.1 - EVENTS OF DEFAULT.
The following events shall be deemed to be events of default (each an "Event of
Default") by Tenant under this Lease:
(a) Tenant shall fail to pay any payment of any Rent when due, and
such failure shall continue for a period of ten (10)days following
notice by Landlord to Tenant,
(b) Tenant shall become insolvent, or shall make a transfer in fraud
of creditors, or shall make an assignment for the benefit of creditors,
(c) Tenant shall file, or have filed against it, any petition, answer
or consent seeking or allowing to be entered against it, an order for
relief (or any similar remedy) under any provision of any bankruptcy or
creditors, rights laws, or consent to the institution of any proceedings
thereunder,
(d) A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant and such appointment shall not have been
vacated within forty-five (45) days thereafter,
(e) Tenant shall abandon or vacate all of the Demised Premises for
thirty (30) or more consecutive days,
(f) Tenant shall fail to comply with any term, provision or covenant
in this Lease (other than any one of the foregoing which is addressed in
this Section 17.1), and shall not cure such default within thirty (30)
days after written notice thereof to Tenant; provided, such 30-day
period shall be extended if Tenant diligently and continuously pursues
the cure of such default, but not longer than an additional thirty (30)
days,
(g) Diamond Scientific shall have breached the non-competition
agreement set forth in Section 2.5 of the Manufacturing Agreement in any
material respect and the breach shall not be cured or waived within the
period of grace applicable thereto, or
(h) Tenant shall be in default under the Promissory Note referred to
in Section 5.05 of that certain Stock Purchase Agreement dated as of
December 31, 1993 between
-9-
<PAGE> 15
Landlord, as Seller, and Tenant, as Purchaser (the "Stock Purchase
Agreement") relating to the purchase of the Inventory (as defined
therein), such default shall not be cured or waived within the period of
grace, if any, applicable thereto, and Landlord shall have given notice
of acceleration thereof to Diamond Scientific.
ARTICLE 18. REMEDIES
SECTION 18.1 - SPECIAL REMEDIES.
Upon the occurrence of any Event of Default, Landlord (in addition to any other
remedy it may have) shall have the option to pursue any one or more of the
following remedies without any notice or demand whatsoever:
(a) Re-entry. Enter the Demised Premises, or any part thereof,
either with or without process of law, and expel Tenant or any other
persons who may be thereon, together with all personal property found
therein; and Landlord may terminate this Lease, or may, from time to
time, without terminating this Lease and as agent of Tenant, relet the
Demised Premises, or any part thereof, for such term or terms (which may
be for a term less than or extending beyond the term hereof) and at such
rental or rentals and upon such other terms and conditions as Landlord
in its sole discretion may deem advisable, with the right to repair,
renovate, remodel, redecorate, alter and change the Demised Premises,
Tenant remaining liable for any deficiency computed as hereinafter set
forth. In the case of any such re-entry and/or dispossession, by
summary proceedings or otherwise, all Rent shall become immediately due
thereupon and be paid up to the time of such reentry or dispossession,
together with suchexpenses as Landlord may reasonably incur for
attorneys fees, advertising expenses, brokerage fees and/or putting the
Demised Premises in good order or preparing the same for re-rental,
together with interest thereon at the Default Rate, accruing from the
date of any such expenditure by Landlord.
(b) Reletting. At the option of the Landlord, rents received by
Landlord from such reletting shall be applied first to the payment of
any indebtedness from Tenant to Lindlord, other than Basic Rent due
hereunder; second, to the payment of any costs and expenses of such
reletting and including, but not limited to, attorneys fees, advertising
fees and brokerage fees, and to the payment of any repairs, renovations,
remodeling, redecoration, alterations and changes in the Demised
Premises; third, to the payment of any Rent due and to become due
hereunder, and if after so applying said Rents there is any deficiency
in the Rent to be paid by Tenant under this Lease, Tenant shall pay any
deficiency to Landlord monthly on the dates specified herein and any
payment made or suits brought to collect the amount of the deficiency
for any month shall not prejudice in any way the right of Landlord to
collect the deficiency for any subsequent month. Landlord shall not be
liable for failure to relet if Landlord has diligently and continuously
attempted to relet the same; and in no event shall Tenant be entitled to
receive any excess of net Rents collected over sums payable by Tenant to
Landlord hereunder. No such re-entry or taking possession of the
Demised Premises shall be construed as an election on Lindlord's part to
terminate this Lease unless a written notice of such intention be given
to Tenant. Notwithstanding any such reletting without termination on,
Landlord may at any time thereafter elect to terminate this Lease. If
Landlord at any time terminates this Lease by reason of any Event of
Default, then, in addition to any other remedy it may have, Landlord may
recover from Tenant the present value of the amount of Rent reserved in
this Lease for the balance of the term, over the then fair market rental
value of the Demised Premises for the same period, plus all court costs
and attorneys fees incurred by Landlord in the collection of the same.
