<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1999
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
------------------------
GENETRONICS BIOMEDICAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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BRITISH COLUMBIA, CANADA 3841 33-002-4450
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.
FOR GENETRONICS, INC.)
</TABLE>
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11199 SORRENTO VALLEY ROAD
SAN DIEGO, CA 92121-1334
(858) 597-6006
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARTIN NASH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GENETRONICS BIOMEDICAL LTD.
11199 SORRENTO VALLEY ROAD
SAN DIEGO, CA 92121-1334
(858) 597-6006
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
M. WAINWRIGHT FISHBURN, ESQ.
CHRISTOPHER J. KEARNS, ESQ.
COOLEY GODWARD LLP
4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CA 92121
(858) 550-6000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration serial number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
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Common Shares (no par
value).................... 4,142,611 shares(2) $3.5625 $14,758,052 $4,103
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</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) promulgated under the Securities Act of 1933 based
upon the average of the high and low prices of our common shares on
September 30, 1999 as reported on the American Stock Exchange.
(2) Includes 2,242,611 common shares purchased by Johnson & Johnson Development
Corporation at an aggregate purchase price of $6,000,000 ($2.675 per share)
and 1,900,000 shares issued upon the exercise of special warrants purchased
by Smallcap World Fund, Inc. and American Variable Insurance
Series -- Global Small Capitalization Fund at a purchase price of $3.00 per
special warrant.
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
(SUBJECT TO COMPLETION, DATED OCTOBER 4, 1999)
4,142,611 SHARES
GENETRONICS BIOMEDICAL LTD.
COMMON SHARES
-------------------------
THE SELLING SHAREHOLDERS IDENTIFIED IN THIS PROSPECTUS ARE SELLING
4,142,611 SHARES OF OUR COMMON STOCK. THESE SHARES MAY BE OFFERED FROM TIME TO
TIME BY THE SELLING SHAREHOLDERS THROUGH PUBLIC OR PRIVATE TRANSACTIONS, ON OR
OFF THE AMERICAN STOCK EXCHANGE, AT PREVAILING MARKET PRICES OR AT PRIVATELY
NEGOTIATED PRICES. THE SELLING SHAREHOLDERS WILL RECEIVE ALL OF THE PROCEEDS
FROM THE SALE OF THE SHARES AND WILL PAY ALL UNDERWRITING DISCOUNTS AND SELLING
COMMISSIONS, IF ANY, APPLICABLE TO THE SALE OF THE SHARES. WE WILL PAY THE
EXPENSES OF REGISTRATION OF THE SALE OF THE SHARES.
-------------------------
OUR COMMON STOCK IS LISTED ON THE AMERICAN STOCK EXCHANGE UNDER THE SYMBOL
"GEB." OUR STOCK IS ALSO LISTED ON THE TORONTO STOCK EXCHANGE UNDER THE SYMBOL
"GEB." ON SEPTEMBER 30, 1999, THE LAST SALE PRICE OF A COMMON SHARE ON THE
AMERICAN STOCK EXCHANGE WAS US$3.56 PER SHARE AND ON THE TORONTO STOCK EXCHANGE
WAS CDN$5.40. SEE "PRICE RANGE OF STOCK."
-------------------------
INVESTING IN THE COMMON SHARES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-------------------------
October 4, 1999
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary................... 3
Summary Financial Data............... 4
Risk Factors......................... 5
Selling Shareholders................. 18
Plan of Distribution................. 18
Use of Proceeds...................... 20
Dividend Policy...................... 20
Common Share Price Range............. 20
American Stock Exchange.............. 20
Toronto Stock Exchange............... 21
Capitalization....................... 22
Selected Financial Data.............. 23
Management's Discussion and Analysis
of Financial Condition and
Operating Results.................. 25
</TABLE>
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Business............................. 37
Management........................... 50
Certain Transactions and
Relationships...................... 63
Principal Shareholders............... 65
Description of Capital Stock......... 67
Legal Matters........................ 69
Experts.............................. 69
Where You Can Find More Information.. 69
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THE SELLING SHAREHOLDERS ARE OFFERING TO SELL, AND
SEEKING OFFERS TO BUY, COMMON SHARES ONLY IN JURISDICTIONS WHERE OFFERS AND
SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR ANY SALE OF THE COMMON SHARES. IN THIS PROSPECTUS,
"GENETRONICS," "WE," "US" AND "OUR" REFER TO GENETRONICS BIOMEDICAL LTD. AND ITS
SUBSIDIARIES, TAKEN AS A WHOLE, UNLESS THE CONTEXT OTHERWISE REQUIRES.
We are a Canadian corporation and our principal executive offices are
located at 11199 Sorrento Valley Road, San Diego, California 92121-1334, and our
telephone number is (858) 597-6006. Our fiscal year ends on March 31. We
maintain a Web site at www.genetronics.com. The reference to our Web site does
not constitute incorporation by reference of the information contained at this
site. We have registered on the Principal Register of the United States Patent
and Trademark Office the following trademarks: BTX, ELECTRONIC GENETICS,
MANIPULATOR, OPTIMIZOR, HUMAN IN SQUARE (Design) and MEDPULSER. The following
U.S. trademark applications are pending: COSMETRONICS, ENHANCER, GENETRODES and
GENETRONICS. We have registered the BTX and MEDPULSER trademarks in Canada, and
have applied for GENETRONICS in Canada. We have a European Community Trade Mark
registration for GENETRONICS and have filed for BTX and MEDPULSER Community
Trade Marks. We have registered the MEDPULSER mark in Japan and have applied for
BTX in Japan. We have registered the BTX mark in South Korea and have registered
the GENETRONICS mark in the United Kingdom. We are not aware of any claims of
infringement or other challenges to our rights to use our marks in the United
States. All other brand names or trademarks appearing in this Prospectus are the
property of their respective holders.
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PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
and/or financial statements and notes appearing elsewhere in this prospectus.
You should carefully consider, among other things, the matters set forth in
"Risk Factors." ALL DOLLAR AMOUNTS SET FORTH IN THE PROSPECTUS ARE STATED IN US
DOLLARS, EXCEPT WHERE OTHERWISE INDICATED.
THE COMPANY
We were incorporated in British Columbia, Canada on August 8, 1979 under
the name of Concord Energy Corp. We changed our name to United Safety Technology
Inc. on February 17, 1988, to Consolidated United Safety Technology Inc. on
January 3, 1990, and then to Genetronics Biomedical Ltd., on September 29, 1994.
We carry on our business through our operating subsidiary Genetronics, Inc., a
California corporation. Genetronics, Inc. was incorporated in California on June
29, 1983.
We are a San Diego-based drug delivery company specializing in developing
technology and hardware focused on electroporation. Electroporation is the
application of brief, controlled pulsed electric fields to cells, which cause
tiny pores to temporarily open in the cell membrane. Immediately after
electroporation, the membrane of the cells is more permeable to drugs and other
agents. In the lab, researchers use electroporation to introduce genes, drugs,
and other compounds into cells. This is a common and well known procedure and
more than 4,000 scientific papers have been published describing results
achieved using electroporation.
While widely used in the research arena, electroporation is a relatively
new technology in the therapeutic arena. One of the major difficulties in many
forms of drug or gene therapy is that the drug or gene is often not able to
penetrate the relatively impermeable walls of cells. The pores produced by
electroporation permit the drug or gene to enter the cells to a much greater
extent than if the drug or gene was administered without electroporation. When
electroporation is used in conjunction with drugs, genes, or other therapeutic
agents, it is called Electroporation Therapy, or EPT. Through our Drug Delivery
Division, we are developing human-use equipment that is designed to allow
physicians to use EPT to achieve more efficient and cost-effective means to
deliver drugs or genes to patients with illnesses, including cancer and heart
disease. Our proprietary electroporation drug and gene delivery system, the
Genetronics MedPulser system, is currently undergoing clinical trials in the
United States and Canada for use with bleomycin in the treatment of head and
neck cancer.
We operate through our two divisions: (i) the Drug Delivery Division,
through which we are developing drug delivery systems based on electroporation
to be used in the site-specific treatment of disease, and (ii) the BTX Division,
which develops, manufactures, and sells electroporation equipment for and to the
research laboratory market.
Our common shares trade on the Toronto Stock Exchange and on the American
Stock Exchange under the symbol "GEB."
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SUMMARY FINANCIAL DATA
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3 MONTHS 12 MONTHS 13 MONTHS 12 MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, MARCH 31, MARCH 31, FEBRUARY 28,
1999 1999 1998(1) 1997
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STATEMENT OF OPERATIONS
DATA:
Net sales.................. $ 699,078 $ 3,434,105 $ 3,097,198 $ 3,040,734
License fee and milestone
payments................. -- 4,500,000 -- --
Grant funding.............. 198,385 354,135 128,069 38,856
Revenues under
collaborative research
and development
arrangements............. -- 33,048 6,025 8,583
Interest income............ 68,283 300,911 427,498 71,206
Total Revenues............. 965,746 8,622,199 3,658,790 3,159,379
Total Expenses............. (3,909,974) (15,226,036) (11,255,456) (6,153,989)
Net loss for the period.... (2,944,228) (6,603,837) (7,596,666) (2,994,610)
Basic and diluted net loss
per common share......... (0.14) (0.33) (0.43) (0.24)
Shares used in per share
calculations............. 21,673,079 20,272,801 17,782,723 12,692,374
</TABLE>
<TABLE>
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AS OF AS OF AS OF AS OF
JUNE 30, MARCH 31, MARCH 31, FEBRUARY 28,
1999(2) 1999 1998 1997
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BALANCE SHEET DATA:
Cash and cash
equivalents.............. $ 14,487,034 $ 6,189,284 $ 6,521,990 $ 1,839,607
Total current assets....... 15,937,100 7,627,933 7,425,761 2,977,581
Total assets............... 18,162,857 9,807,644 9,242,887 4,161,129
Total liabilities.......... 1,339,958 1,551,283 1,094,856 763,929
Deficit.................... (22,942,729) (19,998,501) (13,394,664) (5,797,998)
Total shareholders'
equity................... 16,822,899 8,256,361 8,148,031 3,397,200
</TABLE>
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(1) During the period, we changed our fiscal year end from February 28, 1998 to
March 31, 1998. Therefore, the financial data for the fiscal year ended
March 31, 1998 includes thirteen months.
(2) Includes payments by the selling shareholders, and other investors, of $3.00
per special warrant, less expenses of $1,231,233, or an aggregate payment of
$11,331,267 for the special warrants.
4
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RISK FACTORS
An investment in our common shares involve a high degree of risk. You
should carefully consider the following risks factors and the other information
in this prospectus before investing in our common shares. If any of the
following risks actually occur, our business or results of operations could be
seriously harmed. In that case, the trading price of our common shares could
decline, and you may lose part or all of your investment.
CERTAIN RISK FACTORS RELATED TO OUR BUSINESS
OUR BUSINESS MODEL MAY CHANGE AS OUR PRIORITIES AND OPPORTUNITIES CHANGE; AND
OUR BUSINESS MAY NEVER DEVELOP TO BE PROFITABLE OR SUSTAINABLE.
There are many programs that to us seem promising and that we could pursue.
Current plans for us are described in this prospectus. However, with limited
resources, management may, in our judgment, decide to change priorities and
shift programs away from what we disclose in this document, for the purpose of
exploiting our core technology of electroporation. The choices we may make will
be dependent upon numerous factors, which cannot always be predicted. We cannot
assure you that our business model, as it currently exists or as it may evolve,
will enable us to become profitable or to sustain operations.
IF WE DO NOT SUCCESSFULLY COMMERCIALIZE PRODUCTS FROM OUR DRUG DELIVERY
DIVISION, THEN OUR BUSINESS WILL SUFFER.
Our Drug Delivery Division is in the early development stage and the
success of our company depends on the success of the technology being developed
by the Drug Delivery Division. Although we have received various regulatory
approvals which apply to Europe for our equipment for use in treating solid
tumors, the products related to such regulatory approval have not yet been
commercialized. In addition, we have not yet received any regulatory approvals
to sell our clinical products in the U.S. and clinical trials are still underway
in North America for treating solid tumors. We cannot assure you that we will
successfully develop any products. If we fail to develop or successfully
commercialize any products, then it will have a material adverse effect on us.
This Division is at an early stage of development and there are many
uncertainties ahead.
UNPREDICTABILITY OF CONDUCTING PRE-CLINICAL AND CLINICAL TRIALS OF OUR HUMAN-USE
EQUIPMENT.
Before any of Genetronics' human-use equipment can be sold, the FDA, and/or
foreign regulatory offices, must determine that the equipment meets certain
criteria for use in the indications for which approval is requested. The FDA
will make this determination based on the results from our pre-clinical testing
and clinical trials. We are currently in the process of conducting and designing
human clinical trials directed to the use of electroporation to deliver
bleomycin to certain types of tumors.
Clinical trials are unpredictable. Results achieved in early stage clinical
trials may not be repeated in later stage trials, or in trials with more
patients. When early, positive results are not repeated in later stage trials,
pharmaceutical and biotechnology companies have suffered significant setbacks.
Not only are commercialization timelines pushed back, but some companies,
particularly smaller biotechnology companies like us with limited cash
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<PAGE> 7
reserves, have gone out of business after releasing news of unsuccessful or
neutral clinical trial results.
If any of the following events arise during our clinical trials, then we
would expect this to have a serious negative effect on our company and your
investment:
- The electroporation-mediated delivery of drugs or other agents may be
found to be ineffective or to cause harmful side effects, including
death;
- Our clinical trials may take longer than anticipated, for any of a number
of reasons including a scarcity of subjects that meet the physiological
or pathological criteria for entry into the study or that are willing to
participate through the end of the trial or administrative changes within
our corporate partner's organization;
- The reported clinical data may change over time as a result of the
continuing evaluation of patients;
- Data from various sites participating in the clinical trials may be
incomplete or unreliable, which could result in the need to repeat the
trial or abandon the project; and
- The FDA and other regulatory authorities may interpret our data
differently than we do, which may delay or deny approval.
Clinical trials are generally quite expensive. A delay in our trials, for
whatever reason, will probably require us to spend even more money to keep the
product(s) moving through the regulatory process. If we do not have or cannot
raise the needed funds, then our human-use products could be shelved. In the
event the clinical trials are not successful, we will have to determine whether
to put more money into the program to address its deficiencies or whether to
abandon use of the products in the tested indications. Loss of the human-use
product line would be a significant setback for our company.
Because there are so many variables inherent in clinical trials, we cannot
predict whether any of our future regulatory applications to conduct clinical
trials will be approved by the FDA or other regulatory authorities, whether our
clinical trials will commence or proceed as planned, and whether the trials will
ultimately be deemed to be successful.
OUR BUSINESS IS HIGHLY DEPENDENT ON RECEIVING APPROVALS FROM VARIOUS UNITED
STATES AND INTERNATIONAL GOVERNMENT AGENCIES AND CAN BE DRAMATICALLY AFFECTED IF
APPROVAL TO MANUFACTURE AND SELL OUR HUMAN-USE EQUIPMENT IS NOT GRANTED.
The production and marketing of our human-use equipment and the ongoing
research, development, preclinical testing, and clinical trial activities are
subject to extensive regulation. Numerous governmental agencies in the US and
internationally, including the FDA, must review our applications and decide
whether to grant approval. All of our human-use equipment must go through an
approval process for each indication in which we want to label it for use, e.g.,
use for dermatology, use for transfer of a certain gene to a certain tissue in
the United States, use for administering a certain drug to a certain tumor type
in a patient for certain characteristics. These regulatory processes are
extensive and involve substantial costs and time (years).
We have limited experience in, and limited resources available for
regulatory activities. Failure to comply with applicable regulations can, among
other things, result in
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non-approval, suspensions of regulatory approvals, fines, product seizures and
recalls, operating restrictions, injunctions and criminal prosecution.
We want to remind you that any of the following events can occur and, if
any did occur, any one would have a material adverse effect on us:
- There can be delays, sometimes long, in obtaining approval for our
human-use devices;
- The rules and regulations governing human-use equipment such as ours can
change during the review process, which can result in the need to spend
time and money for further testing or review;
- If approval for commercialization is granted, it is possible the
authorized use will be more limited than we believe is necessary for
commercial success, or that approval may be conditioned on completion of
further clinical trials or other activities; and
- Once granted, approval can be withdrawn, or limited, if previously
unknown problems arise with our human-use product.
WE RELY HEAVILY ON COLLABORATIVE AND LICENSING RELATIONSHIPS, AND WILL BE
NEGATIVELY AFFECTED IF WE CANNOT MAINTAIN OR EXPAND EXISTING RELATIONSHIPS, AND
INITIATE NEW ONES.
We rely and will continue to rely on partners and collaborators to fund
some of our research and development expenses and to assist us in the research
and development of our human-use equipment. Our largest partner is Ethicon
Endo-Surgery, Inc., a Johnson & Johnson company. On August 5, 1999, we announced
that Ethicon, Inc. had assigned its obligations and responsibilities under
certain development and license, and supply agreements with us to Ethicon
Endo-Surgery, Inc., another Johnson & Johnson company. Ethicon, Inc. made
certain payments to us, and Ethicon Endo-Surgery, Inc. is required to continue
to make milestone-based payments. Ethicon Endo-Surgery, Inc. is obligated to
compensate us for human-use products and to pay royalties on sales or leases in
the future, in exchange for the right to help develop and sell or lease our
human-use equipment to hospitals and others for cancer treatments, among other
rights. We depend on Ethicon Endo-Surgery, Inc. for funding, for Ethicon
Endo-Surgery, Inc.'s clinical, sales and marketing efforts under the agreement,
and for the positive association we receive by having Ethicon Endo-Surgery, Inc.
as our partner. Loss of the Ethicon Endo-Surgery, Inc. relationship, or loss of
the relationship between our company and the Johnson & Johnson companies, would
result in a material adverse effect on our company.
Our clinical trials to date have used our equipment with the anti-cancer
drug bleomycin. It is not the current intent to package bleomycin together with
the equipment for sale, but if it should be necessary or desirable to do this,
we would need a reliable source of the drug. In 1998, we signed a supply
agreement with Abbott Laboratories under which it would sell us bleomycin for
inclusion in our package. If it becomes necessary or desirable to include
bleomycin in our package, and this relationship with Abbott should be
terminated, then we would have to form a relationship with another provider of
this generic drug, which could delay product launch.
Genetronics also relies on scientific collaborators at universities and
companies to further our research and test our equipment. In most cases, we lend
our equipment to a collaborator, teach him or her how to use it, and together
design experiments to test the
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equipment in one of the collaborator's fields of expertise. We aim to secure
agreements that restrict collaborators' rights to use the equipment outside of
the agreed upon research, and outline the rights each of us will have in any
results or inventions arising from the work. Nevertheless, there is always risk
that:
- Our equipment will be used in ways we did not authorize, which can lead
to liability and unwanted competition;
- We may determine that our technology has been improperly assigned to us
or a collaborator may claim rights to certain of our technology which may
require us to pay license fees or milestone payments and, if commercial
sales of the underlying product is achieved, royalties;
- We will lose rights to inventions made by our collaborators in the field
of our business, which can lead to expensive legal fights and unwanted
competition;
- Our collaborators will not keep our confidential information to
themselves, which can lead to loss of our right to seek patent protection
and loss of trade secrets, and expensive legal fights; and
- Collaborative associations can damage a company's reputation if they go
awry and, thus, by association or otherwise, the scientific community
holds a negative view of us.
For instance, we have received correspondence from the University of South
Florida, USF, purporting to claim certain rights to intellectual property
assigned to us. We dispute USF's claim of rights to such intellectual property.
We are currently in the negotiations with USF with respect to this issue.
We cannot guarantee that any of the results from these collaborations will
be fruitful. We also cannot tell you that we will be able to continue to
collaborate with individuals and institutions that will further our work, or
that we will be able to do so under terms that are not too restrictive. If we
are not able to maintain or develop new collaborative relationships, then it is
likely the research pace will slow down and it will take longer to identify and
commercialize new products, or new indications for our existing products.
OUR COMPANY COULD BE SUBSTANTIALLY DAMAGED IF PHYSICIANS AND HOSPITALS
PERFORMING OUR CLINICAL TRIALS DO NOT ADHERE TO PROTOCOLS OR PROMISES MADE IN
CLINICAL TRIAL AGREEMENTS.
Our company also works with a number of hospitals to perform clinical
trials, currently in oncology. We depend on these hospitals to recruit patients
for the trials, to perform the trials according to our protocols, and to report
the results in a thorough, accurate and consistent fashion. Although we have
agreements with these hospitals, which govern what each party is to do with
respect to the protocol, patient safety, and avoidance of conflict of interest,
there are risks that the terms of the contracts will not be followed. For
instance:
- Risk of Deviations from Protocol. The hospitals or the physicians working
at the hospitals may not perform the trial correctly. Deviations from
protocol may make the clinical data not useful and the trial could be
essentially worthless.
- Risk of Improper Conflict of Interest. Physicians working on protocols
may have an improper economic interest in our company, or other conflict
of interest, despite the
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fact that this is disallowed in the contract. When a physician has a
personal stake in the success of the trial, such as can be inferred if
the physician owns stock of the trial sponsor, it can create suspicion
that the trial results were improperly influenced by the physician's
interest in economic gain. Not only can this put the clinical trial
results at risk, but it can also do serious damage to a company's
reputation.
- Risks Involving Patient Safety and Consent. Physicians and hospitals may
fail to secure formal written consent as instructed or report adverse
effects that arise during the trial in the proper manner, which could put
patients at unnecessary risk. This increases our liability, affects the
data, and can damage our reputation.
If any of these events were to occur, then it could have a material adverse
effect on our ability to receive regulatory authorization to sell our human-use
equipment, not to mention on our reputation. Negative events that arise in the
performance of clinical trials sponsored by biotechnology companies of our size
and with our limited cash reserves have resulted in companies going out of
business.
WE RELY HEAVILY ON OUR PATENTS AND PROPRIETARY RIGHTS TO ATTRACT PARTNERSHIPS
AND MAINTAIN MARKET POSITION.
Another factor that will influence our success is the strength of our
patent portfolio. Patents give the patent holder the right to keep others out of
its patented territory. If someone practices within the patented territory of a
patent holder, then the patent holder has the right to charge him with
infringement and begin legal proceedings, which can be lengthy and costly. The
patenting process, enforcement of issued patents, and defense against claims of
infringement are inherently risky. Because our Drug Delivery Division relies
heavily on patent protection, for us, the risks are significant and include the
following:
- Risk of Inadequate Patent Protection for Product. We cannot say with
certainty that the United States or foreign patent offices will grant
patents of meaningful scope based on the applications we have already
filed and those we intend to file. If we do not have patents that
adequately protect our human-use equipment and indications for its use,
then we will not be competitive.