-10-
<PAGE> 16
SECTION 18.2- LANDLORD'S RIGHT TO PERFORM.
If Tenant shall at any time fail or refuse to perform any of its covenants or
obligations hereunder, then Lindlord shall have the right, but shall not be
obligated, upon three (3) days' prior notice to Tenant, to p erform such
covenant or obligation without waiving or releasing Tenant from any liability
therefor. All sums paid, advanced or expended by Landlord pursuant to this
Section shall be Rent and shall be repaid to Landlord by Tenant on demand,
together with interest thereon at a rate equal to the Default Rate.
SECTION 18.3 - OTHER PROVISIONS.
Pursuit of any of the remedies enumerated in this Lease shall not preclude
pursuit of any other remedies herein provided or any other remedies provided by
law, nor shall pursuit of any other remedy herein provided constitute a
forfeiture or waiver of any Rent due to Landlord hereunder, or any damages
accruing to Landlord by reason of violation of any of the terms, provisions and
covenants herein contained. No waiver by Landlord of any violation or breach
of any terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other violation or breach of any of the
terms, provisions and covenants contained herein. Landlord's acceptance of the
payment of rental or other payments hereunder, after the occurrence of an event
of default, shall not be construed as a waiver of such default, unless Landlord
so notifies Tenant in writing. Forbearance by Landlord to enforce one or more
of the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default. If, on account of any breach
or default by Tenant, and Tenant's obligations under the terms and conditions
of this Lease, it shall become necessary or appropriate for Landlord to employ
or consult with an attorney concerning or to enforce or defend any of
Landlord's rights or remedies hereunder, Tenant agrees to pay any reasonable
attorney's fees. The receipt by Landlord of any Rent with knowledge of the
breach of any covenant or other provision contained in this Lease shall not be
deemed nor construed to constitute a waiver of such breach or as a waiver of
any other violation or breach of any of the terms, provisions and covenants
contained herein.
ARTICLE 19. TAXES AND INSURANCE PREMIUMS
Within thirty (30) days after the due date thereof, Landlord shall provide
Tenant with evidence of payment of all real estate taxes and assessments, and
Tenant shall provide Landlord with evidence of payment of all premiums for the
insurance required to be carried by Tenant hereunder.
ARTICLE 20. ESTOPPEL CERTIFICATE
Upon request by Landlord, Tenant will promptly execute an instrument certifying
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect, as modified) and
the dates to which the Rent has been paid, and stating whether or not, to the
best knowledge of Tenant, Landlord is in default in the performance of any
covenant, agreement, term, provision or condition contained in this Lease, and,
if so, specifying each such default. Such statement shall address such other
issues as Landlord shall reasonably request. It is intended that any such
statement delivered pursuant hereto may be relied upon by any prospective
purchaser or mortgagee of the Demised Premises, or any portion thereof, and any
prospective assignee of such purchaser or mortgagee.
ARTICLE 21. NOTICE
Any notices or demands required to be given herein or desired to be given by
either party to the other shall be in writing and shall be either personally
delivered, sent by nationally
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<PAGE> 17
recognized overnight courier, or mailed through the United States Postal
Service by registered or certified mail, postage prepaid, return receipt
requested, to the parties at the following addresses:
If to Landlord, to:
Miles Inc.
ATTN: Gary Zimmerman
Box 390
Shawnee Mission, Kansas 66201-0390
with a copy to:
Clark A. Ridpath
Director, Legal Services
Miles Inc.
8400 Hawthorn Road
P.O. Box 4913
Kansas City, Missouri 64120-0013
If to Tenant, to:
Louis Van Daele
Diamond Animal Health, Inc.
2538 S.E. 43rd Street
Des Moines, Iowa 50317
with a copy to:
Steven E. Zumbach, Esq.
2000 Financial Center
Des Moines, Iowa 50309
or such other address as any entity named above designates to the others in
writing as aforesaid. Any notice given in a manner set forth above shall be
deemed effective as follows: (a) if personally delivered, the notice shall be
effective on the date delivered, (b) if sent by nationally recognized overnight
courier, the notice shall be effective one (1) business day after it is sent,
and (c) if mailed through the United States Postal Service by registered or
certified mail, postage prepaid, return receipt requested, the notice shall be
effective three (3) business days after the date of deposit with the United
States Postal Service.