- Risk Important Patents Will Be Judged Invalid. We cannot guarantee you
that every issued patent we now own or license is valid. If we have to
defend the validity of any of our patents, then it will require a lot of
time and money to do so, and there is no guarantee of a successful
outcome. In the event an important patent related to our drug delivery
technology is found to be invalid, we would lose competitive position and
may not be able to receive royalties for products covered in part or
whole by that patent under license agreements.
- Risk of Being Charged With Infringement. Although we try to avoid
infringement by monitoring patents granted to competitors, there is the
risk that we will use a patented technology owned by another and/or be
charged with infringement. Defending against a charge of infringement can
involve lengthy and costly legal actions, with no guarantee of a
successful outcome. Biotechnology companies of about our size and limited
cash have gone out of business after fighting and losing an infringement
battle. If we were prevented from using or selling our human-use
equipment, then our business would be seriously affected.
9
<PAGE> 11
- Freedom to Operate Risks. We are aware that patents related to
electrically assisted drug delivery have been granted to, and filed by,
our potential competitors. We have taken licenses to some of these
patents, and will consider taking additional licenses in the future.
Nevertheless, the competitive nature of our field of business and the
fact that others have sought patent protection for technologies similar
to ours, makes these risks more real than not.
In addition to patents, we also rely on trade secrets and proprietary
know-how. We try to protect this information with appropriate confidentiality
and inventions agreements with our employees, scientific advisors, consultants,
and collaborators. We cannot assure you that these agreements will not be
breached, or that we will be able to do much to protect ourselves if they are
breached, or that our trade secrets will not otherwise become known or be
independently discovered by competitors. If any of these events occurs, then we
run the risk of losing control over valuable company information, which could
negatively affect our competitive position.
WE RUN THE RISK THAT OUR TECHNOLOGY WILL BECOME OBSOLETE OR LOSE ITS COMPETITIVE
ADVANTAGE.
The drug delivery business is very competitive, fast moving and intense,
and expected to be increasingly so in the future. Other companies and research
institutions are developing drug delivery systems that, if not similar in type
to our systems, are designed to address the same patient or subject population.
Therefore, we cannot promise you that our products will be the best, the safest,
the first to market, or the most economical to make. If competitors' products
are better than ours, for whatever reason, then we will make less money from
sales and our products risk becoming obsolete.
There are many reasons why competitors might be more successful than
Genetronics, including:
- More Money. Some competitors have a lot more money than we do. They can
afford more technical and timeline setbacks than we can.
- Better Experience. Some competitors have been in the drug delivery
business longer than we have. They have greater experience than us in
critical areas like clinical testing, obtaining regulatory approval, and
sales and marketing. This experience or their name recognition may give
them a competitive advantage over us.
- Superior Patent Position. Some competitors may have a better patent
position protecting their technology than we have or will have to protect
our technology. If we cannot use our patents to prevent others from
copying our technology, or if we cannot obtain a critical license to
another's patent that we need to make and use our equipment, then we
would expect our competitive position to lessen.
- Faster to Market. Some companies with competitive technologies may move
through stages of development, approval, and marketing faster than
Genetronics. If a competitor receives FDA approval before us, then it
will be authorized to sell product before us. Because the first company
"to market" often has a significant advantage over late-comers, a second
place position could result in less than anticipated sales.
10
<PAGE> 12
- Reimbursement Allowed. In the United States, third party payers, such as
Medicare, may reimburse physicians and hospitals for competitors'
products but not for our human-use products. This would significantly
affect our ability to sell our human-use products in the United States
and would have a serious effect on revenues and our business as a whole.
Outside of the United States, reimbursement and funding policies vary
widely.
OUR ABILITY TO ACHIEVE SIGNIFICANT REVENUE FROM SALES OR LEASES OF HUMAN-USE
EQUIPMENT WILL DEPEND ON ESTABLISHING EFFECTIVE SALES, MARKETING AND
DISTRIBUTION CAPABILITIES OR RELATIONSHIPS AND WE LACK SUBSTANTIAL EXPERIENCE IN
THESE AREAS.
Our company has no experience in sales, marketing and distribution of
clinical and human-use products. If we want to be direct distributors of the
human-use products, then we must develop a marketing and sales force. This would
involve a lot of money, training, and time. Alternatively, we may decide, as we
did with the human-use oncology market, to rely on a company with a large
distribution system and a large direct sales force to undertake these activities
on our behalf. This route could result in less profit for us, but may permit us
to reach market faster. In any event, we cannot assure you that we will be able
to undertake the effort on our own, or contract with another to do this for
areas other than oncology, at a reasonable cost. We also cannot assure you that,
regardless of the route we take, we will successfully commercialize any product.
WE HAVE OPERATED AT A LOSS AND WE EXPECT TO CONTINUE TO ACCUMULATE A DEFICIT.
As of June 30, 1999, we had a deficit of $22,942,729. We have operated at a
loss since 1994, and we expect this to continue for some time. The amount of the
accumulated deficit will continue to grow, as it will be expensive to continue
our clinical, research, and development efforts. If these activities are
successful, and if we receive approval from the FDA to market human-use
equipment, then even more money will be required to market and sell the
equipment.
Most of the cash we received last year was from our then corporate partner,
Ethicon, Inc., which funded further development of the cancer drug delivery
technology through the payment of license and milestone fees, and from Johnson
and Johnson Development Corporation which bought common shares. Other funds came
in from sales of BTX research-use equipment, interest income on our investments,
and Small Business Innovative Research (SBIR) grants. It is possible that we
will lose our SBIR grants or that it will be determined that we are not or have
not been in compliance with such program requirements, and the government may
require us to pay back the original funding grants or even pay certain
penalties. We do not expect to receive enough money from these sources to
completely pay for future activities.
11
<PAGE> 13
WE WILL HAVE A NEED FOR SIGNIFICANT AMOUNTS OF MONEY IN THE FUTURE AND THERE IS
NO GUARANTEE THAT WE WILL BE ABLE TO OBTAIN THE AMOUNTS WE NEED.
As discussed, we have operated at a loss, and expect that to continue for
some time in the future. Our plans for continuing clinical trials, conducting
research, furthering development and, eventually, marketing our human-use
equipment will cost a lot of money. The extent of these costs will depend on
many factors, including some of the following:
- The progress and breadth of preclinical testing and the size of our drug
delivery programs, all of which directly influence cost;
- The costs involved in complying with the regulatory process to get our
human-use products approved, including the number, size, and timing of
necessary clinical trials;
- The costs involved in patenting our technologies and defending them;
- Changes in our existing research and development relationships and our
ability to enter into new agreements;
- The cost of manufacturing our human-use and research-use equipment; and
- Competition for our products and our ability, and that of our partners,
to commercialize our products.
We plan to fund operations by several means. Ethicon Endo-Surgery, Inc.
will continue to fund a portion of the oncology program, and we will attempt to
enter into contracts with partners that will fund either general operating
expenses or specific programs or projects. Some funding also may be received
through government grants. We cannot promise that we will enter into any such
contracts or, if we do, that our partners will provide enough money to meet our
needs.
In the past, we have raised funds by public and private sale of our stock,
and we may do this in the future to raise needed funds. Sale of our stock to
private or public investors usually results in existing shareholders becoming
"diluted". The greater the number of shares sold, the greater the dilution. A
high degree of dilution can make it difficult for the price of our stock to rise
rapidly, among other things. Dilution will lessen a shareholder's voting power.
We cannot assure you that we will be able to raise money needed to fund
operations, or that we will be able to raise money under terms that are
favorable to us.
IF WE DO NOT HAVE ENOUGH MONEY TO FUND OPERATIONS, THEN WE WILL HAVE TO CUT
COSTS.
If we are not able to raise needed money under acceptable terms, then we
will have to take measures to cut costs, such as:
- Delay, scale back or discontinue one or more of our drug delivery
programs or other aspects of operations, including laying off some
personnel or stopping clinical trials;
- Sell or license some of our technologies that we would not otherwise give
up if we were in a better financial position;
12
<PAGE> 14
- Sell or license some of our technologies under terms that are a lot less
favorable than they otherwise might have been if we were in a better
financial position; and
- Consider merging with another company or positioning ourselves to be
acquired by another company.
If it became necessary to take one or more of the above-listed actions,
then we may have a lower valuation, which probably would be reflected in our
stock price.
THE MARKET FOR GENETRONICS STOCK IS VOLATILE, WHICH COULD ADVERSELY AFFECT AN
INVESTMENT IN OUR STOCK.
Our share price and volume are highly volatile. This is not unusual for
biomedical companies of our size, age, and with a discrete market niche. It also
is common for the trading volume and price of biotechnology stocks to be
unrelated to a company's operations, i.e., to go down on positive news and to go
up on no news. Our stock has exhibited this type of disconnect in the past, and
may well exhibit it in the future. The historically low trading volume of our
stock makes it more likely that a severe fluctuation in volume, either up or
down, will affect the stock price.
Some factors that we would expect to depress the price of our stock
include:
- Adverse or neutral clinical trial results;
- Announcement that the FDA denied our request to approve our human-use
product for commercialization in the United States, or similar denial by
other regulatory bodies which make independent decisions outside the
United States. To date, Europe is the only foreign jurisdiction in which
we have sought approval for commercialization;
- Announcement of legal actions brought by or filed against us for patent
or other matters, especially if we do not win such actions;
- Cancellation of important corporate partnerships or agreements, such as
the Ethicon Endo-Surgery, Inc. agreement;
- Public concern as to the safety of our human-use products;
- Shareholders' decisions, for whatever reasons, to sell large amounts of
our stock;
- A decreasing cash-on-hand balance to fund operations, or other signs of
apparent financial uncertainty; and
- Significant advances made by competitors that are perceived to be
expected to limit our market position.
OUR DEPENDENCE UPON NON-MARKETED PRODUCTS, LACK OF EXPERIENCE IN MANUFACTURING
AND MARKETING HUMAN-USE PRODUCTS, AND OUR CONTINUING DEFICIT MAY RESULT IN EVEN
FURTHER FLUCTUATIONS IN OUR TRADING VOLUME AND SHARE PRICE.
Successful approval, marketing, and sales of our human-use equipment is
critical to the financial future of our company. Our products are not yet
approved for sale in the United States and there can be no assurance that they
will be or that such sales will be as large or timely as we expect. These
uncertainties may cause our operating results to
13
<PAGE> 15
fluctuate dramatically in the next several years. We believe that
quarter-to-quarter or annual comparisons of our operating results are not a good
indication of our future performance. Nevertheless, these fluctuations may cause
us to perform below the expectations of the public market analysts and
investors. If this happens, the price of our common shares would likely fall.
OUR BTX DIVISION MARKETS ONLY TO THE ELECTROPORATION PRODUCT NICHE MARKETS AND
RELIES ON DISTRIBUTION RELATIONSHIPS FOR SALES.
The BTX Division currently markets only electroporation equipment to the
research market. If our research-use equipment loses its competitive position,
since the BTX Division does not have any other product line on which to rely,
our sales would be expected to decline. Therefore, if we do not develop and
introduce new products directed to research-use electroporation, at a reasonable
price, then we will lose pace with our competitors. We cannot guarantee you that
we will have the necessary funds for our BTX Division to stay competitive or
that the Division will succeed.
The research-use equipment is sold through United States and international
distributors. Approximately 24% of BTX sales last year were in the United States
through our distribution agreement with VWR Scientific. This accounted for about
10% of our total revenue. We rely heavily on our relationship with VWR to sell
our product in the United States. There is no guarantee that we will be able to
maintain or replace our current distribution relationship with VWR or other
distributors, or establish sales, marketing and distribution capabilities of our
own. If distribution relationships are not in place for the major markets, e.g.,
the United States, Europe and Japan, then the BTX Division may suffer declining
sales, which would have an effect on our bottom line.
THERE IS A RISK OF PRODUCT LIABILITY WITH HUMAN-USE EQUIPMENT AND RESEARCH-USE
EQUIPMENT.
The testing, marketing and sale of human-use products expose us to
significant and unpredictable risks of equipment product liability claims. These
claims may arise from patients, clinical trial volunteers, consumers,
physicians, hospitals, companies, institutions, or others using, selling, or
buying our equipment. Product liability risks are inherent in our business and
will exist even after the products are approved for sale. If and when our
human-use equipment is commercialized, and with respect to the research-use
equipment that is currently marketed by our BTX Division, we run the risk that
use (or misuse) of the equipment will result in personal injury. We have not
experienced any claims of this kind to date, but we cannot be certain that they
will not occur. The chance of occurrence will increase after both product types
are on the market.
Genetronics purchased liability insurance in connection with the ongoing
oncology clinical trials, and we would expect to purchase additional policies
for any additional clinical trial. We cannot assure you that the insurance we
purchase will provide adequate coverage in the event a claim is made, and that
no payments against claims will be funded by us directly. If we did have to make
payment against a claim, then it would impact our financial ability to perform
the research, development, and sales activities we have planned.
With respect to our research-use equipment, there is always the risk of
product defects. Product defects can lead to loss of future sales, decrease in
market acceptance, damage to our brand or reputation, and product returns and
warranty costs. These events can occur whether the defect resides in a component
we purchased from a third party or
14
<PAGE> 16
whether it was due to our design and/or manufacture. Our sales agreements
typically contain provisions designed to limit our exposure to product liability
claims. However, we do not know whether these limitations are enforceable in the
countries in which the sale is made. Any product liability or other claim
brought against us, if successful and of sufficient magnitude, could negatively
impact our financial performance, even if we have insurance.
WE CANNOT BE CERTAIN THAT WE WILL BE ABLE TO MANUFACTURE OUR HUMAN-USE AND
RESEARCH-USE EQUIPMENT IN SUFFICIENT VOLUMES AT COMMERCIALLY REASONABLE RATES.
Our products must be manufactured in sufficient commercial quantities, in
compliance with regulatory requirements, and at an acceptable cost to be
attractive to purchasers. We rely on third parties to manufacture and assemble
most aspects of our equipment. We have two approved sources for every component
of the manufacturing process and have three approved sources for some components
in the process.
Disruption of the manufacture of our products, for whatever reason, could
delay or interrupt our ability to manufacture or deliver our products to
customers on a timely basis. This would be expected to affect revenues and may
affect our long-term reputation, as well. In the event we provide product of
inferior quality, we run the risk of product liability claims and warranty
obligations, which will negatively affect our bottom line.
Our manufacturing facilities for human-use products will be subject to
Quality Systems regulations, international quality standards and other
regulatory requirements, including pre-approval inspection for the human-use
equipment and periodic post-approval inspections for all human-use products.
While we have undergone and passed a Quality Systems review from an
international body, we have never undergone a Quality Systems inspection by the
FDA. We cannot guarantee that we will pass an FDA inspection when it occurs. If
our facilities are not up to the FDA standards in sufficient time, prior to
United States launch of product, then it will result in a delay or termination
of our ability to produce the human-use equipment in our facility. Any delay in
production will have a negative effect on our business.
OUR BTX DIVISION MUST MANAGE THE RISKS OF INTERNATIONAL OPERATIONS.
The BTX Division of Genetronics sells a lot of its research-use equipment
in foreign countries, particularly in the Pacific Rim. Last fiscal year, about
38% of BTX's revenues were from BTX sales into foreign countries. Like any
company having foreign sales, BTX's sales are influenced by many factors outside
of our control.
For instance, the following factors can negatively influence BTX's sales or
profitability in foreign markets:
- We are subject to foreign regulatory requirements, foreign tariffs and
other trade barriers that may change without sufficient notice;
- Our expenses related to international sales and marketing may increase to
a significant extent due to political and/or economic factors out of our
control, including money spent to control and manage distributors;
- We are subject to various export restrictions and may not be able to
obtain export licenses when needed;
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<PAGE> 17
- Some of the foreign countries in which we do business suffer from
political and economic instability, and Asian markets, which are
important to the BTX Division, have recently suffered considerable
turmoil;
- Some of the foreign currencies in which we do business fluctuate
significantly;
- We may have difficulty collecting accounts receivables or enforcing other
legal rights; and
- We are subject to the Foreign Corrupt Practices Act, which may place us
at a competitive disadvantage to foreign companies that do not have to
adhere to this Act.
WE DEPEND ON THE CONTINUED EMPLOYMENT OF QUALIFIED PERSONNEL.
Our success is highly dependent on the people who work for us. If we cannot
attract and retain top talent to work in our company, then our business will
suffer. We cannot assure you that the staff we now have will decide to stay with
our company, or that we will be able to replace departing employees or build
departments with qualified individuals.
We have an employment agreement in place for Martin Nash, our President,
Chief Executive Officer and Chief Financial Officer and a compensation agreement
in place for James Lierman, our Chief Operating Officer. If Mr. Nash or Mr.
Lierman chooses to leave us, then it might pose significant risks to our
continued development and progress.
WE MAY NOT MEET ENVIRONMENTAL GUIDELINES, AND AS A RESULT COULD BE SUBJECT TO
CIVIL AND CRIMINAL PENALTIES.
Like all companies in our line of work, we are subject to a variety of
governmental regulations relating to the use, storage, discharge and disposal of
hazardous substances. Our safety procedures for handling, storage and disposal
of such materials are designed to comply with applicable laws and regulations.
Nevertheless, if we are found to not comply with environmental regulations, or
if we are involved with contamination or injury from these materials, then we
may be subject to civil and criminal penalties. This would have a negative
impact on our reputation, our finances, and could result in a slowdown, or even
complete cessation of our business.
WE MAY BE ADVERSELY AFFECTED BY THE YEAR 2000 COMPUTER PROBLEM.
The Year 2000 Problem stems from the fact that many computer systems,
software programs, equipment and instruments with embedded microprocessors were
designed to only recognize the last two digits of a calendar year. With the
arrival of the Year 2000, these systems and microprocessors may encounter
operating problems due to their inability to distinguish years after 1999 from
years preceding 1999. We are aware of the issues associated with the Year 2000
Problem in many existing hardware and software applications. In 1998 we
established a Year 2000 compliance plan which was approved by our senior
management and Board of Directors. To execute the plan, we formed a Year 2000
committee that is composed of both management and non-management personnel. In
addition, we have contracted with an outside Year 2000 service provider to
assist with the implementation of the Year 2000 compliance plan. The plan is a
multi-phased approach to the Year 2000 Problem, and includes assessment,
inventory, testing and remediation phases.
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<PAGE> 18
We cannot guarantee the compliance status of third parties, and the failure
of key suppliers, distributors, business partners, or customers to become Year
2000 compliant on a timely basis, or at all, could have a material adverse
effect on us. In addition, there is no assurance that we will timely identify
and remediate all Year 2000 problems, that remedial efforts will not involve
significant time and expense, or that such problems will not have a material
adverse effect on our business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Issues" for detailed information on our state of
readiness, potential risks and contingency plans regarding the Year 2000 issue.
OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN OUR
FORWARD-LOOKING STATEMENTS.
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus may constitute
forward-looking statements. These statements, if any, involve known and unknown
risks, uncertainties and other factors that may cause our actual results, levels
of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by forward-looking statements. The most significant of these factors are
discussed under "Risk Factors" or described elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by words such as
"may," "will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
words or other comparable words.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. In addition, neither us nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus.
17
<PAGE> 19
SELLING SHAREHOLDERS
We are registering for resale 1,900,000 outstanding shares of our common
stock acquired by accredited investors in a private placement upon exercise of
special warrants. We are also registering for resale 2,242,611 outstanding
shares of our common stock previously issued in a private placement to Johnson &
Johnson Development Corporation. The following table sets forth; (i) the name
and address of the selling shareholders; (ii) the number of our shares of common
stock that the selling shareholder beneficially owned prior to the offering for
resale of any of the shares of our common stock being registered hereby; (iii)
the maximum number of shares of our common stock that may be offered for resale
for the account of the selling shareholders pursuant to this prospectus; and
(iv) the number of shares of our common stock to be held by the selling
shareholders after the offering of the resale shares (assuming all of the resale
shares are sold by the selling shareholders). The 4,142,611 shares of common
stock to be sold pursuant to this prospectus are referred to as the "Resale
Shares" in the following chart and footnotes.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES OF
NUMBER OF NUMBER OF GENETRONICS COMMON STOCK
SHARES OF SHARES OF BENEFICIALLY OWNED(3)
GENETRONICS GENETRONICS ----------------------------
COMMON COMMON BEFORE AFTER
STOCK TO BE STOCK OFFERING OF OFFERING OF
RESOLD IN THE BENEFICIALLY THE RESALE THE RESALE
SELLING SECURITYHOLDERS(1) OFFERING OWNED(2) SHARES SHARES(4)
-------------------------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Smallcap World Fund, Inc........ 1,650,000 1,650,000 6.18% --
American Variable Insurance
Series -- Global Small
Capitalization Fund........... 250,000 250,000 * --
Johnson & Johnson Development
Corporation................... 2,242,611 2,242,611 8.4% --
---------
4,142,611
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) This table is based upon information supplied to us by CB Capital Corp.,
formerly Canaccord (L) International Corporation or the selling
shareholders.
(2) Number of shares beneficially owned is determined as of September 17, 1999
and in accordance with the rules of the Commission.
(3) Based upon 26,702,883 shares of Genetronics common stock, including
4,606,250 special warrants convertible into common stock, issued and
outstanding on September 17, 1999.
(4) Assumes the sale of all of the shares to be resold in the offering.
PLAN OF DISTRIBUTION
The 4,142,611 shares of common stock to which this prospectus relates may
be sold from time to time by the selling shareholders in one or more
transactions at fixed prices, at market prices at the time of sale, at varying
prices determined at the time of sale or at
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<PAGE> 20
negotiated prices. The selling shareholders may offer these shares of common
stock in one or more of the following transactions:
- on any national securities exchange or quotation service at which the
common shares may be listed or quoted at the time of sale, including the
American Stock Exchange and Toronto Stock Exchange;
- in the over-the-counter market;
- in private transactions;
- through options; and
- by pledge to secure debts and other obligations, or a combination of any
of the above transactions.
If required, we will distribute a supplement to this prospectus to describe
material changes in the terms of the offering.