ARTICLE 22. WAIVER
No covenant, term or condition or breach of this Lease shall be deemed waived,
except by written consent of the party against whom the waiver is claimed, and
any waiver of the breach of any covenant, term or condition shall not be deemed
to be a waiver of any preceding or succeeding breach of the same or any other
covenant, term or condition as to the rent payment accepted.
-12-
<PAGE> 18
ARTICLE 23. MISCELLANEOUS
SECTION 23.1 - CAPTIONS.
The captions of the sections contained in this Lease are for convenience only
and shall not be deemed to be relevant in resolving any question of
interpretation or construction of any section of this Lease.
SECTION 23.2 - SUCCESSORS AND ASSIGNS.
All of the terms, covenants and conditions of this Lease shall be binding upon,
and inure to the benefit of, the parties hereto and their heirs, executors,
administrators, successors and assigns, except that nothing in this provision
shall be deemed to permit any assignment, subletting or use of the Demised
Premises, by Tenant, other than as provided for herein.
SECTION 23.3 - APPLICABLE LAW.
This Lease shall be governed and interpreted solely by the laws of the State of
Iowa then in force. Each number, singular or plural, as used in this Lease,
shall include all numbers, and each gender shall be deemed to include all
genders.
SECTION 23.4 - TIME OF THE ESSENCE.
Time is of the essence of this Lease and each and every provision hereof.
SECTION 23.5 - NO REAL ESTATE BROKERS.
Each of the parties hereto represents and warrants to the other than such party
has not dealt with any real estate broker, real estate agent or finder in
connection with this transaction, and each of the parties hereto agrees to
indemnify and save the other harmless from any loss, cost or expense incurred
in connection with any claim for any real estate commission or fee which may
arise by reason of the actions of such party.
ARTICLE 24. RECORDING
This Lease shall not be recorded but, in lieu thereof, either Landlord or
Tenant may record a memorandum hereof if and as permitted by Iowa law.
ARTICLE 25. HAZARDOUS WASTE AND ENVIRONMENTAL ISSUES
SECTION 25.1 - TENANT'S AND LANDLORD'S HOLD HARMLESS AND INDEMNITY.
(a) Tenant shall hold harmless and indemnify Landlord from any and
all claims, agency actions, demands, causes of action, damages, losses,
costs, expenses, attorney fees, expert and consultant fees, lawsuits,
penalties, fines, charges, response or remediation costs threatened,
sought or imposed by parties, entities or governmental agencies, other
than Landlord or Tenant, including but not limited to, injury to or
death of any person or persons and damage to or destruction of any
property (hereafter collectively referred to as "Covered Claims") which
arise out of or in any manner are directly or indirectly connected with
any environmental contamination or environmental noncompliance.
Tenant's hold harmless and indemnification to Landlord shall apply only
to Covered Claims caused by the acts, events, omissions, or operations
of the Demised Premises by Tenant, its successors, assigns, employees,
contractors or subtenants during the term of this lease.
-13-
<PAGE> 19
(b) Landlord shall hold harmless and indemnify Tenant from Covered
Claims which arise out of or in any manner are directly or indirectly
connected with any environmental contamination or environmental
noncompliance other than the acts, events, omissions, or operations of
the Demised Premises by Tenant, its successors, assigns, employees,
contractors or subtenants during the term of this Lease. Landlord's hold
harmless and indemnification to Tenant shall include, but not be limited
to, all Covered Claims which are or were caused by acts, events,
omissions or operation that occurred prior to the Lease Term and the
migration or transportation (such as by flooding) of hazardous
substances from off-site onto the Demised Premises at any time prior to
or during the Lease Term.
(c) Notwithstanding any other provision contained herein, these hold
harmless and indemnification provisions shall continue after termination
of the Lease and shall have no limit as to dollar amount. In defending
any Covered Claims, the parties do not waive any applicable statute of
limitations.
(d) The rights, duties and obligations of the hold harmless
provisions contained herein are personal to Landlord (or its Affiliates)
and Tenant (or its Affiliates) and cannot be sold, given or otherwise
transferred to any other person or entity.
SECTION 25.2 - THIRD PARTY ASSERTIONS.