The shares of common stock described in this prospectus may be sold from
time to time directly by the selling shareholders. Alternatively, the selling
shareholders may from time to time offer shares of common stock to or through
underwriters, broker/dealers or agents. The selling shareholders and any
underwriters, broker/dealers or agents that participate in the distribution of
the shares of common stock may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933. Any profits on the resale of shares of our common
stock and any compensation received by any underwriter, broker/dealer or agent
may be deemed to be underwriting discounts and commissions under the Securities
Act of 1933.
Any shares covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act of 1933 may be sold under Rule 144 rather than
pursuant to this prospectus. The selling shareholders do not have to sell all of
the shares they own pursuant to this prospectus. The selling shareholders may
transfer, devise or gift such shares by other means not described in this
prospectus.
To comply with the securities laws of certain jurisdictions, the common
shares must be offered or sold only through registered or licensed brokers or
dealers. In addition, in certain jurisdictions, the common shares may not be
offered or sold unless the common shares have been registered or qualified for
sale or an exemption is available and complied with.
Under the Securities Exchange Act of 1934, any person engaged in a
distribution of the common shares may not simultaneously engage in market-making
activities with respect to the common shares for nine business days prior to the
start of the distribution. In addition, each selling shareholder and any other
person participating in a distribution will be subject to the Securities
Exchange Act of 1934 which may limit the timing of purchases and sales of common
shares by the selling shareholders or any such other person. These factors may
affect the marketability of the common shares and the ability of brokers or
dealers to engage in market-making activities.
We will pay all expenses of this registration. These expenses include the
SEC's filing fees and fees under state securities or "blue sky" laws. We
estimate that our expenses in connection with this registration will be
approximately $100,000. All expenses for the issuance of a supplement to this
prospectus, when requested by selling shareholder(s), will also be paid by us.
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<PAGE> 21
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of any of the shares
of common stock covered by this prospectus by the selling shareholders. All
proceeds from the resale of shares of our common stock described in this
prospectus will be for the accounts of the selling shareholders.
DIVIDEND POLICY
We have not declared or paid any dividends on our common shares since our
inception. Our directors expect that while we are unprofitable, earnings will
not be distributed to shareholders by way of dividend. The declaration of
dividends on our common shares will depend upon the directors' assessment of,
among other factors, earnings, capital requirements and our operating and
financial condition. See "Description of Capital Stock-Dividend Policy".
COMMON SHARE PRICE RANGE
Our outstanding common shares have been listed on the Toronto Stock
Exchange since September 2, 1997 under the symbol "GEB." Prior to September 2,
1997, our common shares were traded on the Vancouver Stock Exchange under the
symbol "GEB." In addition, since December 8, 1998, our common shares have been
traded on the American Stock Exchange also under the symbol "GEB." The following
tables sets forth, for the periods indicated, the high and low sales prices for
the common shares as reported by the American Stock Exchange and the Toronto
Stock Exchange.
AMERICAN STOCK EXCHANGE
<TABLE>
<CAPTION>
COMMON SHARE
PRICE(US$)
----------------
HIGH LOW
------ ----
<S> <C> <C>
Fiscal year ended March 31, 2000:
First Quarter............................................. 3.9375 2.75
Fiscal year ended March 31, 1999:
Fourth Quarter............................................ 4.0625 3.25
Third Quarter (beginning on December 8, 1998)............. 3.6875 3.25
</TABLE>
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<PAGE> 22
TORONTO STOCK EXCHANGE
<TABLE>
<CAPTION>
COMMON SHARE
PRICE(CDN$)
--------------
HIGH LOW
---- ----
<S> <C> <C>
Fiscal year ended March 31, 2000:
First Quarter............................................. 5.95 4.15
Fiscal Year ended March 31, 1999:
Fourth Quarter............................................ 6.10 4.80
Third Quarter............................................. 6.20 4.00
Second Quarter............................................ 4.75 3.10
First Quarter............................................. 4.91 3.35
Fiscal Year ended March 31, 1998:
Fourth Quarter*........................................... 4.10 2.40
Third Quarter............................................. 4.45 2.55
Second Quarter (beginning on September 2, 1997)........... 5.25 3.25
</TABLE>
- -------------------------
* We changed our fiscal year end from February 28, 1998 to March 31, 1998, which
means the above noted "quarter" covers four months instead of three months.
On September 17, 1999, the last reported sale price of our common shares on the
Toronto Stock Exchange was CDN$5.70 per share and US$3.8125 on the American
Stock Exchange. On September 17, 1999, we had approximately 334 holders of
record of common shares.
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<PAGE> 23
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 on an
actual basis.
This information should be read in conjunction with the consolidated
financial statements and related notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------
ACTUAL
-------------
<S> <C>
Obligation under capital lease.............................. $ 153,421
Shareholders' equity:
Common Shares, no par value, 100,000,000 authorized;
21,781,266 Common Shares issued and outstanding at June
30, 1999(1)............................................ 28,540,182
Class A Preferred Shares, 100,000,000 authorized; none
issued.................................................... --
Special warrants(2)......................................... 11,331,267(3)
Cumulative Translation Adjustment........................... (105,821)
Deficit..................................................... (22,942,729)
Total shareholders' equity........................ 16,822,899
Total capitalization.............................. $ 16,976,320
</TABLE>
- -------------------------
(1) On March 26, 1999, the Compensation Committee of our Board approved the
conversion of all option exercise prices from Canadian dollars to US
dollars. Excludes, as of June 30, 1999, (i) 375,000 common shares reserved
for issuance upon exercise of stock options granted outside of a stock
option plan, at a weighted average exercise price of $0.84 per share; (ii)
3,500,000 common shares reserved for issuance under our 1995 Stock Option
Plan, of which 1,593,400 shares were subject to outstanding options, at a
weighted average exercise price of $2.04 per share; (iii) 6,400,000 common
shares reserved for issuance under our 1997 Stock Option Plan, of which
2,628,236 shares were subject to outstanding options, at a weighted average
exercise price of $2.63 per share; and (iv) 418,750 common shares issuable
upon exercise of outstanding Agents Warrants at a weighted average exercise
price of $3.31 per share. See "Description of Capital Stock" and
"Management -- 1995 Stock Option Plan and 1997 Stock Option Plan."
(2) See Note 4 of notes to unaudited consolidated financial statements for the
three months ended June 30, 1999.
(3) After the payment of the agent's commission of $1,005,000 and issuance of
30,000 common shares valued at $99,798 to the agent's nominee for services
provided and other costs of $126,435 related to the offering of the special
warrants.
22
<PAGE> 24
SELECTED FINANCIAL DATA
The following selected financial data and selected consolidated financial
data should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Operating Results and Genetronics's audited consolidated
financial statements and notes thereto, included elsewhere in this Prospectus.
The selected financial data as of March 31, 1999 and 1998 and February 28, 1997,
are derived from the financial statements of Genetronics that have been audited
by Ernst & Young LLP, independent public accountants, which are included
elsewhere in this prospectus. The selected financial data for the three months
ended June 30, 1999 and June 30, 1998 is unaudited. The unaudited financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of the financial
position and results of operations for these periods.
On September 17, 1999, the Federal Reserve Bank of New York quoted the noon
rate of exchange for converting Canadian dollars into U.S. dollars at 1.4742
Canadian dollars equaled 1 U.S. dollar. Using Interbank exchange rate quotes,
the following table presents a history of the exchange rates of Canadian dollars
into U.S. dollars for the five most recent fiscal years of the Company.
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, MAR. 31, MAR. 31, FEB. 28, FEB. 29, FEB. 28,
PERIOD ENDING 1999 1998 1999 1998 1997 1996 1995
------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Period End............ 1.4752 1.4685 1.5104 1.4218 1.3556 1.3752 1.4005
Average............... 1.4720 1.4461 1.5031 1.3994 1.3556 1.3767 1.3778
Period's High......... 1.5076 1.4767 1.5845 1.4686 1.3752 1.4077 1.4132
Period's Low.......... 1.4447 1.4144 1.4144 1.3594 1.3381 1.3458 1.3424
</TABLE>
23
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS TWELVE THIRTEEN TWELVE TWELVE TWELVE
ENDED MONTHS MONTHS MONTHS MONTHS MONTHS
JUNE 30, ENDED ENDED ENDED ENDED ENDED
------------------------- MARCH 31, MARCH 31, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999 1998 1999 1998(1) 1997 1996 1995
----------- ----------- ----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Net Sales............... 699,078 814,405 3,434,105 3,097,198 3,040,734 2,512,131 2,237,404
License Fee and
Milestone Payments.... -- -- 4,500,000 -- -- -- --
Grant Funding........... 198,385 62,883 354,135 128,069 38,856 82,614 65,592
Revenues under
collaborative research
and development
arrangements.......... -- 6,000 33,048 6,025 8,583 22,678 183,235
Interest Income......... 68,283 69,849 300,911 427,498 71,206 64,160 --
----------- ----------- ----------- ----------- ----------- ----------- ----------
965,746 953,137 8,622,199 3,658,790 3,159,379 2,681,583 2,486,231
----------- ----------- ----------- ----------- ----------- ----------- ----------
EXPENSE:
Cost of Sales........... 326,737 380,634 1,638,635 1,427,285 1,277,240 951,308 812,635
Research and
development........... 1,969,863 1,483,235 8,086,959 5,637,955 2,200,464 1,494,950 619,953
Selling, general and
administrative........ 1,606,663 998,749 5,481,051 4,172,246 2,657,821 2,107,122 1,680,448
Interest expense........ 6,711 4,226 19,391 17,970 18,464 4,629 24,618
----------- ----------- ----------- ----------- ----------- ----------- ----------
3,909,974 2,866,844 15,226,036 11,255,456 6,153,989 4,558,009 3,137,654
----------- ----------- ----------- ----------- ----------- ----------- ----------
Net Loss for period
Canadian GAAP......... (2,944,228) (1,913,707) (6,603,837) (7,596,666) (2,994,610) (1,876,426) (651,423)
Net Loss for period U.S.
GAAP.................. (3,046,771) (1,980,504) (7,150,537) (7,904,166) (3,330,110) (2,033,326) (738,067)
Basic and diluted net
loss per common share
Canadian GAAP......... (0.14) (0.10) (0.33) (0.43) (0.24) (0.17) (0.13)
Basic and diluted net
loss per common share
U.S. GAAP............. (0.14) (0.10) (0.35) (0.44) (0.26) (0.18) (0.14)
=========== =========== =========== =========== =========== =========== ==========
Dividends per Share..... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
=========== =========== =========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF MARCH 31, AS OF AS OF AS OF
JUNE 30, ------------------------- FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999(2) 1999 1998 1997 1996 1995
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... 14,487,034 6,189,284 6,521,990 1,839,607 2,678,355 1,472,322
Total assets Canadian GAAP..... 18,162,857 9,807,644 9,242,887 4,161,129 4,318,264 2,936,666
Total assets U.S. GAAP......... 18,162,857 9,807,644 9,242,887 4,161,129 4,318,264 2,936,666
Long term obligations.......... 153,421 164,276 98,410 95,493 14,864 28,484
Deficit........................ (22,942,729) (19,998,501) (13,394,664) (5,797,998) (2,803,388) (926,962)
Total shareholders' equity..... 16,822,899 8,256,361 8,148,031 3,397,200 3,658,906 2,597,198
</TABLE>
- -------------------------
(1) Effective April 15, 1998, we changed our fiscal year end from February 28,
1998 to March 31, 1998. Therefore, the financial information for fiscal year
ended March 31, 1998 includes thirteen months.
(2) Includes payments by the selling shareholders, and other investors, of $3.00
per share, less expenses of $1,231,233 or an aggregate of $ 11,331,267, for
the special warrants
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the related Notes contained elsewhere in
this prospectus. The following discussion contains forward-looking statements
that involve risks and uncertainties. These statements relate to future events
or our future financial performance. In many cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue," or the negative of such terms and other comparable
terminology. These statements are only predictions. Our actual results may
differ significantly from those projected in the forward-looking statements as a
result of certain factors, including, but not limited to, those set forth under
"Risk Factors" and elsewhere in this prospectus.
OVERVIEW
Through our Drug Delivery Division, we are engaged in developing drug
delivery systems, based on electroporation to be used in the site-specific
treatment of disease. Through our BTX Division we develop, manufacture and sell
electroporation equipment to the research laboratory market.
In the past our revenues primarily reflected research grants and, through
the BTX Division, product sales to the research market. In October 1998 we
entered into comprehensive Licensing and Development and Supply Agreements with
Ethicon, Inc., a Johnson & Johnson company, involving our proprietary drug
delivery system for the Electroporation Therapy Treatment of cancer. As part of
the Licensing Agreement we received an up-front licensing fee and will be
receiving future milestone payments if and when milestones are met. On August 5,
1999, we announced these two agreements were assigned to Ethicon Endo-Surgery,
Inc., another Johnson & Johnson company.
Until the commercialization of the clinical products we expect revenues to
continue to be attributable to product sales to the research market, milestone
payments, grants, collaborative research arrangements and interest incomes.
Due to the expenses incurred in the development of the drug delivery
systems we have been unprofitable in the last five years. As of June 30, 1999 we
have incurred a cumulative net loss of $22,942,729. We expect to continue to
incur substantial operating losses in the future due to continued spending on
research and development programs, the funding of preclinical studies, clinical
trials and regulatory activities and the costs of manufacturing and
administrative activities.
Asian Economic Downturn
The Asian economic downturn affected the results of operations to the
extent that the sales revenues from export sales for the fiscal year ended March
31, 1999 were about $500,000 lower than expected. The main countries where we
achieved lower than expected sales were Japan, South Korea, Taiwan and India.
The lower export sales revenues resulted in lower than expected cash proceeds
from the BTX Division. Since the lower than expected export sales were partially
offset by higher domestic sales, the lower-than-expected cash proceeds from the
BTX Division had no material effect on our liquidity.
25
<PAGE> 27
We are also increasing efforts to expand sales to European and South
American markets which is intended to make up for any possible shortfall in the
event economic conditions in Asia do not improve within the coming year.
Accordingly, we believe that the Asian economic downturn will have no material
effect on our liquidity. See "Risk Factors -- The BTX Division Must Manage the
Risks of International Operations".
Inflation
We do not believe that inflation has had a material adverse effect on net
sales or results of operations. We have generally been able to pass on increased
costs related to inflation through increases in selling prices.
RESULTS OF OPERATIONS
The following discussion and analysis explains trends in our financial
condition and results of operation for the quarter ended June 30, 1999 and 1998
and the year ended March 31, 1999, thirteen months ended March 31, 1998, and the
year ended February 28, 1997. This discussion and analysis of the results of
operations and financial condition of the Company should be read in conjunction
with the consolidated financial statements and the related notes included
elsewhere in this prospectus. The consolidated financial statements have been
prepared by management in accordance with accounting principles generally
accepted in Canada, which conform to accounting principles generally accepted in
the United States, except as described in note 15 to the consolidated financial
statements.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenues
The BTX Division produced net sales of $699,078 for the three months ended
June 30, 1999 compared with net sales of $814,405 for the three months ended
June 30, 1998, a decrease of $115,327, or 14%. Export sales (outside of the
United States) for the three month period ended June 30, 1999 were 38% of total
sales compared to 40% of total sales for the three month period ended June 30,
1998. The decrease in export sales as a percentage of total sales was primarily
attributable to a relative decrease in sales to a Japanese distributor, a
customer that has traditionally purchased a high volume of Genetronics' products
over the past years, due in part to the Asian economic downturn. Also, certain
orders from customers received in June 1999 were not shipped until July because
the required pre-payment was not received until July.
Domestic sales decreased by 11% from the three-month period ended June 30,
1998 to the three-month period ended June 30, 1999. An increase in sales to VWR,
one of our domestic distributors, was more than offset by a decrease in direct
sales and sales to Intermountain, another domestic distributor.
Revenues from grant funding increased from $62,883 for the three months
ended June 30, 1998 to $198,385 for the three months ended June 30, 1999. The
higher grant revenues were primarily a result of increased activities within the
Oncology field for which a two-year Phase II SBIR grant was awarded to us by the
NIH in September 1997.
26
<PAGE> 28
Cost Of Sales
Cost of sales decreased by $53,897, or 14%, from $380,634 for the three
months ended June 30, 1998 to $326,737 for the three months ended June 30, 1999.
The decrease was primarily a result of lower sales in the three-month period
ended June 30, 1999.
Gross Profit and Gross Margin
Primarily due to the lower sales, the gross profit for the three months
ended June 30, 1999, in the amount of $372,341, decreased by $61,430, or 14%,
compared with $433,771 for the three months ended June 30, 1998. The gross
profit margin of 53% for the three months ended June 30, 1999 was equal to the
gross profit margin of 53% for the three months ended June 30, 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, which include advertising,
promotion and selling expenses, increased by $607,914, or 61%, from $998,749 for
the three months ended June 30, 1998 to $1,606,663 for the three months ended
June 30, 1999. The Company added administrative and management personnel to
support increased research and development activities in the Drug Delivery
Division and the ongoing clinical trials. Sales and marketing expenses in the
BTX Division increased as a result of efforts to build up a distributor sales
force to expand domestic sales.
Research and Development/Clinical Trials
Research and development costs increased by $486,628, or 33%, from
$1,483,235 for the three months ended June 30, 1998 to $1,969,863 for the three
months ended June 30, 1999 primarily because the cost of monitoring clinical
trials in the United States, Canada and Europe increased. Other increased costs
were for personnel in the Quality Assurance Department.
Further, during the three months ended June 30, 1999, the Drug Delivery
Engineering Department continued its work on the development of commercial
versions of the Electrode Applicators and the MedPulser, also contributing to
the increase in research and development costs.
Net results of reportable segments (Net results of reportable segments do not
include unallocated costs such as interest income and expense and general and
administrative costs)
The BTX Division reported net expenditures in the amount of $134,531 for
the three months ended June 30, 1999 compared to a net surplus in the amount of
$98,724 for the three months ended June 30, 1998. The decrease was the result of
lower sales and increased sales and marketing efforts to enhance sales through
distributors. Also, increased engineering expenses to upgrade BTX instruments
for CE mark compliance contributed to the net expenditures.
The Drug Delivery Division reported net expenditures in the amount of
$1,651,897 for the three months ended June 30, 1999 compared to $1,350,527 for
the three months ended June 30, 1998, an increase of $301,370, or 22%. The
higher net expenditures were primarily a result of increased clinical trial
expenses and engineering expenses.
27
<PAGE> 29
Net Loss
For the three months ended June 30, 1999, the Company recorded a net loss
of $2,944,228, compared with a net loss of $1,913,707 for the three months ended
June 30, 1998, an increase of $1,030,521, or 54%. The higher net loss is
primarily a result of increased research and development expenses and selling,
general and administrative expenses.
TWELVE MONTHS ENDED MARCH 31, 1999 COMPARED TO THIRTEEN MONTHS ENDED MARCH 31,
1998
In January 1998, we changed our fiscal year end from February 28/29 to
March 31. All figures for the fiscal year ended March 31, 1998, reflect thirteen
months of operations compared to twelve months due to the change in year-end.
The impact of the reporting period extension to March 31, 1998 is that direct
comparisons with the years ended March 31, 1999 and February 28, 1997 may be
difficult without taking into consideration the difference in reporting periods.
Consequently, "adjusted" estimates for a twelve month period ended March 31,
1998, calculated as twelve month pro-rata amounts unless not representative and
otherwise indicated, have been used for discussion purposes below.
Revenues
The BTX Division produced net sales of $3,434,105, for the twelve months
ended March 31, 1999, compared with net sales of $3,097,198, for the thirteen
months ended March 31, 1998. On an "adjusted" basis, net sales increased by 20%
for the fiscal year ended March 31, 1999. One of the factors contributing to
this increase was the result of our efforts to expand United States sales by
building up a sales force through distributors. For the twelve months ended
March 31, 1999, United States sales through distributors increased by 31%
compared with the thirteen months ended March 31, 1998. 38% of the total net
sales for the twelve-month period ended March 31, 1999 were exported; the same
percentage sold internationally for the thirteen-month period ended March 31,
1998.
Even though the economic crisis in East Asia continued to impact export
sales, international sales increased 13% in the 12 month period ended March 31,
1999 compared to the 13 month period ended March 31, 1998. This increase was
primarily a result of our efforts to expand sales into Europe and South America.
In late 1998, the BTX Division introduced the ECM 830, a Square Wave
Electroporation system which utilizes the new BTX Power Platform technology and
all-new digital user interface. The CE compliant ECM 830 is expected to assist
our efforts to increase sales in Europe.
In October 1998, we entered into comprehensive Licensing and Development
and Supply Agreements with Ethicon, Inc., a Johnson & Johnson company, involving
its proprietary drug delivery system for Electroporation Therapy treatment of
cancer. As part of the Licensing Agreement, we received a $4,000,000 up-front
licensing fee. Future milestone payments, a percentage of net sales as license
fees and revenues for the manufacture and sale of our drug delivery system for
Electroporation Therapy treatment of cancers are also part of the agreement. The
first milestone payment of $500,000 was received in March 1999 when we were
given approval to affix the CE Mark to our proprietary MedPulser drug delivery
system. On August 5, 1999, we announced the two
28
<PAGE> 30
agreements were assigned to Ethicon Endo-Surgery, Inc., another Johnson &
Johnson company.
Revenues under collaborative research and development arrangements
increased from $6,025, for the thirteen months ended March 31, 1998 to $33,048,
for the twelve months ended March 31, 1999. $25,000 of these revenues for the
twelve months ended March 31, 1999 were a result of collaboration with a major
biotechnology company in gene therapy. Further milestone payments of $50,000 are
due upon achievement of predetermined research results.
Revenues from grant funding increased from $128,069, for the thirteen
months ended March 31, 1998 to $354,135, for the twelve months ended March 31,
1999. The increase was a result of two Phase I grants awarded in vascular
therapy and transdermal drug delivery in September 1997 and April 1998,
respectively, and one Phase II grant in oncology in September 1997. A Phase I
grant for which no revenues have been earned as of March 31, 1999 was awarded in
March 1999 for $99,995 for gene therapy research.
Interest income decreased from $427,498, for the thirteen months ended
March 31, 1998 to $300,911, for the twelve months ended March 31, 1999. The
decrease resulted from the diminishing availability of investment funds due to
operating losses.
Cost Of Sales
Cost of sales increased by $211,350, or 15%, from $1,427,285, for the
thirteen months ended March 31, 1998 to $1,638,635, for the twelve months ended
March 31, 1999. The increase was primarily a result of higher sales in the
twelve-month period ended March 31, 1999.
Gross Profit and Gross Margin
Primarily due to the higher sales, the gross profit for the twelve months
ended March 31, 1999 in the amount of $1,795,470, increased by $125,557, or 8%,
compared with $1,669,913, for the thirteen months ended March 31, 1998.
The gross profit margin for BTX products decreased slightly from 54% for
the thirteen months ended March 31, 1998 to 52% for the twelve months ended
March 31, 1999.
Selling, General and Administrative Expenses
Selling, general and administrative expenses which include advertising,
promotion and selling expenses, increased by $1,308,805, or 31%, from
$4,172,246, for the thirteen months ended March 31, 1998 to $5,481,051, for the
twelve months ended March 31, 1999. We added administrative and management
personnel to support increased research and development activities in the Drug
Delivery Division and the ongoing clinical trials. Sales and marketing expenses
in the BTX Division increased as a result of efforts to build up a distributor
sales force to expand domestic sales.
Research and Development/Clinical Trials
Research and development costs increased by $2,449,004, or 43%, from
$5,637,955, for the thirteen months ended March 31, 1998 to $8,086,959, for the
twelve months ended March 31, 1999. Cost of monitoring clinical trials in the
United States, Canada and
29
<PAGE> 31
Europe increased. Other increased costs were for personnel in the Drug Delivery
Engineering Department to meet regulatory requirements for products used in the
clinical trials.
During the twelve months ended March 31, 1999 the Drug Delivery Engineering
Department was working on the development of commercial versions of the
Electrode Applicators and the MedPulser. In March 1999 we received Quality
System Registration to three internationally recognized standards, ISO 9001,
EN46001 and ISO 13485. Also in March 1999 we received CE Mark approval of our
MedPulser System.
Increased research efforts in the transdermal, gene therapy and cardiology
programs also resulted in higher personnel expenses and contract research. A
portion of these increased expenses was a result of federal grants received for
certain research projects. The revenues received from these grants offset these
expenses and are discussed in the revenue section.
Net results of reportable segments (Net results of reportable segments do not
include unallocated costs such as interest income and expense and general and
administrative costs)
The BTX Division reported net results in the amount of $366,386 for the
twelve months ended March 31, 1999 compared to $478,499 for the thirteen months
ended March 31, 1998 which on an "adjusted basis" meant a decrease of 17%. The
decrease was the result of a lower profit margin and increased sales and
marketing expenses. Also, increased engineering expenses to upgrade BTX
instruments for CE mark compliance contributed to the lower net results.
The Drug Delivery Division reported net expenditures in the amount of
$2,858,343 for the twelve months ended March 31, 1999 compared to $5,282,338 for
the thirteen months ended March 31, 1998, which meant a decrease of $2,423,995,
or 46%. The lower net expenditures were primarily a result of the up-front
licensing fee from Ethicon Inc. which more than offset the increased research
and development expenses.
Net Loss
For the twelve months ended March 31, 1999 we recorded a net loss of
$6,603,837, compared with a net loss of $7,596,666, for the thirteen months
ended March 31, 1998, a decrease of 6% on an adjusted basis. The lower loss is
primarily a result of the up-front license fee and milestone payment from
Ethicon Inc. which more than offset the increased research and development
expenses and selling, general and administrative expenses.
THIRTEEN MONTHS ENDED MARCH 31, 1998 COMPARED TO TWELVE MONTHS ENDED FEBRUARY
28, 1997
We have changed our fiscal year end to March 31. All figures for the fiscal
year ended March 31, 1998 reflect thirteen months of operations compared to
twelve months due to the change in year-end. The impact of the reporting period
extension to March 31, 1998 is that direct comparisons with the year ended
February 28, 1997 may be difficult without taking into consideration the
difference in reporting periods. Consequently, "adjusted" estimates for a twelve
month period ended March 31, 1998, calculated as twelve month pro-rata amounts
unless not representative and otherwise indicated, have been used for discussion
purposes below.
30
<PAGE> 32
Revenues
The BTX Division produced net sales of $3,097,198 for the thirteen months
ended March 31, 1998, compared with net sales of $3,040,734 for the twelve
months ended February 28, 1997. On an "adjusted" basis, net sales decreased by
6% for the fiscal year ended March 31, 1998, which can be attributed to the
Asian economic crisis, which affected the results of operations in Japan, South
Korea, Taiwan and India. There was a more than 20% increase in net sales in the
United States compared to the twelve-month period ended February 28, 1997.
Revenues from grant funding increased from $38,856 for the twelve months
ended February 28, 1997 to $128,069 for the thirteen months ended March 31,
1998. One grant, awarded in September 1996 in the amount of $95,468 for a
project to research in vivo arterial gene therapy by electroporation, was
completed in September 1997. During the thirteen months ended March 31, 1998, we
were awarded two more United States government grants: a Phase I grant in the
amount of $99,909 awarded in September 1997 from the National Heart, Lung, and
Blood Institute for a project to research sustained delivery of heparin into
arterial walls; and a Phase II grant in the amount of $581,652 awarded in
September 1997 by the National Cancer Institute for a project to research a
novel and efficient method of anticancer drug delivery. One of these grants is
completed. The research work which the other grant is funding is scheduled to be
completed in September 1999.
Subsequent to March 31, 1998, another Phase I grant in the amount of
$94,301 was awarded by the National Institute of Arthritis and Musculoskeletal
and Skin Diseases for a project to research electrically enhanced transdermal
delivery of calcitonin.
Interest income increased from $71,206 for the twelve months ended February
28, 1997 to $427,498 for the thirteen months ended March 31, 1998. The
"adjusted" increase of 454% resulted principally from the investment of the
proceeds from various 1997 equity financing into money market accounts and term
deposits.
Cost Of Sales
Cost of Sales for the thirteen months ended March 31, 1998 was $1,427,285,
an increase of $150,045, compared with $1,277,240 for the twelve months ended
February 28, 1997. The increase was due to the additional month ended March 31,
1998 and an increase in manufacturing salaries.
Gross Profit and Gross Margin
Gross Profit decreased by $93,581, from $1,763,494, for the twelve months
ended February 28, 1997 to $1,669,913 for the thirteen months ended March 31,
1998. Gross Margin decreased by 4.1% from 58% for the twelve months ended
February 28, 1997 to 53.9% for the thirteen months ended March 31, 1998.
Compared with the twelve months ended February 28, 1997 the sales of chambers
and accessories increased as a percentage of total sales for the thirteen months
ended March 31, 1998. Sales to distributors as a percentage of total sales also
increased during the thirteen months ended March 31, 1998 compared with the
twelve months ended February 28, 1997. Since distributors receive a discount off
the list price, this also contributed to the lower gross margin.
31
<PAGE> 33
Selling, General and Administrative Expenses
Selling, General and Administrative expenses, which consist of advertising,
promotion and selling expenses, and general administrative expenses, increased
by $1,514,425 from $2,657,821 for the twelve months ended February 28, 1997 to
$4,172,246 for the thirteen months ended March 31, 1998. On an "adjusted" basis,
Selling, General and Administrative expenses increased by 45%. One reason for
the increase was that we hired additional administrative and management
personnel to support the increased research and development activities in the
Drug Delivery Division as well as regulatory filings. Also increased
administrative expenses were incurred related to the equity financing and
investor relations efforts.
Research and Development/Clinical Trials
Research and Development costs increased by $3,437,491, from $2,200,464,
for the twelve months ended February 28, 1997 to $5,637,955 for the thirteen
months ended March 31, 1998. On an "adjusted" basis, Research and Development
costs increased by 136%. During the thirteen months ended March 31, 1998 the
Drug Delivery Division incurred expenses for independent third party audits of
clinical studies and an IND filing with the United States Food and Drug
Administration for head and neck cancer trials. Phase I and Phase II clinical
trials at 24 sites in the United States, Canada, and France were initiated in
late 1997 and early 1998.
In order to process all necessary filings with regulatory bodies and to
monitor clinical trials, we formed a Clinical and Regulatory Affairs department
in 1997. This resulted in increased personnel costs in this area for the
thirteen months ended March 31, 1998. Increased personnel costs and contract
service expenses in the Drug Delivery Engineering Department resulted from
regulatory requirements for products used in the clinical trials and
anticipation of commercialization in Europe.
In the BTX Division, increased engineering costs were a result of the need
to develop CE approved instruments in order to continue to ship instruments to
the European market.
Increased preclinical efforts in the oncology, transdermal, gene therapy,
and cardiology programs also resulted in higher personnel expenses and contract
research. An important new product development during the year is a template
device to be used with the MedPulser to potentially treat prostate and breast
cancer. A "smart chip" recognition device was also incorporated, so that
applicators cannot be reused on the commercial versions.
Net results of reportable segments (Net results of reportable segments do not
include unallocated costs such as interest income and expense and general and
administrative costs)
The BTX Division reported net results in the amount of $478,499 for the
thirteen months ended March 31, 1998 compared to $752,917 for the twelve months
ended February 28, 1997 which on an "adjusted basis" meant a decrease of 41%.
The decrease was the result of a lower profit margin and increased sales and
marketing expenses. Also, increased engineering expenses to upgrade BTX
instruments for CE mark compliance contributed to the lower net results.
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The Drug Delivery Division reported net expenditures in the amount of
$5,282,338 for the thirteen months ended March 31, 1998 compared to $2,043,877
for the twelve months ended February 28, 1997, which meant an increase of
$3,238,461, or 158%. The increased net expenditures were primarily a result of
increased research and development expenses.
Net Loss
For the thirteen months ended March 31, 1998 we recorded a Net Loss of
$7,596,666, or $0.43 per share, compared with a Net Loss of $2,994,610, or $0.24
per share, for the twelve months ended February 28, 1997. On an "adjusted" basis
the Net Loss increased by 134%. The higher loss is primarily a result of the
increased research and development and clinical trial expenses and the general
and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
During the last five fiscal years, our primary uses of cash have been to
finance research and development activities in the Drug Delivery Division. We
have satisfied our requirements principally from proceeds from the sale of
equities. In June 1999, we closed a private placement of 4,187,500 special
warrants at a price of $3.00 per special warrant for net proceeds to the Company
of $11,331,267 as of June 30, 1999. Each warrant entitles the holder to acquire
one common share in our capital at no additional cost upon exercise.
As of June 30, 1999, we have working capital of $14,708,846, compared to
$6,204,598, as of March 31, 1999. On June 30, 1999, our cash and cash
equivalents amounted to $14,487,034. Cash flows used in operating activities
were $3,028,868 for the three months ended June 30, 1999 compared to $2,067,002
for the three months ended June 30, 1998. The increase in cash used in operating
activities compared to the period ended June 30, 1998 was primarily attributable
to the higher net loss for the three months ended June 30, 1999.
Receivables decreased $141,127, or 18%, from $776,648 at March 31, 1999 to
$635,521 at June 30, 1999, as a result of lower sales activity during the three
months ended June 30, 1999.
Inventories increased from $655,906 at March 31, 1999 to $754,809 at June
30, 1999, primarily due to a further build-up of inventory in the Drug Delivery
Division.
Current liabilities decreased from $1,423,335 at March 31, 1999 to
$1,228,254, at June 30, 1999. The decrease was primarily a result of the timing
of payments of liabilities in the three-month period ended June 30, 1999.
Cash flows used in investing activities were $291,562 and $173,293 for the
three months ended June 30, 1998 and 1999, respectively. The cash used for other
assets in the amount of $155,964 for the three months ended June 30, 1999 was
primarily a result of expenditures for patent activities.
We believe that our existing cash will be sufficient to fund our operations
at least through the next twelve months.
Our long term capital requirements will depend on numerous factors
including:
- The progress and magnitude of the research and development programs,
including preclinical and clinical trials;
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<PAGE> 35
- The time involved in obtaining regulatory approvals;
- The cost involved in filing and maintaining patent claims;
- Competitor and market conditions;
- Our ability to establish and maintain collaborative arrangements;
- Our ability to obtain grants to finance research and development
projects; and
- The cost of manufacturing scale-up and the cost of commercialization
activities and arrangements
Our ability to generate substantial funding to continue research and
development activities, preclinical and clinical studies and clinical trials and
manufacturing, scale-up, and administrative activities is subject to a number of
risks and uncertainties and will depend on numerous factors including:
- Our ability to raise funds in the future through public or private
financings, collaborative arrangements, grant awards or from other
sources;
- The potential for equity investments, collaborative arrangements, license
agreements or development or other funding programs with us in exchange
for manufacturing, marketing, distribution or other rights to products
developed by us; and
- Our ability to maintain our existing collaborative arrangements and
relationships.
We cannot guarantee that additional funding will be available when needed.
If it is not, we will be required to scale back one or more of our research and
development programs, preclinical studies and clinical trials and administrative
activities and our business and financial results and condition would be
materially adversely affected.
YEAR 2000 ISSUES
The Year 2000 Problem stems from the fact that many computer systems,
software programs and equipment and instruments with embedded microprocessors
were designed to only recognize the last two digits of a calendar year. With the
arrival of the Year 2000, these systems and microprocessors may encounter
operating problems due to their inability to distinguish years after 1999 from
years preceding 1999. We are aware of the issues associated with the Year 2000
Problem in many existing hardware and software applications. In 1998, we
established a Year 2000 compliance plan which was approved by our senior
management and Board of Directors. To execute the plan, we formed a Year 2000
committee that is composed of both management and non-management personnel. In
addition, we have contracted with an outside Year 2000 service provider to
assist with the implementation of the Year 2000 compliance plan. The plan is a
multi-phased approach to the Year 2000 Problem, and includes assessment,
inventory, testing and remediation phases.
We have completed the assessment and inventory phases of the Year 2000
compliance plan, and are currently in the final stages of testing our internal
management information and other systems to verify their Year 2000 compliance
status. Based on the results of the work performed to date, we believe that the
mission critical computer systems and applications used by us either are
currently Year 2000 compliant, or will be brought into compliance per the Year
2000 plan, prior to January 1, 2000.
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We, in collaboration with our outside Year 2000 consultants, have examined
the products manufactured in the BTX Division and have determined that the BTX
products should not experience any Year 2000-related failures. In addition, we,
in collaboration with our outside Year 2000 consultants, have examined the
products produced by the Drug Delivery Division, and have determined that these
products should not experience any Year 2000-related failures.
In addition to examining our internal Year 2000 compliance issues, we have
contacted the critical companies in our supply and distribution chain in order
to ensure that they are Year 2000 compliant, and that there will be no
interruption of our business operations due to Year 2000 failures. We are
currently evaluating the responses received from these companies and following
up on any Year 2000-related issues. We are also evaluating the Year 2000
compliance status of other critical business dependencies, including business
partners, collaborators, and clinical test sites. As part of this effort, we are
establishing a process to monitor the Year 2000 Compliance status of its key
outside business dependencies up to and through the Year 2000. However, we
cannot guarantee the compliance status of third parties, and the failure of key
suppliers, distributors, business partners, or customers to become Year 2000
compliant on a timely basis, or at all, could have a material adverse effect on
us.
We are continuing to develop a contingency plan which will be used by us in
the event that Year 2000 failures occur which affect critical operations.
Contingency planning may include increasing inventory levels, establishing
secondary sources of supply and manufacturing, and maintaining back-up lines of
communications with our customers. However, it is unlikely that any contingency
plan can fully mitigate the impact of significant business disruptions among key
suppliers or customers.
We have established a Year 2000 budget to address Year 2000 issues. The
total cost of these Year 2000 compliance activities to date have not been
material to our financial condition or our operating results. In addition to
utilizing outside resources for our Year 2000 program, we are devoting internal
resources to the Year 2000 compliance program. We are including the internal
costs incurred as part of our Year 2000 expenditures in this disclosure. We will
continue to review and update data for costs incurred related to the Year 2000
and will revise forecasted costs each quarter. As of August 10, 1999, the costs
incurred for Year 2000 compliance activities have been approximately $4,000
internally and $19,000 for external resources. Based on our Year 2000 review to
date, we do not believe that the incremental costs of addressing Year 2000
issues will have a material adverse effect on our consolidated results of
operations, liquidity and capital resources. We believe that it will complete
the implementation of our Year 2000 compliance plan by the end of the third
quarter of calendar year 1999.
However, there can be no assurance that we will timely identify and
remediate all Year 2000 problems, that remedial efforts will not involve
significant time and expense, or that such problems will not have a material
adverse effect on our business, operating results and financial condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates. The
risks related to foreign currency exchange rates are immaterial and we do not
use derivative financial instruments.
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We have invested our excess cash, cash equivalents, and short-term
investments in U.S. government, municipal, and corporate debt securities with
high quality credit ratings and an average maturity of no more than six months.
These investments are not held for trading or other speculative purposes. Given
the short-term nature of these investments, and that we have no borrowings
outstanding, we are not subject to significant interest rate risk.
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BUSINESS
The following business section contains certain statements of a
forward-looking nature relating to future events or our future financial
performance. Prospective investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, prospective investors should specifically consider
the various factors identified in this prospectus, including the matters set
forth under the caption "Risk Factors," which could cause actual results to
differ materially from those indicated in such forward-looking statements.
OVERVIEW
We were incorporated in British Columbia, Canada on August 8, 1979 under
the name of Concord Energy Corp. We changed our name to United Safety Technology
Inc. on February 17, 1988, to Consolidated United Safety Technology Inc. on
January 3, 1990, and then to Genetronics Biomedical Ltd., on September 29, 1994.
We carry on our business through our operating subsidiary Genetronics, Inc., a
California corporation. Genetronics, Inc. was incorporated in California on June
29, 1983.
We are a San Diego-based drug delivery company specializing in developing
technology and hardware focused on electroporation. Electroporation is the
application of brief, controlled pulsed electric fields to cells, which cause
tiny pores to temporarily open in the cell membrane. Immediately after
electroporation, the membrane of the cells is more permeable to drugs and other
agents. In the lab, researchers use electroporation to introduce genes, drugs,
and other compounds into cells. This is a common and well known procedure and
more than 4,000 scientific papers have been published describing results
achieved using electroporation.
While widely used in the research arena, electroporation is a relatively
new technology in the therapeutic arena. One of the major difficulties in many
forms of drug or gene therapy is that the drug or gene is often not able to
penetrate the relatively impermeable walls of cells. The pores produced by
electroporation permit the drug or gene to enter the cells to a much greater
extent than if the drug or gene was administered without electroporation. When
electroporation is used in conjunction with drugs, genes, or other therapeutic
agents, it is called Electroporation Therapy, or EPT. Through our Drug Delivery
Division, we are developing human-use equipment that is designed to allow
physicians to use EPT to achieve more efficient and cost-effective means to
deliver drugs or genes to patients with illnesses, including cancer and heart
disease. Our proprietary electroporation drug and gene delivery system, the
Genetronics MedPulser system, is currently undergoing clinical trials in the
United States and Canada for use with bleomycin in the treatment of head and
neck cancer.
We operate through our two divisions: (i) the Drug Delivery Division,
through which we are developing drug delivery systems based on electroporation
to be used in the site-specific treatment of disease, and (ii) the BTX Division,
which develops, manufactures, and sells electroporation equipment to the
research laboratory market.
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DRUG DELIVERY DIVISION
Overview
Through our Drug Delivery Division, we are developing drug and gene
delivery systems based on the technology of electroporation to be used in
combination with drugs or genes in the site-specific treatment of disease. There
are many diseases where improved drug delivery is important. The Drug Delivery
Division has identified five areas of application for its electroporation
technology -- oncology, gene therapy, dermatology, cardiology and transdermal
drug delivery.
The Drug Delivery Division's most advanced product candidates treat solid
malignant tumors such as squamous cell carcinoma, melanoma, and adenocarcinoma
in the areas of application of oncology and dermatology. We are currently
planning Phase III human clinical studies in North America for the treatment of
head and neck cancer with bleomycin and the Genetronics MedPulser system. Phase
III clinical trials are used to assess a drug for efficacy and safety at several
independent sites in a large number of patients. Studies designed to evaluate
the MedPulser system in a variety of other tumor types have been conducted in
Europe. Additional Phase I and II oncology studies of the effectiveness of our
MedPulser system in the delivery of drugs in the treatment of other tumor types
are being planned. Phase I clinical trials are the earliest stage of trials in
human subjects, used to test a drug for tolerability. Phase II clinical trials
assess the effectiveness (i.e., dose response) of a drug. We announced that on
October 6, 1998, we entered into a comprehensive License and Development
Agreement and a Supply Agreement with Ethicon, Inc., a Johnson & Johnson
company, involving the use of Genetronics' MedPulser system for the treatment of
cancer by electroporation. On August 5, 1999, we announced these two agreements
were assigned to Ethicon Endo-Surgery, Inc., another Johnson & Johnson company.
Our drug delivery system, including the MedPulser instrument and the
disposable applicators, are subject to various regulatory requirements depending
on the country of sale. The Drug Delivery Division has been awarded ISO 9001,
EN46001 and ISO 13485 registration.
Market
The Drug Delivery Division will enter the commercial market with equipment
to be used in the treatment of cancer (oncology). Cancer is a life threatening
disease affecting millions of people worldwide. The World Health Organization
reports that cancer will remain one of the leading causes of death worldwide for
years to come. In the United States, approximately 12 million new cases have
been diagnosed since 1990. In 1999, the American Cancer Society estimates that
about 1.2 million new cancer cases will be diagnosed, excluding in situ
(non-invasive) cancers and non-melanoma skin cancers. Over 1 million new cases
of basal cell and squamous cell skin cancers are expected to be diagnosed in
1999, according to the American Cancer Society. To further illustrate the market
potential for EPT, solid tumor cancers comprise the first target for EPT and
they number 89% of all cancers. The remaining 11% are blood borne cancers.
The majority of cancer victims are over age 65 and are supported by
government funded programs. In the United States the costs of cancer, including
mortality, morbidity and direct medical costs, are approximately $107 billion
per year; $37 billion for direct medical costs (total of all health
expenditures), $11 billion for indirect morbidity costs (cost of lost
productivity due to illness), and $59 billion for indirect mortality costs.
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There is still very much that scientists do not know about this disease,
consequently, there are significant unmet needs in the treatment of cancer. The
oncology business unit within the Drug Delivery Division has initially targeted
those indications for which current treatment modalities result in a low quality
of life and morbidity, or those which have very high mortality rates.
Specialized applicators are being designed which will allow EPT to treat other
solid tumor cancers with a minimally invasive procedure.
In the United States, the cumulative dollar value of treatments and
technologies commonly used in the curative and palliative management of cancer
is expected to exceed $5 billion in 1999 and is expected to continue growing at
a rate of approximately 9.5% annually. Our analyses project that electroporation
therapy could be applicable to an estimated 500,000 or more cancer patients,
creating an estimated market opportunity of $1.5 billion per year.