(a) Tenant releases any and all claims or causes of action which it
may have against Landlord for interference with business operations
arising from any environmental activity undertaken on the Demised
Premises. Tenant and Landlord understand and agree that Tenant reserves
all rights, claims or causes of action which Tenant has or might have
against any party other than Landlord (including but not limited to
Williams Pipeline Company) for interference with business operations or
any other claim arising from such environmental activity. In the event
Tenant commences or asserts any claim or cause of action regarding
interference with business operations arising from any environmental
activity undertaken on the Demised Premises, Landlord agrees to
reasonably cooperate with Tenant in such assertion of claim or
litigation including, but not limited to, allowing access to any
necessary documents and employees of Landlord.
(b) In the event Landlord commences or asserts any claim or cause of
action arising from any environmental concern on the Demised Premises,
Tenant agrees to reasonably cooperate with Landlord in such assertion of
claim or litigation, including but not limited to, allowing access to
any necessary documents and employees of Tenant.
SECTION 25.3 - ACCESS AGREEMENT.
Tenant agrees to grant all reasonable access to the Demised Premises to allow
Landlord (or other party authorized by Landlord) to undertake any and all
environmental activity. Landlord shall restore the property to its condition
prior to any activity undertaken by Landlord to the extent reasonably
practicable.
SECTION 25.4 - RENT ABATEMENT.
In the event that it becomes necessary for any person or entity to conduct
environmental activity which thereby causes a reduction in production by
Tenant, the rent shall abate in proportion to the Tenant's reduction in
production.
-14-
<PAGE> 20
SECTION 25.5 - NOTIFICATION.
Tenant shall promptly supply Landlord with a copy of any written notice from
any federal, state, or local government unit or agency or other person which:
(i) contains any allegation of violation of any governmental law, regulation,
or ordinance relating to the Demised Premises; or (li) creates a Covered Claim
under Section 25.1.
SECTION 25.6 - ENVIRONMENTAL PERMITS.
Tenant represents and warrants to Landlord that: (i) Tenant has obtained all
necessary federal, state and local environmental permits necessary for the
conduct any of its business or the use of Demised Premises in the business;
(ii) Tenant knows of no threatened civil, criminal or administrative
proceedings against it relating to the use of the Demised Premises; (iii)
Tenant will engage in no on-site disposal, either above or below ground, of any
hazardous wastes, hazardous substances, contaminants, pollutants or solid
waste, as defined by local, state or federal law, on the Demised Premises; and
(iv) Tenant shall conduct all activities in full compliance with applicable
federal, state and local laws and regulations, including those relating to
solid and hazardous waste, and Tenant shall not cause, directly or indirectly,
any environmental contamination or pollution upon the Demised Premises. Any
spill or release of hazardous wastes, hazardous substances, contaminants,
pollutants or solid waste, as defined by local, state or federal law, shall be
responded to by Tenant as required by law or the Iowa Department of Natural
Resources or the United States Environmental Protection Agency (or their
successors). Tenant and Landlord agree that compliance with the Iowa
Department of Natural Resources or the United States Environmental Protection
Agency (or their successors) directives, if any, shall constitute compliance
with Tenant's obligations under this provision. Tenant shall promptly notify
Landlord of any such release or spill and provide Landlord with any
correspondence between Tenant and the Iowa Department of Natural Resources or
the United States Environmental Protection Agency, or their successors.
-15-
<PAGE> 21
IN WITNESS WHEREOF, this Lease has been executed as of the day and year set
forth above.
MILES INC.
By: /s/ HERMANN R. WERNER
-------------------------------
Name: Hermann R Werner
--------------------------
Title: Executive Vice President
-------------------------
LANDLORD
DIAMOND ANIMAL HEALTH, Inc.