Treatment of Tumors
Equipment made by the BTX Division has been used by our investigators and
in other laboratories to screen drugs for their effectiveness in killing tumor
cells in vitro and to study the drugs' mode of action. Our scientists, and
outside researchers, also have studied the combination of electroporation and
various agents to destroy tumors in vivo. We are currently conducting clinical
trials to evaluate the ability of the MedPulser electroporation drug and gene
delivery system, when used in conjunction with specific cancer drugs, to destroy
tumors in human patients.
In most of the clinical protocols, the site of the tumor is anesthetized
and the chemotherapeutic agent of choice (bleomycin) is injected directly into
the tumor. The therapeutic agent is allowed to diffuse throughout the tumor,
which can take up to several minutes depending on the size, type and location of
the tumor. Once the drug is distributed in the tumor, the electrical field is
applied by the MedPulser system.
The entire procedure can be completed in 20 minutes or less and typically
needs to be done only once. The dosage of drug used in the published results is
based on tumor volume, and is typically a small fraction ( 1/3 to as little as
1/50) of the dosage which would be used systemically. As a result of the lower
dosage administered locally, systemic side effects have been minimal. Tumor
necrosis with sloughing, ulceration and/or eschar were common reactions
following EPT that were usually routinely managed conservatively with no
additional treatment. No episodes of injury to normal (non tumor) tissue
adjacent to the tumors have been observed but there can be no assurances that
other side effects will not occur after more testing is performed and the side
effect profile of EPT is further defined.
MedPulser System
The MedPulser system is an electroporation system designed for the clinical
application of Electroporation Therapy (EPT). The technology is intended to
treat various malignant and non-malignant tumors by locally applying a
controlled electric field to targeted tumor tissues previously injected with a
chemotherapeutic agent. The controlled short duration electric field pulses
temporarily increase the cellular membrane permeability of the tumor cell
membrane allowing the therapeutic agent to more easily enter the tumor cells and
have the desired cytotoxic effect.
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The system is composed of two components: (1) a medical instrument, which
creates the electric field (the MedPulser instrument); and (2) a single use,
sterile, disposable electrode applicator. The electrodes may be needles, plates,
or other configurations, depending on the geometry of the tumor and its
location.
The instrument was designed for easy use, such that minimal user input is
needed to apply the therapy. Based on the size and anatomical location of the
tumor to be treated, a physician selects the most appropriate electrode
applicator. The chosen applicator is then connected to the MedPulser instrument,
and it is the connection of applicator to instrument that automatically
configures the therapy parameters for that particular applicator size and shape.
Currently, 12 different electrode applicator configurations are available. The
applicators vary in needle length, needle gauge, electrode needle spacing, tip
angle and handle configuration.
New models of electrode applicators will be considered in the future to
address customer needs. The system is designed such that the installed base of
MedPulser generator instruments allows for a wide variety of new electrode
applicator configurations. Also, the system incorporates other features to
minimize the possibility of applicator reuse as well as prevent the use of
competitive applicators with the MedPulser instrument.
The commercial version MedPulser system has been certified by an
independent test laboratory as meeting strict international product standards.
To date over 25 instruments have been used in human studies and 2000 therapy
sequences have been performed successfully with the MedPulser system in clinical
settings worldwide.
Our drug delivery device, including the MedPulser system and the disposable
electrode applicators, are subject to various regulatory requirements, depending
on the country of sale.
In the US, EPT utilizing the MedPulser system and bleomycin drug is
regulated as a combination drug-device system. We will be required to obtain
both drug labeling and device approvals from the United States FDA. Clinical
trials (Phase I, II and III) to support drug indication labeling require filing
an IND Application, or an Investigational New Drug Application, followed by
submission of a United States NDA, or New Drug Application, and submission of a
device PMA, or Pre-Market Approval or 510(k), for marketing approval.
In most of the rest of the world, we anticipate that the MedPulser system
will be regulated as a device. In Europe, the device comes under the Medical
Device Directive 93/42/EEC and marketing requires CE mark certification of
conformity to the quality system, production and clinical investigation
essential requirements of the directive. We have obtained CE mark certification,
which allows us to sell and use the MedPulser electroporation system for the
treatment of solid tumors with bleomycin in Europe. Genetronics' licensee in
oncology, Ethicon Endo-Surgery, Inc., plans to sell and distribute the MedPulser
system in Europe commencing in 2000.
Medical Device Manufacturing
The Drug Delivery Division must comply with a variety of regulations to
manufacture its products for sale around the world. In Europe, it must comply
with the Medical Device Directive (MDD) which mandates the presence of a quality
system and mandates product testing. The Drug Delivery Division has demonstrated
the quality system is in place by securing ISO 9001 approval. It demonstrated
compliance with international medical device
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standards with EN 46001 and ISO 13485 recognition. These all occurred in January
1999. In March 1999, the sufficiency of its product testing was demonstrated by
award of the CE Mark. To sell in the United States, we will need to comply with
FDA current Good Manufacturing Practices (cGMP). This process is underway.
We employ modern manufacturing practices which include outsourcing of
significant custom assemblies used in the manufacture of the instrument. The
instrument final assembly, testing and quality control functions are performed
in a separate location where the appropriate controls are employed. We outsource
the manufacture of the disposable electrode applicators to a GMP/ISO9002
compliant contract manufacturer.
Through these methods we attempt to optimize efficiencies of scale and
minimize manufacturing costs.
Clinical Trials
United States Trials
In late 1997 the FDA gave us clearance to initiate multi-center Phase II
clinical trials in the United States utilizing the MedPulser electroporation
system in combination with intralesional bleomycin to treat squamous cell
carcinoma in patients who failed conventional therapies. We obtained IND
clearance from the Canadian Health Protection Branch to initiate similar
clinical trials. Two protocols with target enrollments of 25 patients each were
initiated. One cross-over-controlled study evaluated the effectiveness of the
bleomycin-EPT treatment in patients who failed an initial bleomycin-alone
treatment; one open label study evaluated the effect of bleomycin-EPT directly
administered to the study tumors.
Twenty-three patients were enrolled in the crossover study and 18 patients
were enrolled into the open label bleomycin-EPT trial. The primary study
endpoint of tumor response (50% or greater reduction in tumor size in at least
6/25 patients treated) has been achieved in both studies and the interim results
were presented to the FDA at an "end-of-Phase II" meeting to discuss the pivotal
clinical trial for NDA submission. A summary of the data is provided in the
table below:
<TABLE>
<CAPTION>
RESPONSE(1)
--------------------------
RESPONDER NON-RESPONDER
CLINICAL TRIAL PATIENTS TUMORS TUMORS TUMORS
-------------- -------- ------ --------- -------------
<S> <C> <C> <C> <C>
North America Phase
I/II................... 8 8 6(75%) 2(25%)
North America Phase II... 23 33 0(0%) 32(97%)
01 Study
Control Group(2)
North America Phase II... 15 18 11(61%) 6(33%)
01 Study
North America Phase II... 18 24 16(67%) 6(25%)
02 Study
European Study........... 12 19 12(63%) 7(36%)
</TABLE>
- -------------------------
(1) Four tumors could not be evaluated
(2) Control Group patients received only drug, no electric field
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The two Phase II protocols involved a total of 42 tumors treated with
bleomycin and EPT. Tumors treated in the trial include squamous cell carcinoma
of the face, oral cavity, pharynx, larynx and sinus. The volume of tumors
treated ranged from less than one cubic centimeter to more than 132 cubic
centimeters. In the crossover controlled Phase II study, patients initially
received only the drug (the control group). Patients who did not respond to drug
alone were then treated with the complete system of drug and electric field, EPT
(treatment group). Of the 33 lesions on 23 patients treated only with drug, none
demonstrated a clinical response. Fifteen of these patients, having 18 lesions,
were subsequently treated with bleomycin and EPT and 61% achieved a clinical
response. In the open-label Phase II study, all patients received full EPT as
their initial treatment. Among the 18 patients (24 lesions) so treated, 67%
achieved a clinical response.
We believe that a limited well-controlled Phase III trial for palliative
treatment of head and neck cancer in patients who failed conventional therapy
will be sufficient to support NDA submission for this indication. Treatment of
primary (new) disease will involve expanded Phase II and Phase III trials
pending successful outcome of the initial Phase I/II studies. Protocols are
being finalized for a Phase III clinical trial for palliative treatment of
advanced head and neck cancer and for a Phase I trial to treat early stage,
primary disease.
International Trials
In late 1997 and early 1998, we received ethics committee approval from
multiple Consulting Committees for the Protection of Humans in Biomedical
Research (CCPPRB) to initiate clinical trials in France in patients with
pancreatic cancer, metastatic cancer to the liver, head and neck cancer,
melanoma and Kaposi's sarcoma. These trials were initiated to demonstrate the
MedPulser system device safety and performance in treating a variety of solid
tumors in support of CE mark certification in accordance with the essential
requirements of EC Medical Device Directive 93/42/EEC. Results from these trials
will be released in due course. We achieved CE mark certification in March 1999
from notified body TUV Product Service GMBH.
We, in collaboration with Ethicon Endo-Surgery, Inc., our corporate partner
in oncology, are planning expanded head and neck cancer and liver metastases
clinical trials in France and selected EC countries to support European
marketing efforts and expanded use claims. We will collaborate with Ethicon
Endo-Surgery, Inc. on these trials.
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Research and Development Summary
The Drug Delivery Division has, in the past, focused its research primarily
in the areas of oncology, gene therapy, vascular therapy, transdermal delivery
and dermatology. At present, the primary areas of focus are oncology and gene
therapy.
The following table summarizes the programs undertaken by the Drug Delivery
Division, the primary indications for each product and the current status of
development. "Developmental" means the program is at the planning stage, and
little, if any, animal work has commenced. "Preclinical data" means the program
is at the stage where results from animal studies have been obtained. "Clinical
Trials" means that human data are available.
SUMMARY TABLE
<TABLE>
<CAPTION>
STAGE OF APPROVAL
DEVELOPMENT ------------------------------------
PROGRAMS STATUS US & CANADA EUROPE
-------- ----------------------- ------------------- ---------------
<S> <C> <C> <C>
DERMATOLOGY
Basal Cell Cancer.... Clinical Trials Two pilot studies N/A
completed.
Genital Warts........ Developmental N/A N/A
ONCOLOGY
Head and Neck
Cancer............ Clinical Trials Phase II Clinical CE Mark and ISO
Trials in process. 9001 Received
Melanoma............. Clinical Trials N/A CE Mark and ISO
9001 Received
Metastatic Liver
Cancer............ Clinical Trials N/A CE Mark and ISO
9001 Received
Peripheral Sarcoma... Preclinical data N/A CE Mark and ISO
9001 Received
Breast Cancer........ Preclinical data N/A CE Mark and ISO
9001 Received
Prostate Cancer...... Preclinical data N/A CE Mark and ISO
9001 Received
Glioma............... Preclinical data N/A CE Mark and ISO
9001 Received
GENE THERAPY
In vivo Gene
Transfer.......... Preclinical data N/A N/A
VASCULAR THERAPY
Coronary Artery...... Preclinical data N/A N/A
Disease, Marker
genes & drugs
Vascular Disease,.... Preclinical data N/A
Heparin delivery
TRANSDERMAL DELIVERY
PGE-1 delivery for... Tolerance study One Device N/A
Erectile dysfunction Tolerance
study completed.
Calcitonin........... Preclinical data N/A N/A
Vitamin C............ Preclinical data N/A N/A
</TABLE>
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Gene Therapy
Gene therapy, in classical terms, involves the introduction of new genetic
information into cells (transfection) for therapeutic purposes. Somatic cells of
the body are transfected with a specific functioning gene to compensate for a
genetic defect that results in a deficiency of a specific protein factor. In
this context, one goal of gene therapy is to convert target cells or tissues
into "protein factories" for the production and secretion of a normal protein
into the circulation. Many vexing genetic illnesses, including those currently
treated by regular injection of a missing protein, can potentially be "cured" by
supplying the functional gene to a sufficient number of cells under conditions
which allow these cells to produce a therapeutically effective dose of the gene
product.
Currently, single-gene recessive genetic disorders are the most accessible
targets for correction by gene therapy, but ultimately polygenic and acquired
diseases can and will be treated by using genes as pharmaceutical agents. In
principle, any aspect of metabolism can be manipulated by modifying gene
function, and it is this application of gene therapy that has enormous
potential, extending far beyond the treatment of rare genetic diseases. For
example, the ability to influence cellular metabolism by introducing specific
genes has lead to extensive investigation into the use of gene therapy for
cancer treatment. By adding a tumor suppressor gene to certain types of cancers,
the uncontrolled growth of those cells potentially could be brought under normal
regulation. Likewise, transfecting tumor cells with genes capable of inducing
apoptosis can result in tumor ablation.
The methods of introducing genes have two specific approaches. Gene therapy
can be performed either ex vivo or in vivo. Ex vivo gene therapy is the
transfection of cells outside the body. Typically, a small amount of tissue is
removed from the patient and the cells within that tissue are put into culture.
The genetically modified cells, typically blood, bone marrow or others, are then
returned back to the patient, usually by blood transfusion or direct engraftment
In vivo gene therapy is the introduction of genetic information directly into
cells of the patient's body. Theoretically, any tissue or cell type in the body
can be used, and the choice is dependent on the specific goals of treatment and
indications being treated. For internal tissue targets, a gene may be transfused
through the blood stream to the organ or site of action, or it may be injected
at the desired site, which is then electroporated to allow the gene to pass
through the cell membrane.
Genes can also be applied topically to skin and then transferred into the
cells of the epidermis by electroporation. Epidermal gene delivery by
electroporation for gene therapy is currently being investigated by us as a
safe, effective and cost-competitive approach. The skin is also a target for DNA
vaccination. "Vaccinating" skin with DNA that encodes a specific antigen present
in infectious agents or in tumor cells can produce beneficial immunological
responses. Genes can also be used to fight cancer. The thymidine kinase gene in
conjunction with the prodrug ganciclovir produces a potent antitumor effect
based on apoptotic cell killing via a bystander effect. Animal trials treating
glioblastomas using this strategy have shown dramatic success.
To make gene therapy a reality, many obstacles have to be overcome,
including the safe, efficient delivery of the intact DNA construct into the host
cells. The instrumentation being used by us for high efficiency in vivo gene
transfer is derived from the instrumentation developed for intratumoral and
transdermal drug delivery. We believe that electroporation will become the
method of choice for DNA delivery to cells in many applications of gene therapy.
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Because of the broad applicability of this technology, we have adopted the
strategy of co-developing or licensing its technology exclusively or
non-exclusively for specific genes or specific medical indications. In most
cases, we contribute proprietary technology, expertise and instrumentation to
optimize the delivery technology for particular applications. A partner company
provides their proprietary DNA constructs, conducts the pre-clinical research
and clinical trials, and may introduce the new treatment and products to the
marketplace. Both partners would share in the commercial success of the project.
We have actively sought partners to develop this exciting technology to its full
potential.
BTX DIVISION
Overview
We, through our BTX Instrument Division, began developing and manufacturing
electroporation equipment for the research laboratory market in 1983 and sold
our first product in 1985. BTX was founded to develop and manufacture high
quality scientific instrumentation that can be used to perform various types of
electroporation experiments for research scientists. Electroporation in research
is commonly used for transformation and transfection of all cell types, as well
as for general molecular delivery at the cellular level. Transformation is a
process by which the genetic material carried by an individual cell is altered
by incorporation of exogenous DNA into its genome. Transfection is the uptake,
incorporation, and expression of exogenous DNA by eukaryotic cells.
The BTX Division is presently a leader in the field of electroporation
instruments and equipment, with more than 2,000 customers in universities,
companies, and research institutions worldwide. The BTX Division sells its
electroporation/electro cell fusion instrumentation and accessories in all 50
states of the United States and in over 45 foreign countries. BTX currently
produces an extensive line of electroporation instruments and accessories,
including eight electroporation and electrofusion instruments, one monitoring
device, 32 electrodes and 25 accessories.
Products
BTX developed the square wave generator and graphic pulse analyzer for in
vivo gene delivery and nuclear transfer research, fields of rapidly increasing
scientific and medical interest. BTX also has developed a versatile cell fusion
system on the market, the only commercial large volume flow-through
electroporation system, and offers an extensive collection of in situ
electroporation applicators.
BTX focused its efforts in 1998 on product development and promotion of its
line for new and sophisticated applications. BTX released the new ECM(TM) 830, a
sophisticated square wave electroporation system with a menu driven digital user
interface. During the year, publications outlined the utilization of BTX
equipment in newly developing animal in vivo gene delivery research. In the
support of this research, BTX has expanded its in vivo electrode offering and
continues to emphasize the development of novel applicators.
The BTX Division's products include four different exponential Decay Wave
Generators, three Square Wave Generators, one Electro Cell Fusion instrument and
a Graphic Wave Display Monitor (the Enhancer(TM) 400), to monitor the progress
of experiments. In addition, the BTX Division markets a wide range of
sophisticated accessories and electrodes, as well as the standard disposable
electroporation cuvettes.
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Exponential decay generators have been traditionally used for the
electroporation of all cell types. Square wave generators have shown the
greatest utility in the electroporation of mammalian and plant cells, as well as
for animal in vivo applications. The Electro Cell Fusion System is used by
researchers for embryo manipulation techniques, hybridoma and quadroma
formation, as well as for all cell fusion applications.
While we, through our BTX Division, sell devices purportedly used by others
for non-human embryo cloning, we ourselves do not conduct embryo cloning. All of
our BTX Division instruments sold to the research market carry the label "not
for human use." Management is not aware of any regulations or industry
guidelines limiting the use of our instrumentation in the animal research
market. We comply with all National Institute of Health guidelines on cloning
and gene therapy. We also comply with all Federal and State regulations
regarding the restrictions on research imposed on federally funded grants.
The BTX Division supplies several cuvette models, as do its competitors,
plus some 20 additional specialized chambers and electrodes for electroporation.
The availability of these products (e.g., 96 Well Coaxial Electrode, Petri Dish
Electrode) provides the BTX Division with an entry into the large volume and
multi-sample processing arenas used by the major pharmaceutical and biotech
companies conducting drug research.
The BTX Division meets regulatory requirements necessary to provide
instrumentation to the research market for in vivo and in vitro animal
experimentation. The BTX Division does not market equipment for use in humans,
and, therefore, is not required to receive marketing approval from the FDA.
Distribution
The main distributor of the BTX Division's products in North America is VWR
Scientific Products Corporation, one of the largest laboratory products supplier
in the United States. This distributor has approximately 200 representatives
dedicated to the biological sciences in the United States and Canada. In
addition, the BTX Division has distributed and may continue to distribute
through Intermountain Scientific Corporation, which has 25 field sales
specialists in the same territory. The BTX Division has over 40 international
distributors in the major countries of the world, and its products are presently
sold in 45 countries. The BTX Division supports its distributors with
advertising, exhibit exposure and lead generation. The BTX Division also holds
an annual sales meeting for its distributors.
Advertising
Our BTX Division advertises in major national and international scientific
journals such as Science, Nature, Genetic Engineering News, and BioTechniques.
The BTX Division also attends and displays its products at about one scientific
conference per month such as American Association for Cancer Research, National
Institute of Health and Neuroscience. On a quarterly basis the BTX Division
utilizes direct mail to an identified mailing list for specific product
promotion.
Competition
The main competitors of our BTX Division in the research marketplace are
BioRad Laboratories, Eppendorf Scientific, Inc. and Invitrogen Corporation.
There are several other companies entering and departing this market on a
regular basis. All of these
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<PAGE> 48
companies have other molecular biology product lines besides electroporation,
while electroporation is the only business of the BTX Division. Most competing
domestic manufacturers concentrate on the exponential decay wave system and do
not compete in the square wave or electro cell fusion markets at this time.
STRATEGIC PARTNERS
License and Development Agreement
On October 6, 1998, we entered into a comprehensive License and Development
Agreement and a Supply Agreement with Ethicon, Inc., a Johnson & Johnson
company, involving the use of the MedPulser system for Electroporation Therapy
in the treatment of solid tumor cancer. Also, on October 6, 1998, we entered
into a Stock purchase Agreement with Johnson & Johnson Development Corporation,
also a Johnson & Johnson company, pursuant to which Johnson & Johnson
Development Corporation purchased $6 million of common shares from us at a price
of $2.68 per common share. On August 5, 1999, we announced that Ethicon, Inc.
had assigned its obligations and responsibilities under certain development and
license, and supply agreements with us to Ethicon Endo-Surgery, Inc., another
Johnson & Johnson Company.
The License and Development agreement sets out that Ethicon Endo-Surgery,
Inc. is required to pay for all future development and clinical and regulatory
activities worldwide (excluding Canada) for oncology products utilizing the
MedPulser system. Upon regulatory approval, Ethicon Endo-Surgery, Inc. will
distribute and market worldwide (excluding Canada) the oncology products
supplied by us. We retain the right to distribute and market oncology products
in Canada. We have received a $4 million up-front license fee and will be
receiving future milestone payments from Ethicon Endo-Surgery, Inc. Under the
agreements, we receive a percentage of net sales as license fees and a fee for
the manufacture of products.
Bleomycin Agreements
We have entered into a supply agreement with Abbott Laboratories to
purchase the approved anti-cancer drug sterile bleomycin sulfate for use in the
United States with our MedPulser system in the treatment of patients with solid
tumor cancers. Under a separate agreement, we have entered into a supply
agreement with Faulding, Inc. to purchase bleomycin sulfate for use in Canada.
Bleomycin is a cytotoxic drug having a poisonous effect on cells, which has been
approved by the Food and Drug Administration in the United States and the Health
Protection Branch in Canada, and used as a chemotherapeutic agent in North
America for the treatment of cancer for more than 25 years. Bleomycin is
presently marketed in more than 40 countries.
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<PAGE> 49
SALES AND REVENUE
The following table provides the amount of net product sales, interest
income, and revenue from grant funding and research and development agreements
generated by us for the past three fiscal periods.