By:/s/ LOUIS G. VAN DAELE
-------------------------------
Name: Louis G. Van Daele
--------------------------
Title: President
-------------------------
TENANT
-16-
<PAGE> 22
EXHIBIT "A" TO LEASE
PLANT PROPERTY
All of the Northeast 1/4 of the Southwest 1/4 of Section 17, Township 78
North, Range 23 West of the Fifth Principal Meridian lying North and East of
the Chicago, Burlington & Quincy Railroad (formerly known as Des Moines &
Knoxville Railway and sometimes erroneously described as the Des Moines &
Kansas City Railway) now included in and forming a part of the City of Des
Moines, Polk County, Iowa, except the following:
The South 208 3/4 feet of the East 434 feet of said Northeast 1/4 of the
Southwest 1/4 of Section 17, Township 78 North, Range 23, West of the Fifth
Principal Meridian, Polk County, Iowa;
A strip of ground 30 feet in width lying Northerly from and adjacent to the
Northerly line of the 100 foot right-of-way of the Chicago, Burlington & Quincy
Railroad Company in the South 17 acres (except street) of the Northeast 1/4 of
the Southwest 1/4 of Section 17, Township 78 North, Range 23, West of the
Fifth Principal Meridian, Polk County, Iowa;
A rectangular piece of the Northeast 1/4 of the Southwest 1/4 of Section 17,
Township 78 North, Range 23 West of the Fifth Principal Meridian, Polk County,
Iowa, lying within the following described lines: Beginning at a point on the
West line of said Northeast 1/4 of said Southwest 1/4 of said Section 17
which is 120 feet North of the Northerly line of the 100 foot right-of-way of
the Chicago, Burlington & Quincy Railroad Company; thence South along said West
line of said Northeast 1/4 of said Southwest 1/4 of said Section 17, a
distance of 120 feet to the Northerly line of said railroad right-of-way;
thence Easterly at right angles to said west line of said Northwest 1/4 of
said Southwest 1/4 of said Section 17, a distance of 80 feet; thence North on
a line 80 feet East of and parallel with the west line of said Northeast 1/4
of said Southwest 1/4 of said Section 17, a distance of 120 feet; thence
Westerly in a straight line a distance of 80 feet to the point of beginning.
Subject to existing highway and recorded easements.
<PAGE> 1
EXHIBIT 11.1
HESKA CORPORATION
Statement Re: Computation of Pro Forma Net Loss Per Share
(In Thousands, Except per Share Amounts)
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1996 1997
------------ ------------
<S> <C> <C>
Weighted average common shares outstanding..................... 938 1,070
Assumed conversion of preferred stock from
original date of issuance (weighted average
effect from the date of issuance pursuant
to Staff Accounting Bulletin No. 83 ("SAB 83") ............ 9,370 10,460
Effect of common stock and common stock
equivalents issued within one year prior to the filing of
initial public offering (SAB 83)(1) ....................... 203 203
-------- --------
Total ................................................ 10,511 11,733
======== ========
Net loss ...................................................... $(17,975) $ (7,881)
======== ========
Pro forma net loss per share .................................. $ (1.71) $ (0.67)
======== ========
</TABLE>
(1) Common Stock and Common Stock Equivalents issued after April 22, 1996, at
prices substantially less than the assumed initial public offering price,
have been considered outstanding during the entire period using the
treasury stock method.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF COMPANY
Diamond Animal Health, Inc., an Iowa corporation
Bloxham Laboratories Limited, a public limited company organized under the laws
of England
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and all references to our Firm) included in or made part of this
registration statement.
Arthur Andersen LLP
Denver, Colorado
April 23, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Registration Statement of our report, dated May 14, 1996 relating to the
financial statements of Diamond Animal Health, Inc., and to the reference to our
Firm under the caption "Experts" in the Prospectus.
McGladrey & Pullen, LLP
Des Moines, Iowa
April 23, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 30, 1995, with respect to the statements of
income and cash flows of Diamond Animal Health, Inc. for the year ended March
31, 1995 included in the Registration Statement (Form S-1) and related
Prospectus of Heska Corporation for the registration of its common stock.
ERNST & YOUNG LLP
Des Moines, Iowa
April 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001038133
<NAME> HESKA CORPORATION
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996
<CASH> 4,476 6,609
<SECURITIES> 11,427 17,091
<RECEIVABLES> 1,047 749
<ALLOWANCES> 0 0
<INVENTORY> 5,287 4,430
<CURRENT-ASSETS> 22,719 29,213
<PP&E> 12,482 9,713
<DEPRECIATION> 1,934 1,504
<TOTAL-ASSETS> 38,597 42,169
<CURRENT-LIABILITIES> 7,727 5,258
<BONDS> 0 0
0 0
63,236 62,588
<COMMON> 239 189
<OTHER-SE> (38,307) (30,394)
<TOTAL-LIABILITY-AND-EQUITY> 38,597 42,169
<SALES> 2,626 8,013
<TOTAL-REVENUES> 3,064 9,959
<CGS> 2,148 6,648
<TOTAL-COSTS> 11,065 28,820
<OTHER-EXPENSES> 6 145
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 170 325
<INCOME-PRETAX> (7,881) 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 (17,975)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,881) (17,975)
<EPS-PRIMARY> (0.67) (1.71)
<EPS-DILUTED> (0.67) (1.71)
</TABLE>