<TABLE>
<CAPTION>
06/30/99 03/31/99 03/31/98 02/28/97
PERIOD ENDED: 3 MONTHS 12 MONTHS 13 MONTHS 12 MONTHS
------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET PRODUCT SALES
United States..................... $427,616 $2,136,180 $1,945,389 $1,550,774
Rest of World..................... 271,462 1,297,925 1,151,809 1,489,960
INTEREST INCOME
United States..................... 51,862 248,417 250,197 49,858
Canada............................ 16,421 52,494 177,301 21,348
GRANT FUNDING
United States..................... 198,385 354,135 128,069 38,856
REVENUES UNDER COLLABORATIVE
RESEARCH AND DEVELOPMENT
ARRANGEMENTS
United States..................... 0 33,048 6,025 8,583
LICENSE AND DEVELOPMENT AGREEMENTS
Ethicon, Inc. .................... 0 4,500,000 0 0
</TABLE>
We, like many biomedical companies, devote a substantial portion of our
annual budget to research and development. For the year ended February 28, 1997,
research and development expenses totaled $2,200,464; for the thirteen months
ended March 31, 1998 they totaled $5,637,955, and for the year ended March 31,
1999 they totaled $8,086,959. These amounts far exceed revenues from research
arrangements and contribute substantially to our losses. Our Management
anticipates a reduction in losses when it markets products developed by its Drug
Delivery Division. The first such products are expected to be launched in Europe
in the first half of 2000, and subsequently in the United States and Canada.
INTELLECTUAL PROPERTY
As of August 1, 1999, we had 161 issued, licensed, allowed, or pending
patents. Of these, we have 45 pending United States patent applications, 3
allowed United States patent applications, 19 issued United States patents, and
1 licensed United States patent for a total of 68. We also have 93 foreign
submissions, 73 of which are pending and 20 of which have been issued or
allowed.
We have registered on the Principal Register of the United States Patent
and Trademark Office the following trademarks: BTX, ELECTRONIC GENETICS,
MANIPULATOR, OPTIMIZOR, HUMAN IN SQUARE (Design) and MEDPULSER. The following
U.S. trademark applications are pending: COSMETRONICS, ENHANCER, GENETRODES and
GENETRONICS. We have registered the BTX and MEDPULSER trademarks in Canada, and
have applied for GENETRONICS in Canada. We have a European Community Trade Mark
registration for GENETRONICS and have filed for BTX and MEDPULSER Community
Trade Marks. We have registered the MEDPULSER mark in Japan and have applied for
BTX in Japan. We have registered the
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<PAGE> 50
BTX mark in South Korea and have registered the GENETRONICS mark in the United
Kingdom. We are not aware of any claims of infringement or other challenges to
our rights to use our marks in the United States.
PROPERTIES
We own no real property and have no plans to acquire any real property in
the future. We currently lease a facility of 24,931 square feet at our
headquarters in San Diego. This facility provides adequate space for our current
research, manufacturing, sales and administrative operations. The current lease
for 24,931 square feet runs through December 31, 1999. As of August 26, 1999, we
have entered into an agreement to lease the same premises until December 31,
2004.
EMPLOYEES
As of September 17, 1999, we employed 73 people on a full-time basis. Of
the total, 32 were in product research and development, 10 in sales, marketing
and support, 18 in manufacturing, and 12 in finance and administration. Our
success is dependent on our ability to attract and retain qualified employees.
Competition for employees is intense in the biomedical industry. The employees
of Genetronics are not subject to collective bargaining agreements.
LEGAL PROCEEDINGS
Our employment of Lois J. Crandell, our former President and Chief
Executive Officer, and Gunter A. Hofmann, our former Chief Scientific Officer,
ended on September 7, 1999. We have received written correspondence from counsel
for Ms. Crandell and Dr. Hofmann regarding their rights to compensation and
severance benefits pursuant to their employment agreements. We are currently
negotiating the terms of separation agreements with Ms. Crandell and Dr.
Hofmann. Ms. Crandell and Dr. Hofmann may initiate arbitration or legal
proceedings against us if we cannot agree on the terms of their separation
agreements.
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<PAGE> 51
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth our directors and executive officers, their
ages and the positions held by them with Genetronics as of September 17, 1999.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Martin Nash.................... 52 Director, Chief Executive Officer, President and
Chief Financial Officer
James Lierman.................. 52 Chief Operating Officer
Lois J. Crandell............... 57 Director
Gunter A. Hofmann.............. 64 Director
James L. Heppell(1)(3)......... 43 Director, Interim Chairman of the Board
Suzanne L. Wood(2)(3).......... 42 Director
Gordon Politeski(1)(2)(3)...... 56 Director
Wayne Schnarr(2)(3)............ 48 Director
Stan Yakatan................... 57 Director
Felix Theeuwes(3).............. 62 Director
Gordon Blankstein(1)........... 49 Director
</TABLE>
- -------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of Nomination and Corporate Governance Committee
MARTIN NASH has been the President and Chief Executive Officer of
Genetronics since September 1999 and its Chief Financial Officer since June
1999. He has been a director since July 1997. From April 1996 to September 1999
he was Senior Vice President of Genetronics. He has also served as Senior Vice
President of Genetronics, Inc. since June 1994 and a director of Genetronics,
Inc. since April 1996. Prior to joining Genetronics in 1994, Mr. Nash was
co-founder, Chief Executive Officer and Chief Financial Officer of Cypros
Pharmaceutical Corporation (NASDAQ), co-founder of Corvas International, Inc.
(NASDAQ), and Vice President of Corporate Development at Synbiotics (NASDAQ). He
was also President of Molecular Biosystems, Inc. (NYSE) and held a variety of
marketing and business development management positions at Ortho Diagnostics,
Inc., a division of Johnson & Johnson, and at Becton Dickinson & Company. In
1990 Mr. Nash was President of the Association of Biotechnology Companies. Mr.
Nash received a Bachelor of Arts and Sciences degree from Boston College.
JAMES LIERMAN has been Chief Operating Officer of Genetronics since
September 7, 1999. Prior to that, he was Vice President for Corporate
Development and was responsible for the negotiation and execution of the
strategic license and development agreement between the Company and Ethicon,
Inc., a Johnson & Johnson company, for the use of Genetronics proprietary drug
delivery system for the electroporation therapy of solid tumors. Mr. Lierman is
past President and CEO of the San Diego-based River Medical Inc., a biomedical
company specializing in intravenous drug therapy systems. Prior to managing
River Medical, Mr. Lierman was Director, Commercial Development for Abbott
Laboratories, Hospital Products Division, where he was responsible for
licensing, acquisitions and contract manufacturing sales. He is a graduate of
Monmouth University and holds 12 patents.
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<PAGE> 52
LOIS J. CRANDELL, was the President, Chief Executive Officer and a Director
of Genetronics Biomedical from September 1994 until her employment with us ended
in September 1999, and President, Chief Executive Officer and a Director of
Genetronics, Inc. from January 1992 until September 1999. Ms. Crandell continues
to be a director of Genetronics Biomedical Ltd. Prior to joining Genetronics,
Inc. in 1991, Ms. Crandell co-founded the venture capital firm, More than Money
Ventures in 1988. Ms. Crandell also founded Crandell Communications and was Vice
President and a Director of Medical Wellness Technologies, Vice President of
Peterson-Morris MacLachlan and held product and marketing management positions
at Medtronic, Inc. and Control Data Corporation. Ms. Crandell holds two patents
and is a Board Member of BIO/COM San Diego, an industry trade organization, and
UCSD Cancer Research Foundation.
GUNTER A. HOFMANN, Ph.D., was the Chairman of the Board and Chief
Scientific Officer of Genetronics Biomedical Ltd. from September 1994 until his
employment with us ended in September 1999, and was Chairman of the Board and
Chief Scientific Officer of Genetronics, Inc. from January 1992 until September
1999. Dr. Hofmann continues to be a director of Genetronics Biomedical Ltd.
Prior to founding Genetronics, Inc., in 1983, Dr. Hofmann managed the product
development and technology transfer activities of Maxwell Laboratories. Dr.
Hofmann holds approximately 50 patents and has several others pending. Dr.
Hofmann received his doctorate in Physics from the Max-Planck-Institute for
Plasma Physics in Germany.
JAMES L. HEPPELL has been a Director of Genetronics Biomedical Ltd. and
Genetronics, Inc. since September 1994 and interim chairman since September
1999. Mr. Heppell is a partner at Catalyst Corporate Finance Lawyers in British
Columbia. Mr. Heppell provides corporate finance legal services to technology
issuers. His expertise lies in representing biotechnology companies, instructing
and carrying out cross-border financings and in dealing with the requirements of
all major Canadian exchanges, as well as NASDAQ. Mr. Heppell is also a Director,
President and Chief Executive Officer of Mecca Medi-Tech, Inc. and a Director of
Sabretooth Holdings, Inc. and the Secretary of Forbes Medi-Tech, Inc., BCY
Ventures, Inc. and Response Biomedical Corp. In addition to his L.L.B., Mr.
Heppell has a Bachelor of Science degree in Microbiology from the University of
British Columbia.
SUZANNE L. WOOD has been a Director of Genetronics Biomedical Ltd. and
Genetronics, Inc. since June 1989. Ms. Wood is a principal of Wood & Associates,
a financial and management consulting firm servicing public and private
companies since 1982. She also serves as President and Director of The Neptune
Society, Inc., and Clickbytel, Inc. Her 15 years experience in financial and
corporate management include positions as Controller and Director of the Mitek
Group of Companies, Vice President and director of Barrington Petroleum Ltd.,
and Controller of Ice Stations Resources Ltd. Ms. Wood received her Bachelor of
Arts from the University of British Columbia, where she also attained three
years of post-graduate training. During her employment with Revenue Canada
Taxation in the Business Audit Division, she completed four levels of the
Certified General Accountants Program.
STAN YAKATAN has been a Director of Genetronics Biomedical Ltd. and
Genetronics, Inc. since July 1997. Mr. Yakatan is currently Chairman of Quantum
Biotechnologies, Inc., a development stage company. Mr. Yakatan is Chairman and
managing partner of Katan Associates, a financial consulting company and he is a
board member of Quantum Biotechnologies, Inc., Phycogen, Inc. and Conjuchem,
Inc. Mr. Yakatan is an advisory board member of BioCapital, ComMIT Systems,
Arete, S3M,
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<PAGE> 53
SynData, and he serves in an advisory capacity to Avanir Pharmaceuticals. From
1994 to 1995, Mr. Yakatan was Chief Executive Officer of Cystar. From 1991 to
1993 Mr. Yakatan was Chairman and Chief Executive Officer of Unisyn Technologies
Inc., a development stage biotechnology company. Previously, he was Executive
Vice President of New Brunswick Scientific, Inc. and President and Chief
Executive Officer of Biosearch, a biotech company previously based out of San
Rafael, California, and specializing in the manufacture of DNA and peptide
synthesizers, prior to its sale to Millipore. Mr. Yakatan has a Masters degree
in Business Administration from the University of Pennsylvania.
GORDON POLITESKI has been a Director of Genetronics Biomedical Ltd. and
Genetronics, Inc. since May 1997. Mr. Politeski is currently Director of SBL
Technologies Medical Laser Group. He is former President and Chief Executive
Officer of Harley Street Software, involved in ambulatory ECG monitoring, and is
former President and Chief Executive Officer of Nortran Pharmaceuticals, Inc.
where he took their first drug candidate successfully through a Phase I clinical
trial. As founding President and Chief Executive Officer of Biomira, Inc., a
cancer diagnostics and therapy company, Mr. Politeski took Biomira from the
Alberta Stock Exchange to the Toronto Stock Exchange and subsequently to the
NASDAQ. He has also served as President and General Manager for Allergan
Pharmaceuticals in ophthalmology and currently is a Director of Sabretooth
Holdings, Inc. and a Director of BCY Ventures, Inc., both publicly traded
venture capital pool companies. Mr. Politeski is a graduate of the University of
Saskatchewan and the Amos Tuck Executive Program at Dartmouth University.
WAYNE SCHNARR, Ph.D. has been a Director of Genetronics Biomedical Ltd. and
Genetronics, Inc. since September 1997. Dr. Schnarr is currently Vice President
and Director of BioCatalyst Yorkton, Inc. of Toronto, a venture management firm
which is involved in fostering technological advances in the biotechnology and
health care sectors. Previously, Dr. Schnarr has been a Life Sciences Analyst
for Yorkton Securities, Inc. of Toronto. His 15 years of experience in the
pharmaceutical industry include management experience in research, marketing,
and manufacturing with companies such as Canada Packers Chemical Division and
Connaught Laboratories. Dr. Schnarr has also been President of Pharma Patch plc,
a publicly traded transdermal drug delivery company in Toronto, as well as
Research Director for the Canadian Drug Manufacturers Association, which
represents the Canadian generic drug industry. Dr. Schnarr is also a Director,
Chief Financial Officer, and the Vice President Business Development of BCY
Ventures, Inc., a publicly traded venture capital pool company. Dr. Schnarr
received his B.Sc. in Chemistry from the University of Victoria (B.C.) in 1973
and his Ph.D. in Carbohydrate Chemistry form Queens University (Kingston) in
1977. He subsequently obtained his MBA from York University in Toronto.
FELIX THEEUWES has been a Director of Genetronics Biomedical Ltd. and
Genetronics, Inc. since August, 1999. From 1970 to June 1999 Dr. Theeuwes held
various positions within Alza Corporation, directing research, technology
development and product development for a variety of controlled drug delivery
systems. Presently, Dr. Theeuwes is the chairman and Chief Scientific Officer of
Durect Corporation which is a spin out from Alza Corporation to focus on the
development of products based on the DUROS(TM) system technology. Dr. Theeuwes
work led to the product introduction of the Alzet(R) mini osmotic pump series
for animal research, and the OSRO(R) systems series of products. He directed
research in transdermal research and development, initiated the
electrotransport/ ionphoresis program, and initiated the DUROS(TM) osmotic
implant program. Dr. Theeuwes holds more than 210 United States patents covering
these systems and has published more
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<PAGE> 54
than 80 articles and chapters of books. Dr. Theeuwes is a member of the board of
directors of Vinifera Inc., and Durect Corporation and a member of the
scientific advisory board at Antigenics. In 1993, Dr. Theeuwes completed the
Stanford Executive Program at Palo Alto, California.
GORDON BLANKSTEIN joined the Boards of Genetronics Biomedical Ltd. and
Genetronics, Inc. on September 7, 1999. Mr. Blankstein founded GST Global Light
Telecommunications Inc. ("GSTTT") in 1992. He has been the Chairman of the board
of directors of that corporation since October 1996. Mr. Blankstein was a
director of NACT Telecommunications, Inc. a publicly traded subsidiary of GSTTI.
He is a founder, past President, Chairman of the board and former director of
ICG Communications, Inc. a publicly traded telecommunications services provider.
Mr. Blankstein is also currently the Chairman of the board of directors of
Bluestar Battery Systems International Corp. and Comptec Industries Ltd. and is
Vice-Chairman and a director of Highpoint Telecommunications Inc. He is a former
member of the Policy Advisory Committee of the Vancouver Stock Exchange. Mr.
Blankstein holds a bachelor's degree and an M.B.A. from the University of
British Columbia.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee meets with our independent auditors at least annually
to review the results of the annual audit and discuss the financial statements;
recommends to the Board the independent auditors to be retained; and receives
and considers the auditors' comments (out of the presence of management) as to
controls, adequacy of staff and management performance and procedures in
connection with audit and financial controls. The Audit Committee is composed of
three directors: Suzanne L. Wood (Chairwoman), Gordon Politeski and Wayne
Schnarr.
The Compensation Committee makes recommendations based upon management's
suggestions regarding the salaries and incentive compensation for officers and
key employees and performs such other functions regarding compensation as the
Board may delegate. The Compensation Committee is composed of Gordon Blankstein,
Gordon J. Politeski and James L. Heppell.
The Nomination and Corporate Governance Committee identifies and recommends
candidates for election to the Board of Directors. It advises the Board of
Directors on all matters relating to directorship practices, including the
criteria for selecting directors, policies relating to tenure and retirement of
directors and compensation and benefit programs for non-employee directors. The
Nomination and Corporate Governance Committee also makes recommendations
relating to the duties and membership of committees of the Board of Directors,
recommends processes to evaluate the performance and contributions of individual
directors and the Board of Directors as a whole and approves procedures designed
to provide that adequate orientation and training are provided to new member of
the Board of Directors and consults with the Chief Executive Officer in his
process of recruiting new directors and assists in locating senior management
personnel and selecting members for the scientific advisory board. The
Nomination and Corporate Governance Committee has developed a policy to govern
our approach to corporate governance issues and provides a forum for concerns of
individual directors about matters not easily or readily discussed in a full
board meeting, e.g., the performance of management. The Nomination and Corporate
Governance Committee is composed of
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Wayne Schnarr (Chairman), James L. Heppell, Suzanne L. Wood, Gordon J.
Politeski, and Felix Theeuwes.
DIRECTOR COMPENSATION
Our outside directors are paid a fee of US $1,000 per day for each board or
committee meeting a director attends in person; a director participating
telephonically is paid US $500 per day for each such meeting. In addition, each
of the outside directors generally receives an annual grant of an option to
purchase our common shares. In the last completed fiscal year, each outside
director was granted an option to purchase 25,000 shares of our common stock at
US$3.78 per share. Inside directors do not receive separate compensation for
their participation in board or committee meetings. We pay all reasonable
expenses associated with directors' attendance at, and participation in, board
and committee meetings, and other company business to which a director attends.
As described in note 14 to the consolidated financial statements, we paid
legal fees to the Law Firm of Catalyst corporate Finance Lawyers in Vancouver,
British Columbia, Canada, in the amount of US $93,778 in the year ended March
31, 1999. James L. Heppell, a partner of that law firm, is one of our Directors.
We also paid accounting and administrative fees to Wood & Associates of
Vancouver, British Columbia, Canada, in the amount of US $26,735 in the year
ended March 31,1999. Suzanne Wood, the Principal of Wood & Associates, is also
one of our Directors. For the year ended March 31, 1999, we paid US $114,900 to
a company where one of the principals is an officer of our former French
subsidiary.
In the fiscal year ended March 31, 1999, we paid $1,500 to Stan Yakatan,
one of our Directors, for consulting services with respect to our BTX Division.
We also sold research-use equipment to Quanum Biotechnologies, Inc., a company
in which Mr. Yakatan was the Chief Executive Officer and Chairman of the Board
at the same time he was a director of our Company, at the customary price we
sell the same or similar equipment to other similarly situated purchasers.
BOARD-COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining the compensation
of our executive officers. The members of the Compensation Committee during the
last ended fiscal year were Stan Yakatan (Chair), Gunter A. Hofmann, Gordon J.
Politeski, and James L. Heppell. Gunter Hofmann was our Chief Scientific Officer
during the fiscal year, and resigned from the Compensation Committee on July 26,
1999; his employment with us ended on September 7, 1999. Dr. Hofmann remains a
director. As of September 17, 1999, the compensation committee is composed of
James L. Heppell, Gordon Politski and Gordon Blankstein.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation of Gunter A. Hofmann, Lois
J. Crandell, Martin Nash and James Lierman for the last three completed fiscal
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ---------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR(1) SALARY($) BONUS($) OPTIONS/SARS(2) COMPENSATION(3)
------------------ ------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Gunter A. Hofmann(4)......... 1999 179,785 35,200 135,200 14,083
Director, and former Chief 1998 179,445 -0- 25,000 13,383
Scientific Officer 1997 160,539 32,000 105,000 7,090
Lois J. Crandell(5).......... 1999 179,990 43,125 143,125 14,021
Director, former President
and 1998 174,997 -0- 65,000 13,217
CEO 1997 149,688 37,500 100,000 12,230
Martin Nash.................. 1999 140,573 27,200 127,200 7,520
Director, President, CEO
and 1998 134,118 -0- 25,000(7) 12,181
CFO(6) 1997 115,000 23,000 97,000 11,957
James C. Lierman(8).......... 1999 136,500 200,000 127,000 3,072
Chief Operating Officer 1998 146,463 45,000 20,000 3,777
1997 100,000 0 20,000 1,231
</TABLE>
- -------------------------
(1) For 1998 and 1999, the period year ended March 31. We changed our fiscal
year end from February 28, 1998 to March 31, 1998. Therefore the summary
compensation information for fiscal year end March 31, 1998 includes
thirteen months. For 1997, the fiscal year ended February 28.
(2) We do not have Stock Appreciation Rights. All noted securities are options.
(3) The noted Other Compensation includes cash contributions made by us to
purchase, on the open market, our common shares for the named executives'
401(k) accounts. Also included for Dr. Hofmann, Ms. Crandell and Mr. Nash
are amounts paid for life insurance premiums and that portion of automobile
leases attributed to business use and, for Ms. Crandell, amounts paid for
disability insurance premiums.
(4) Dr. Hofmann's employment with our company ended on September 7, 1999 and he
remains a director.
(5) Ms. Crandell's employment with our company ended on September 7, 1999 and
she remains a director.
(6) On June 10, 1999 Martin Nash was appointed our Chief Financial Officer and
on September 7, 1999 he was appointed our President and Chief Financial
Officer.
(7) An additional grant of 25,000 options, the exercise of which was contingent
upon the occurrence of a future event, was cancelled in the last completed
fiscal year. This grant is not included in the Summary Compensation Table.
(8) On September 7, 1999, Mr. Lierman was appointed our Chief Operating Officer.
55
<PAGE> 57
STOCK OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR
The following table sets out stock options granted to each named executive
officer during our fiscal year ended March 31, 1999:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL EXERCISE RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS OR BASE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO PRICE TERM (CDN $)
OPTIONS/SARS EMPLOYEES IN (CDN$/ EXPIRATION -------------------------
NAME GRANTED(1)(2) FISCAL YEAR(3) SECURITY) DATE 5%($) 10%($)
---- ------------- -------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gunter A. Hofmann,
Ph.D.(4)............. 35,200(a) 12% $3.74 July 7/03 $ 21,097.38 $ 61,097.84
100,000(b) $4.45 Oct. 19/03 71,894.03 207,256.55
Lois J. Crandell(4).... 43,125(a) 12% $3.74 July 7/03 25,847.28 74,853.53
100,000(b) $4.45 Oct. 19/03 71,894.03 207,256.55
Martin Nash(5)......... 27,200(a) 11% $3.40 July 7/08 58,160.18 147,389.30
100,000(b) $4.05 Oct. 14/08 254,702.32 645,465.70
James C. Lierman(5).... 27,000(a) 11% $3.40 July 7/08 57,732.53 146,305.56
100,000(c) $4.05 Oct. 15/08 254,702.32 645,465.70
</TABLE>
- -------------------------
(1) We do not have Stock Appreciation Rights. All noted securities are options.
(2) (a) Such options vest 100% on the date of grant.
(b) Such options vest 25% on the date of grant with the remainder vesting
at 25% on each of the first, second and third anniversary of the date
of grant.
(c) 25,000 such options vest on the date of grant, 2,142 vest on the 16th
of each month for 34 months after the date of grant and 2,172 vest on
the 35th month after the date of grant.
(3) Based upon options to purchase a total of 1,138,236 shares of our common
shares granted to employees during the fiscal year ended March 31, 1999.
(4) Options were granted at an exercise price equal to 110% of the fair market
value of our common shares, as determined by the Board of Directors on the
date of grant.
(5) Options were granted at an exercise price equal to the fair market value of
our common shares, as determined by the Board of Directors on the date of
grant.
56
<PAGE> 58
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
stock options during the last completed fiscal year by each of the named
executive officers and the fiscal year-end value of unexercised options provided
on an aggregated basis:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT FISCAL
SECURITIES FISCAL YEAR END YEAR-END (CDN$)
ACQUIRED ON VALUE (#) EXERCISABLE/ EXERCISABLE/
NAME OF EXECUTIVE OFFICER EXERCISE(#) REALIZED($) UNEXERCISABLE(1) UNEXERCISABLE($)(2)
------------------------- ----------- ----------- ---------------- ----------------------
<S> <C> <C> <C> <C>
Gunter A. Hofmann, Ph.D..... -0- N/A 435,200(3) $837,292
360,200/75,000 $799,792/37,500
Lois J. Crandell............ -0- N/A 428,125(4) $628,331
353,125/75,000 $590,831/37,500
Martin Nash................. -0- N/A 249,200(5) $321,460
174,200/75,000 $253,960/67,500
James C. Lierman............ -0- N/A 417,000(6) $1,000,350
352,710/64,290 $942,289/57,861
</TABLE>
- -------------------------
(1) We do not have Stock Appreciation Rights. All noted securities are options.
(2) The closing price of our common shares on the TSE was CDN$4.95 on March 31,
1999. This price was used in the calculations reported in the column "Value
of Unexercised In-the-Money Options/SARs at Fiscal Year-end (CDN$)
Exercisable/ Unexercisable."
(3) 150,000 options with an exercise price of CDN$1.25; 20,000 options with an
exercise price of CDN$2.31; 35,000 options with an exercise price of
CDN$3.42; 25,000 options with an exercise price of CDN$4.24; 45,000 options
with an exercise price of CDN$4.62; 25,000 options with an exercise price of
CDN$2.92; 35,200 options with an exercise price of CDN$3.74; and 100,000
options with an exercise price of CDN$4.45.
(4) 100,000 options with an exercise price of CDN$1.25; 20,000 options with an
exercise price of CDN$2.31; 40,000 options with an exercise price of
CDN$4.24; 60,000 options with an exercise price of CDN$4.62; 40,000 options
with an exercise price of CDN$4.84; 25,000 options with an exercise price of
CDN$2.92; 43,125 options with an exercise price of CDN$3.74; and 100,000
options with an exercise price of CDN$4.45.
(5) 20,000 options with an exercise price of CDN$2.00; 7,000 options with an
exercise price of CDN$3.30; 25,000 options with an exercise price of
CDN$3.85; 45,000 options with an exercise price of CDN$4.20; 25,000 options
with an exercise price of CDN$2.65; 27,200 options with an exercise price of
CDN$3.40; 100,000 options with an exercise price of CDN$4.05.
(6) 250,000 options with an exercise price of CDN $1.69; 10,000 options with an
exercise price of CDN $3.85; 10,000 options with an exercise price of CDN
$4.20; 20,000 options with an exercise price of CDN $3.20; 27,000 options
with an exercise price of CDN $3.40; 100,000 options with an exercise price
of CDN $4.05.
57
<PAGE> 59
1997 STOCK OPTION PLAN
On June 20, 1997, our 1997 Stock Option Plan was adopted by the board of
directors and our stockholders approved the plan on July 28, 1998. The 1997
Stock Option Plan was amended on September 14, 1998, October 20, 1998 and
February 5, 1999, primarily to increase the number of shares authorized for
issuance under the Plan. A total of 6,400,000 shares of common stock has been
authorized for issuance under the 1997 Stock Option Plan. Pursuant to the 1997
Stock Option Plan, shares subject to stock awards that have expired or otherwise
terminated without having been exercised in full again become available for
grant, but exercised shares repurchased by us pursuant to a right of repurchase
will not again become available for grant.
The 1997 Stock Option Plan permits the grant of options to our directors,
officers, key employees and consultants. Options may be either incentive stock
options within the meaning of Section 422 of the Internal Revenue Code to
employees, including directors or officers who are employees, or nonstatutory
stock options.
The 1997 Stock Option Plan is administered by the board or a committee
appointed by the board. Subject to the limitations set forth in the 1997 Stock
Option Plan, the committee has the authority to select the eligible persons to
whom award grants are to be made, to designate the number of shares to be
covered by each award, to determine whether an option is to be an incentive
stock option or a nonstatutory stock option, to establish vesting schedules, to
specify the exercise price of options and the type of consideration to be paid
upon exercise and, subject to restrictions, to specify other terms of awards.
The maximum term of options granted under the 1997 Stock Option Plan is ten
years unless an incentive stock option is granted to an employee that on the
date of grant has ownership of more than 10% of the total voting power of our
stock, then the maximum term of the option is five years. Options granted under
the 1997 Stock Option Plan generally are non-assignable and non-transferable.
The expiration terms of options granted under the 1997 Stock Option Plan are
determined by the administrator in accordance with the guidelines set forth in
the 1997 Stock Option Plan. Options generally expire two months after the
termination of an optionholder's service. However, if an optionholder is
permanently disabled or dies during his or her service, such person's options
generally may be exercised up to twelve months following disability or death
provided that the options were exercisable on the employee's last day of work.
The exercise price of options granted under the 1997 Stock Option Plan is
determined by the committee in accordance with the guidelines set forth in the
1997 Stock Option Plan. The exercise price of an incentive stock option cannot
be less than 100% of the fair market value of the common stock on the date of
the grant. The exercise price of an option granted to a person who holds more
than 10% of the voting power of the Company cannot be less than 110% of the fair
market value of our common stock on the date of the grant.
Options granted under the 1997 Stock Option Plan vest at the rate
determined by the committee and specified in the option agreement.
Upon changes in control in our ownership, all outstanding stock awards
under the 1997 Stock Option Plan may either be substituted by the surviving
entity or terminated to the extent not exercised upon sixty days written notice.
58
<PAGE> 60
The committee may amend or terminate the 1997 Stock Option Plan at any
time. Amendments to the 1997 Stock Option Plan will generally be submitted for
stockholder approval within 12 months before or after adoption of the amendment.
As of September 17, 1999, we had issued and outstanding under the 1997
Stock Option Plan options to purchase 2,698,869 shares of common stock. The per
share exercise prices of these options ranged from $1.66 to $3.78. As of
September 17, 1999, 1,082,583 shares remained available for future grant under
the 1997 Plan.
1995 STOCK OPTION PLAN
On June 7, 1995, our board adopted our 1995 Stock Option Plan and our
stockholders approved the plan on July 17, 1995. The 1995 Plan was amended in
January, 1997 and April, 1997. The 1995 plan was subsequently amended by the
Board and the stockholders in April 1997. Although a total of 3,500,000 shares
of common stock have been authorized for issuance under the 1995 Plan, the plan
was suspended by our Board on June 20, 1997. We will not grant any additional
stock options under the 1995 Plan; however, we must keep the 1995 Plan alive so
long as incentive stock options issued under the 1995 Plan remain in existence.
Shares subject to stock awards that have expired or otherwise terminated without
having been exercised in full will not be available for grant under the plan. In
addition, exercised shares repurchased by us pursuant to a right of repurchase
will not become available for grant. Beginning on June 20, 1997, all grants of
options were pursuant to the 1997 Plan.
The suspended 1995 Stock Option Plan permitted the grant of options to our
directors, officers, key employees and consultants. Options may be either
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code to employees, including directors or officers who are employees, or
nonstatutory stock options.
The 1995 Stock Option Plan is administered by the board or a committee
appointed by the board. Subject to the limitations set forth in the 1995 Stock
Option Plan, the committee has the authority to select the eligible persons to
whom award grants are to be made, to designate the number of shares to be
covered by each award, to determine whether an option is to be an incentive
stock option or a nonstatutory stock option, to establish vesting schedules, to
specify the exercise price of options and the type of consideration to be paid
upon exercise and, subject to restrictions, to specify other terms of awards.
The maximum term of options granted under the 1995 Stock Option Plan is ten
years unless an incentive stock option is granted to an employee that on the
date of grant has ownership of more than 10% of the total voting power of our
stock, then the maximum term of the option is five years. Options granted under
the 1995 Stock Option Plan generally are non-assignable and non-transferable.
The expiration terms of options granted under the 1995 Stock Option Plan are
determined by the committee in accordance with the guidelines set forth in the
1995 Stock Option Plan. Options generally expire two months after the
termination of an optionholder's service. However, if an optionholder is
permanently disabled or dies during his or her service, such person's options
generally may be exercised up to twelve months following disability or death
provided that the options were exercisable on the employee's last day of work.
The exercise price of options granted under the 1995 Stock Option Plan is
determined by the committee in accordance with the guidelines set forth in the
1995 Stock Option
59
<PAGE> 61
Plan. The exercise price of an incentive stock option cannot be less than 100%
of the fair market value of the common stock on the date of the grant. The
exercise price of an option granted to a person who holds more than 10% of the
voting power of the Company cannot be less than 110% of the fair market value of
our common stock on the date of the grant.
Options granted under the 1995 Stock Option Plan vest at the rate
determined by the committee and specified in the option agreement.
Upon changes in control in our ownership, all outstanding stock awards
under the 1995 Stock Option Plan may either be substituted by the surviving
entity or terminated to the extent not exercised upon sixty days written notice.
As of September 17, 1999, we had issued and outstanding under the 1995
Stock Option Plan options to purchase 1,573,400 shares of common stock. The per
share exercise prices of these options ranged from $1.12 to $3.06.
SHARES ISSUED OUTSIDE STOCK OPTION PLANS
As of September 17, 1999, a total of 125,000 shares of common stock have
been authorized for issuance pursuant to options granted to directors, an
employee and a consultant by us in November 1994 and April 1995.
The maximum term of the options granted outside of either of our stock
option plans is five years. All or any portion of the options are exercisable on
or before the end of such five-year term. The options are generally
non-assignable and non-transferable. The options expire thirty days following
the termination of the option holders service. However, if an option holder dies
during his or her service, such person's options may be exercised up to twelve
months following death provided that the options were exercisable at the time of
death.
401(k) PLAN
We have established a tax-qualified employee savings and retirement plan.
The 401(k) plan provides that each participant may contribute up to 15% of his
or her pre-tax gross compensation (up to a statutorily prescribed annual limit
of $10,000 in 1998). Employees must be twenty-one years old to participate and
are eligible on the first day of the quarter following six months as an employee
of ours. All amounts contributed by employee participants and earnings on these
contributions are fully vested at all times. Employee participants may elect to
invest their contributions in various established funds. We match 50% of an
employee's contribution to the 401(k) plan, up to a maximum of 6% of an
employee's compensation, with our common shares purchased in the open market for
the individual employee's 401(k) account. Our contributions to the 401(k) plan,
and earnings thereon, vest over a six year period beginning on an employee's
date of hire.
EMPLOYMENT AGREEMENTS
In January 1995, we entered into an employment agreement with Lois J.
Crandell, our former President and Chief Executive Officer. The employment
agreement had a one year term with automatic renewal unless 60 days prior notice
is provided. Such agreement was amended January 9, 1996, March 1, 1997 and
January 15, 1999, and provided for an annual salary of $220,000, an annual bonus
of up to 25% of her annual salary, payable
60
<PAGE> 62
within 90 days of the end of our fiscal year, life insurance in the amount of
$500,000. Ms. Crandell's employment with us ended as of September 7, 1999, and
we have received written correspondence from counsel for Ms. Crandell regarding
her rights to compensation and severance benefits pursuant to her employment
agreement. We are currently negotiating the terms of a separation agreement with
Ms. Crandell based on her employment agreement.
In January 1995, we entered into an employment agreement with Gunter A.
Hofmann, Ph.D., our former Chief Scientific Officer and such employment
agreement has a one year term with automatic renewal unless 60 days prior notice
is provided. Such agreement was amended on January 9, 1996, March 1, 1997 and
January 15, 1999 and, provided for an annual salary of $200,000, an annual bonus
of up to 20% of his annual salary, payable within 90 days of the end of our
fiscal year and life insurance in the amount of $500,000. Dr. Hofmann's
employment with us ended as of September 7, 1999, and we have received written
correspondence from counsel for Dr. Hofmann regarding his rights to compensation
and severance benefits pursuant to his employment agreement. We are currently
negotiating the terms of a separation agreement with Dr. Hofmann based on his
employment agreement.
In January 1995, we entered into an employment agreement with Martin Nash,
our then Senior Vice President and Chief Financial Officer. Mr. Nash was
appointed as our Chief Financial Officer on June 10, 1999 and our President and
CEO on September 7, 1999. Mr. Nash's employment agreement has a one year term
with automatic renewal unless 60 days prior notice is provided. Such agreement
was amended on January 9, 1996, March 1, 1997 and January 15, 1999 and pursuant
to an amendment, Mr. Nash receives an annual salary of $165,000. Mr. Nash is
also eligible to receive an annual bonus of up to 20% of his annual salary,
payable within 90 days of the end of our fiscal year.
Pursuant to the employment agreements, upon termination of either Dr.
Hofmann's employment, Ms. Crandell's employment, or Mr. Nash's employment for
the following reasons: (i) we decide not to renew the employment agreement; (ii)
we terminate the employee; or (iii) if without written consent of the employee,
we change the employee's duties or responsibilities and the employee terminates
his or her employment with 6 months written notice, then we must pay to the
employee two months of his or her annual salary for each full year of service
under the agreement, such payment to be for no shorter time period than for six
months and the employee shall be entitled to all other benefits that he or she
would have been entitled to as an employee. In addition, pursuant to the terms
of the employment agreements between us and Dr. Hofmann, Ms. Crandell and Mr.
Nash, in recognition of the fact that the employees require the use of a car in
the performance of their duties, we pay the portion of the lease payment, the
insurance, maintenance, and repair costs associated with business usage of a car
for the employees' sole use.
In January 1996, we entered into an employment agreement with James Lierman
for the position of Vice President of Corporate Development. Mr. Lierman was
also appointed our Chief Operating Officer in September 1999. The employment
agreement is for a one year term with automatic renewal. Mr. Lierman is also
eligible to receive an annual bonus determined by a percentage of the licensing
activity attributed to Mr. Lierman's employment efforts with us.
61
<PAGE> 63
LIMITATIONS ON DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND INDEMNIFICATION
As specified in our Articles of Incorporation, subject to the provisions of
the Company Act (British Columbia), the Directors shall cause us to indemnify a
Director or a former Director of ours and the Directors may cause us to
indemnify a Director or former Director of a corporation of which we are or were
a member and the heirs and personal representatives of any such person against
all costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, actually and reasonably incurred by him or them including an
amount paid to settle an action or satisfy a judgment in a civil, criminal or
administrative action or proceeding to which he is or they are made a party by
reason of his being or having been a Director of ours or a Director of such
corporation, including any action brought by us or any such corporation. Each of
our Directors on being elected or appointed shall be deemed to have contracted
with us on the terms of the foregoing indemnity.
Additionally, the Directors may cause us to indemnify any of our officers,
employees or agents, or of a corporation of which we are or were a member, and
his heirs and personal representatives, against all costs, charges and expenses
whatsoever incurred by him or them and resulting from his acting as our officer,
employee or agent or such corporation. The Company shall also indemnify our
Secretary and any Assistant Secretary, if he is not a full-time employee and
notwithstanding that he may also be a Director and his respective heirs and
legal representatives against all costs, charges and expenses whatsoever
incurred by him or them and arising out of the functions assigned to the
Secretary by the Company Act (British Columbia) or the Articles and each such
Secretary and Assistant Secretary shall, on being appointed be deemed to have
contracted with us on the terms of the foregoing indemnity.
The Directors may cause us to purchase and maintain insurance for the
benefit of any person who is or was serving a Director, officer, employee or
agent of ours or as a director, officer, employee or agent of any corporation of
which we are or were a shareholder and his heirs or personal representatives
against any liability incurred by him as such director, officer, employee or
agent.
62
<PAGE> 64
CERTAIN TRANSACTIONS AND RELATIONSHIPS
The following is a description of transactions since March 1, 1996, to
which we have been a party, in which the amount involved in the transaction
exceeds $60,000 and in which any director, executive officer or holder of more
than 5% of our capital stock had or will have a direct or indirect material
interest other than compensation arrangements which are otherwise required to be
described under "Management."
In October 1996 the founder, one employee of Genetronics Biomedical Ltd.
and three directors of Genetronics, Inc. loaned an aggregate of $680,000 to
Genetronics, Inc. as follows:
<TABLE>
<CAPTION>
AMOUNT OF
LENDER LOAN ($CDN) TERMS OF NOTE
------ ----------- -------------
<S> <C> <C>
James D. Hembree............ $ 68,000(1) 9.25% interest per annum Due 1/8/97
Gunter A. Hofmann Ph.D...... $340,000(2) 9.25% interest per annum Due 1/8/97
Martin Nash................. $ 68,000(2) 9.25% interest per annum Due 1/15/97
C. Robin Relph.............. $190,400(2) 9.25% interest per annum Due 1/8/97
Stan Yakatan................ $ 13,600(2) 9.25% interest per annum Due 1/8/97
</TABLE>
- -------------------------
(1) The Vancouver Stock Exchange approved the repayment of this loan by the
issuance of 22,476 of our common shares on January 10, 1997.
(2) These loans were repaid out of the proceeds of a $3.00 special warrant
financing closed December 20,1996.
The proceeds of these loans were used for funding working capital,
including ongoing research activities.
As described in note 14 to the Financial Statements, we paid legal fees to
the Law Firm of Catalyst corporate Finance Lawyers in Vancouver, British
Columbia, Canada, the amount of US $93,778 in the year ended March 31, 1999.
James L. Heppell, a partner of that law firm, is one of our Directors.
For the year ended March 31, 1999, we paid US $114,900 to a company where
one of the principals is an officer of our French subsidiary.
Two individuals among our directors are related. Lois Crandell and Gunter
Hofmann are married. In addition, Markus Hofmann (currently our Controller) is
the son of Gunter Hofmann and the stepson of Lois Crandell. Except for these
three individuals there are no family relationships among officers or directors
and employees.
We have entered into employment agreements with certain of our executive
officers. See "Management -- Employment Agreements." Our employment of Lois J.
Crandell, our former President and Chief Executive Officer, and Gunter A.
Hofmann, our former Chief Scientific Officer, ended on September 7, 1999. We
have received written correspondence from counsel for Ms. Crandell and Dr.
Hofmann regarding their rights to compensation and severance benefits pursuant
to their employment agreements. We are currently negotiating the terms of
separation agreements with Ms. Crandell and Dr. Hofmann. Ms. Crandell and Dr.
Hofmann may initiate arbitration or legal proceedings against us if we cannot
agree on the terms of their separation agreements.
63
<PAGE> 65
In the past, we have granted options to our executive officers and
directors. We intend to grant options to our officers and directors in the
future. See "Management -- Executive Compensation."
We have also entered into an indemnification agreement with each of our
directors and executive officers. See "Management -- Limitations on Directors'
and Executive Officers' Liability and Indemnification."
All of our securities referenced above were sold and purchased at prices
equal to the fair market value of the securities, as determined by our Board of
Directors, on the date of issuance.
64
<PAGE> 66
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of September 17, 1999 with
respect to; (i) each shareholder known to us to be the beneficial owner of more
than five percent (5%) of our outstanding common shares; (ii) each director;
(iii) each Named Executive Officer; and (iv) all our directors and Named
Executive Officers as a group. Except as set forth below, each of the named
persons and members of the group has sole voting and investment power with
respect to the shares shown.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF CLASS
BENEFICIAL OWNERSHIP OF OF COMMON
BENEFICIAL OWNER OF COMMON SHARES(1) COMMON SHARES(2) SHARES(2)
------------------------------------ ----------------------- ----------------
<S> <C> <C>
Johnson & Johnson Development Corporation.... 2,242,611 10.2%
One Johnson & Johnson Plaza, New Brunswick,
New Jersey
Gunter A. Hofmann............................ 3,785,675(3) 16.8%
Lois J. Crandell............................. 3,785,675(4) 16.8%
Martin Nash.................................. 579,661(5) 2.6%
James Lierman................................ 369,846(6) 1.6%
Stan Yakatan................................. 266,400(7) 1.2%
James L. Heppell............................. 150,500(8) *
Suzanne L. Wood.............................. 120,000(9) *
Wayne Schnarr................................ 89,000(10) *
Gordon Politeski............................. 85,000(11) *
Felix Theeuwes............................... 69,000(12) *
Gordon Blankstein............................ 35,000(13)
All Executive Officers and Directors as a
group (14) persons......................... 5,550,082 23.4%
</TABLE>
- -------------------------
* less than 1%
(1) This table is based upon information supplied by officers, directors and
principal shareholders and Insider Reports filed with the British Columbia
and Ontario Securities Commission (the "Commission"). Except as shown
otherwise in the table, the address of each shareholder listed is in care
of us at 11199 Sorrento Valley Rd., San Diego, California 92121.
(2) Except as otherwise indicated in the footnotes of this table and pursuant
to applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of common
stock. Beneficial ownership is determined in accordance with the rules of
the Commission and generally includes voting or investment power with
respect to securities. Common shares subject to options or warrants
exercisable within 60 days of September 17, 1999 are deemed outstanding for
computing the percentage of the person or entity holding such options or
warrants but are not deemed outstanding for computing the percentage of any
other person. Percentage of beneficial ownership is based upon 22,096,633
shares of our common stock outstanding as of September 17, 1999.
(3) Includes 210,200 shares of common stock issuable pursuant to options
exercisable within 60 days of September 17, 1999. Also includes 1,012,276
shares owned by Lois J. Crandell, Dr. Hofmann's wife. Dr. Hofmann disclaims
beneficial ownership of Ms. Crandell's shares.
65
<PAGE> 67
(4) Includes 253,125 shares of common stock issuable pursuant to options
exercisable within 60 days of September 17, 1999. Also includes 2,773,399
shares owned by Gunter A. Hofmann, Ms. Crandell's husband. Ms. Crandell
disclaims beneficial ownership of Dr. Hofmann's shares.
(5) Includes 199,200 shares of common stock issuable pursuant to options
exercisable within 60 days of September 17, 1999.
(6) Includes 369,846 shares of common stock issuable pursuant to options
exercisable within 60 days of September 17, 1999.
(7) Includes 156,400 shares of common stock issuable pursuant to options
exercisable within 60 days of September 17, 1999.
(8) Includes 120,000 shares of common stock issuable pursuant to options
exercisable within 60 days of September 17, 1999, 10,000 shares owned by
Mr. Heppell's wife, in which he disclaims beneficial ownership, 1,000
shares owned by Free Spirit Investment Ltd., which is owned 50% by Mr.
Heppell and 50% by his wife and 200 shares owned by Full Moon Law
Corporation, which is also owned 50% by Mr. Heppell and 50% by his wife.
(9) Includes 100,000 shares of common stock issuable pursuant to options
exercisable within 60 days of September 17, 1999.
(10) Includes 85,000 shares of common stock issuable pursuant to options
exercisable within 60 days of September 17, 1999.
(11) Includes 85,000 shares of common stock issuable pursuant to options
exercisable within 60 days of September 17, 1999.
(12) Includes 35,000 shares of common stock issuable pursuant to options
exercisable within 60 days of September 17, 1999.
(13) Includes 35,000 shares of common stock issuable pursuant to options
exercisable within 60 days of September 17, 1999.
(14) Includes 1,648,771 shares of common stock issuable pursuant to options
exercisable within 60 days of September 17, 1999.
66
<PAGE> 68
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 common shares, no par
value, and 100,000,000 shares of Class A preferred.
COMMON SHARES
We are authorized to issue 100,000,000 common shares, of which 22,096,633
common shares are issued and outstanding as of the date of September 17, 1999
and 100,000,000 Class A preferred stock, of which no Class A preferred stock are
issued and outstanding as of the date of this Prospectus.
All of the common shares rank equally as to voting rights, participation in
a distribution of our assets on a liquidation, dissolution or winding-up, and
the entitlement to dividends. The holders of the common shares are entitled to
receive notice of all meetings of shareholders and to attend and vote the common
shares at the meetings. Each Common Share carries with it the right to one vote.
In the event of liquidation, dissolution or winding-up of us or other
distribution of our assets, the holders of the common shares will be entitled to
receive, on a pro-rata basis, all of the assets remaining after we have paid out
our liabilities. Distribution in the form of dividends, if any, will be set by
the Board of Directors.
Provision as to modification, amendment or variation of the rights attached
to the common shares are contained in our memorandum and articles and the
Company Act (British Columbia). Generally speaking, substantive changes to the
rights attached to the Common Share will require the approval of the
shareholders by special resolution (at least 75% of the votes cast).
There are no restrictions on the repurchase or redemption by us of common
shares. There are no indentures or agreements limiting the payment of dividends.
There are no conversion rights, special liquidation rights, pre-emptive rights
or subscription rights attached to any common shares.
At the annual general meeting of our shareholders held on July 26, 1999, we
replaced the special rights and restrictions attached to the Class A preferred
stock. The new special rights and restrictions allow the directors, where class
rights permit them to do so, to alter the memorandum and our articles to create
a new series of Class A preferred stock and provide for special rights and
restrictions attached to such stock. The directors may determine all rights,
preferences, restrictions and conditions of such Class A preferred stock
including voting rights, dividend rights, liquidation preference, conversion
rights and redemption rights. The new special rights and restrictions were put
in place in an effort to allow the directors to react quickly to market
conditions during a financing to create a series of Class A preferred stock with
the special rights and restrictions attractive to the market, without incurring
the delay of calling an extraordinary meeting of the shareholders.
WARRANTS
By an agency agreement dated June 8, 1999, we appointed CB Capital Corp.,
formerly Canaccord (L) International Corporation of P.O. Box HM 2567, Hamilton,
HM KX, Bermuda, as our exclusive agent to offer the Special Warrants for sale on
a best efforts basis. On June 16, 1999, 4,187,500 special warrants were issued
by us, at the price
67
<PAGE> 69
of US$3.00 per special warrant and 100% of the net proceeds were immediately
released to us.
In consideration of the services performed by the Agent in connection with
the offering of the Special Warrants, we paid to Canaccord a cash commission
equal to 8% of the aggregate gross proceeds raised from the sale of the special
warrants. No other cash fees will be paid by us with respect to the issuance of
the common shares upon the exercise of the special warrants.
Further, we issued to Canaccord 30,000 shares of common stock and special
warrants exercisable, for no additional consideration, to acquire common share
purchase warrants to purchase up to 418,750 of our common shares, exercisable at
a price of US$3.31 per common share on or before June 16, 2000.
We agreed to use our reasonable best efforts to file a preliminary
prospectus qualifying the issuance of the common shares upon the exercise of the
special warrants in British Columbia and Ontario, and to resolve all comments
received or deficiencies raised by the British Columbia and Ontario Securities
Commission (the "Securities Commissions") and file and obtain receipts for a
final prospectus from the Securities Commissions. The preliminary prospectus was
filed on , 1999. Shares issued pursuant to the exercise of the
special warrants prior to the issuance of the final receipt for the Canadian by
the Securities Commissions may be subject to resale restrictions under
applicable securities legislation.
DIVIDEND POLICY
We have not declared or paid any dividends on our common shares since our
inception. Our directors expect that while we are in the development stage,
earnings will not be distributed to shareholders by way of dividend. The
declaration of dividends on our common shares will depend upon the directors'
assessment of, among other factors, earnings, capital requirements and our
operating and financial condition. See "Dividend Policy".
REGISTRATION RIGHTS
Pursuant to the Stock Purchase Agreement dated October 8, 1998 between us
and Johnson & Johnson Development Corporation, Johnson & Johnson Development
Corporation has registration rights for the 2,242,611 shares of common stock
held by them. Under the Stock Purchase Agreement, holders of more than 30% of
the then outstanding registrable securities may demand, by written request, that
we file a registration statement under the Securities Act covering all or a
portion of their registrable securities, provided that, in the case of a
registration on a form other than a Form F-3 or Form S-3, that we file a
registration statement under the Securities Act covering all or a portion of the
registrable securities, provided that, we are obligated to file only two
registration statements subject to the foregoing. In the case of a registration
of Form F-3 or Form S-3, there is a reasonably anticipated aggregate offering
price to the public of at least $500,000. These registration rights are subject
to our right to furnish such holders of registrable securities with a
certificate, signed by our President or Chief Executive Officer, stating that in
the good faith judgment of our Board, it would be seriously detrimental to us
and our shareholders for the Form F-2 or S-3 Registration to be effected, in
which event we have the right to delay the filing of a the registration
statement for a period not to exceed 120 days in the case of a registration on a
form other than a Form F-3 or Form S-3 and
68
<PAGE> 70
90 days in the case of a registration on a Form F-3 or S-3. In such a case, we
cannot delay more than twice in a 12-month period after receiving the
registration request.
In addition, the holders of the registrable securities have "piggyback"
registration rights. If we propose to register any of our securities under the
Securities Act of 1933 (other than on Form S-4, S-8 or a registration statement
on Form S-1 covering solely any employee benefit plan), such holders may require
us to include all or a portion of their registrable securities in such
registration. The managing underwriter, if any, of any such offering will have
the right to limit the number of the registrable securities proposed to be
included in such registration to that number of shares which in the good faith
judgment of the managing underwriter can be sold in such offering.
All registration expenses incurred in connection with the above
registrations would be borne by us. The holders of the registrable securities
would pay all underwriting discounts and selling commissions applicable to the
sale of his or its registrable securities.
TRANSFER AGENT AND REGISTRAR
The co-transfer agents and registrars for our common shares are Montreal
Trust Company of Canada and American Securities Transfer and Trust, Inc.
LEGAL MATTERS
The legality of the common shares offered hereby will be passed upon for us
by Cooley Godward LLP, San Diego, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of March 31, 1999 and 1998 and for the twelve month,
thirteen month and twelve month periods ended March 31, 1999, March 31, 1998 and
February 28, 1997 respectively, as set forth in their report. We have included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities Exchange
Commission as a foreign private issuer, and in accordance therewith, file
reports and other information with the SEC. Such reports and other information
may be inspected and copied at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of all or any part of the Registration Statement may be obtained
from such offices upon the payment of the fees prescribed by the Commission. In
addition, registration statements and certain other filings made with the
Commission through its Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system are publicly available through the Commission's web site on the
Internet's World Wide Web, located at http://www.sec.gov. The Registration
Statement, including all exhibits thereto and amendments thereof, was filed with
the Commission through EDGAR.
69
<PAGE> 71
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
GENETRONICS BIOMEDICAL LTD.
<TABLE>
<CAPTION>
CONTENTS PAGE
-------- ----
<S> <C>
Auditors' Report............................................ F-2
Consolidated Balance Sheets as of March 31, 1999 and 1998... F-3
Consolidated Statements of Loss and Deficit for the year
ended March 31, 1999, 13 months ended March 31, 1998 and
year ended February 28, 1997.............................. F-4
Consolidated Statements of Changes in Financial Position for
the year ended March 31, 1999, 13 months ended March 31,
1998 and year ended February 28, 1997..................... F-5
Notes to Consolidated Financial Statements.................. F-6
Consolidated Balance Sheets as of June 1999 (unaudited) and
March 31, 1999............................................ F-24
Consolidated Statements of Loss and Deficit for the Three
Months Ended June 30, 1999 and 1998 (unaudited)........... F-25
Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 1999 and 1998 (unaudited).................. F-26
Notes to Consolidated Financial Statements (unaudited)...... F-27
</TABLE>
F-1
<PAGE> 72
AUDITORS' REPORT
To the Directors of
Genetronics Biomedical Ltd.
We have audited the consolidated balance sheets of Genetronics Biomedical
Ltd. as at March 31, 1999 and 1998 and the consolidated statements of loss and
deficit and changes in financial position for the twelve month, thirteen month
and twelve month periods ended March 31, 1999 and 1998 and February 28, 1997,
respectively. 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 an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at March 31,
1999 and 1998, and the results of its operations and the changes in its
financial position for the twelve month, thirteen month and twelve month periods
ended March 31, 1999 and 1998 and February 28, 1997, respectively, in accordance
with accounting principles generally accepted in Canada. As required by the
Company Act (British Columbia), we report that, in our opinion, these principles
have been applied on a consistent basis.
/s/ ERNST & YOUNG LLP
--------------------------------------
Chartered Accountants
Vancouver, Canada,
October 4, 1999 (except for note 16
which is as of June 10, 1999).
F-2
<PAGE> 73
CONSOLIDATED BALANCE SHEETS
(IN US DOLLARS)
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, MARCH 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents......................... $ 6,189,284 $ 6,521,990
Accounts receivable, net of allowance for
uncollectible accounts of $19,685
[1998 -- $36,500] [note 3]...................... 776,648 503,727
Inventories [note 4]............................ 655,906 395,090
Prepaid expenses and other...................... 6,095 4,954
------------ ------------
Total current assets.................... 7,627,933 7,425,761
------------ ------------
Fixed assets [note 5]............................. 1,177,393 1,035,314
Other assets [note 6]............................. 1,002,318 781,812
------------ ------------
$ 9,807,644 $ 9,242,887
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued expenses [note 7].... $ 1,377,443 $ 972,537
Current portion of obligations under capital
leases [note 9]................................. 45,892 20,349
------------ ------------
Total current liabilities............... 1,423,335 992,886
------------ ------------
Obligations under capital leases [note 9]......... 118,384 78,061
Deferred rent..................................... 9,564 23,909
------------ ------------
Total liabilities................................. 1,551,283 1,094,856
------------ ------------
Commitments and contingencies [note 9]
Shareholders' equity
Share capital [note 8].......................... 28,357,863 21,562,402
Cumulative translation adjustment............... (103,001) (19,707)
Deficit......................................... (19,998,501) (13,394,664)
------------ ------------
Total shareholders' equity.............. 8,256,361 8,148,031
------------ ------------
$ 9,807,644 $ 9,242,887
============ ============
</TABLE>
See accompanying notes
F-3
<PAGE> 74
CONSOLIDATED STATEMENTS OF
LOSS AND DEFICIT
(IN US DOLLARS)
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED MONTHS ENDED YEAR ENDED
MARCH 31, MARCH 31, FEBRUARY 28,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Net sales [note 3].................. $ 3,434,105 $ 3,097,198 $ 3,040,734
License fee and milestone
payments.......................... 4,500,000 -- --
Grant funding....................... 354,135 128,069 38,856
Revenues under collaborative
research and development
arrangements...................... 33,048 6,025 8,583
Interest income..................... 300,911 427,498 71,206
------------ ------------ -----------
$ 8,622,199 $ 3,658,790 $ 3,159,379
============ ============ ===========
EXPENSES
Cost of sales....................... $ 1,638,635 $ 1,427,285 $ 1,277,240
Research and development [note
10]............................... 8,086,959 5,637,955 2,200,464
Selling, general and
administrative.................... 5,481,051 4,172,246 2,657,821
Interest expense.................... 19,391 17,970 18,464
------------ ------------ -----------
15,226,036 11,255,456 6,153,989
------------ ------------ -----------
Net loss for the period............. $ (6,603,837) $ (7,596,666) $(2,994,610)
============ ============ ===========
Deficit, beginning of period........ $(13,394,664) $ (5,797,998) $(2,803,388)
------------ ------------ -----------
Deficit, end of period.............. $(19,998,501) $(13,394,664) $(5,797,998)
============ ============ ===========
Loss per common share............... $ (0.33) $ (0.43) $ (0.24)
============ ============ ===========
</TABLE>
See accompanying notes
F-4
<PAGE> 75
CONSOLIDATED STATEMENTS OF
CHANGES IN FINANCIAL POSITION
(IN US DOLLARS)
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED MONTHS ENDED YEAR ENDED
MARCH 31, MARCH 31, FEBRUARY 28,
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss for the period................. $(6,603,837) $(7,596,666) $(2,994,610)
Items not involving cash:
Depreciation and amortization......... 410,268 246,258 165,542
Loss on disposal of capital assets.... 18,986 -- --
Changes in non-cash working capital
items:
Accounts receivable................... (272,921) 237,390 (223,460)
Inventories........................... (260,816) (2,372) 34,210
Prepaid expenses and other............ (1,141) (815) 3,926
Accounts payable and accrued
expenses........................... 404,906 329,206 72,271
Amount payable, joint venturer........ -- -- (65,541)
Deferred rent......................... (14,345) (1,196) 17,212
----------- ----------- -----------
Cash used in operating activities....... $(6,318,900) $(6,788,195) $(2,990,450)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of capital assets.............. (504,068) (575,153) (436,716)
Decrease (increase) in other assets..... (287,771) (304,683) (225,116)
----------- ----------- -----------
Cash used in investing activities....... $ (791,839) $ (879,836) $ (661,832)
----------- ----------- -----------
FINANCING ACTIVITIES
Increase in notes payable............... -- -- 500,000
Repayment of notes payable.............. -- -- (500,000)
Obligations under capital leases........ 89,882 21,466 98,391
Payments on obligations under capital
leases................................ (24,016) (18,549) (17,762)
Issuance of common shares on exercise of
Special Warrants...................... -- (2,346,485) --
Proceeds from issuance of Special
Warrants -- net....................... -- -- 2,346,485
Proceeds from issuance of common
shares -- net......................... 6,795,461 14,679,621 383,284
----------- ----------- -----------
Cash provided by financing activities... $ 6,861,327 $12,336,053 $ 2,810,398
----------- ----------- -----------
Effect of exchange rate changes on
cash.................................. (83,294) 14,361 3,136
----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents........................... (332,706) 4,682,383 (838,748)
Cash and cash equivalents, beginning of
period................................ 6,521,990 1,839,607 2,678,355
----------- ----------- -----------
Cash and cash equivalents, end of
period................................ $ 6,189,284 $ 6,521,990 $ 1,839,607
=========== =========== ===========
</TABLE>
See accompanying notes
F-5
<PAGE> 76
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(IN US DOLLARS)
1. NATURE OF BUSINESS
Genetronics Biomedical Ltd. carries out its business through its
wholly-owned subsidiaries, Genetronics, Inc. and Genetronics S.A. Through its
BTX Instrument Division, the Company develops, manufactures, and markets
electroporation instrumentation and accessories used by scientists and
researchers to perform genetic engineering techniques, such as cell fusion, gene
transfer, cell membrane research and genetic mapping in research laboratories
worldwide. Through its Drug Delivery Division, the Company is developing drug
delivery systems which are designed to use electroporation to enhance drug or
gene delivery in the areas of oncology, dermatology, gene therapy, cardiology
and transdermal drug delivery.
The Company has financed its cash requirements primarily from share
issuances, payments from collaborators and government grants. The Company's
ability to realize the carrying value of its assets is dependent on successfully
bringing its technologies to the market and achieving future profitable
operations, the outcome of which cannot be predicted at this time. It will be
necessary for the Company to raise additional funds for the continuing
development of its technologies.
2. ACCOUNTING POLICIES
The Company prepares its accounts in accordance with accounting principles
generally accepted in Canada. A reconciliation of amounts presented in
accordance with United States accounting principles is detailed in note 15.
Because a precise determination of many assets and liabilities depends on future
events, the preparation of financial statements necessarily involves the use of
management's estimates and approximations. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies used in the
preparation of these consolidated financial statements.
CONSOLIDATION
These consolidated financial statements include the accounts of Genetronics
Biomedical Ltd. and its wholly-owned subsidiary, Genetronics, Inc., a private
company incorporated in the state of California, USA and Genetronics S.A., a
wholly owned subsidiary of Genetronics, Inc., a company incorporated in France.
The Company's 50% investment in a joint venture has been accounted for using
proportionate consolidation to October 15, 1996 [see note 10].
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of 90
days or less, when purchased, to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.
F-6
<PAGE> 77
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
CAPITAL ASSETS
Fixed assets are stated at cost and depreciated over the estimated useful
lives of the assets (five to seven years) using the straight-line method.
Leasehold improvements and equipment under capital leases are being amortized
over the shorter of the estimated useful lives of the assets or the term of the
lease.
Patents are recorded at cost and amortized on the straight-line method over
the expected useful lives of the patents or 17 years, whichever is less. Cost is
comprised of the consideration paid for patents and related legal costs. If
management determines that development of products to which patent costs relate
is not reasonably certain or that costs exceed recoverable value, such costs are
charged to operations.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) and
replacement cost for raw materials and net realizable value for finished goods
and work in process.
FINANCIAL INSTRUMENTS
The fair values of the financial instruments approximates their carrying
value except as otherwise disclosed in the financial statements.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
REVENUE RECOGNITION
Sales are recognized upon shipment of products. Revenue from licensing
arrangements are recognized when all the criteria in the agreement has been
fulfilled.
Revenues under collaborative research and development arrangements are not
refundable if research efforts are unsuccessful, and, accordingly, are recorded
as revenue as development activities are performed and expensed.
LOSS PER COMMON SHARE
Loss per common share has been calculated using the weighted average number
of common shares outstanding during the period. Fully diluted loss per share has
not been presented as the outstanding options and warrants are anti-dilutive.
INCOME TAXES
The Company uses the deferral method of income tax allocation in accounting
for income taxes.
F-7
<PAGE> 78
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
RESEARCH AND DEVELOPMENT
Research costs are expensed in the period incurred. Development costs are
expensed in the period incurred unless the Company believes a development
project meets generally accepted accounting criteria for deferral and
amortization. No development costs have been deferred to date.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is used as the reporting currency in these consolidated
financial statements. However, the non-consolidated accounts of the Company are
measured using the Canadian dollar as its functional currency. Assets and
liabilities of the Company are translated into U.S. dollars using current
exchange rates in effect at the balance sheet date and revenue and expense
accounts are translated using the weighted average exchange rate during the
period. Gains and losses resulting from this process are recorded in
shareholders' equity as an adjustment to the cumulative translation account.
The accounts of the Company's U.S. subsidiary, a self-sustaining entity,
are measured using the U.S. dollar as its functional currency. Any of its
transactions denominated in foreign currencies are translated into U.S. dollars
at the exchange rate in effect on the transaction date. At the balance sheet
date, monetary items denominated in foreign currencies are adjusted to reflect
the exchange rate in effect at that time. Gains and losses resulting from this
translation process are deferred and included in the cumulative foreign currency
translation adjustment in shareholders' equity. The accounts of the Company's
French subsidiary, an integrated entity, are recorded in French francs and
translated into U.S. dollars using the temporal method. Under this method,
monetary assets and liabilities are translated at the year-end exchange rates.
Non-monetary assets and liabilities are translated using historical rates of
exchange. Revenues and expenses are translated at the rates of exchange
prevailing on the dates such items are recognized in earnings. Exchange gains
and losses are included in income for the year.
GOVERNMENT ASSISTANCE
The Company receives non-refundable assistance under available government
programs. Government assistance towards current expenditures is recorded as
grant funding revenue in the period the related expenditure is incurred.
LEASES
Leases have been classified as either capital or operating leases. Leases
which transfer substantially all of the benefits and risks incidental to the
ownership of assets are accounted for as if there was an acquisition of an asset
and incurrence of an obligation at the inception of the lease. All other leases
are accounted for as operating leases wherein rental payments are expensed as
incurred.
F-8
<PAGE> 79
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
3. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
At March 31, 1999, two customers accounted for approximately $235,000
[1998 -- $196,000] of total accounts receivable. Approximately 24%, 19% and 18%
of net sales were made to one customer for the year ended March 31, 1999, the
thirteen months ended March 31, 1998, and year ended February 28, 1997,
respectively.
By an exclusive license and development agreement dated October 2, 1998,
the Company has granted the rights to its drug delivery technology to make, use
and sell oncology products as defined in the agreement. The agreement expires at
the expiration of certain patent rights covering the technology which at March
31, 1999 is in 2016. Pursuant to the agreement, during the year ended March 31,
1999, the Company received license fee and milestone payments from the licensee
in the amount of $4,500,000.
Credit is extended based on an evaluation of a customer's financial
condition and generally collateral is not required. To date, credit losses have
not been significant.
4. INVENTORIES
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Raw materials............................................ $401,634 $139,157
Work in process.......................................... 81,863 112,030
Finished goods........................................... 172,409 143,903
-------- --------
$655,906 $395,090
======== ========
</TABLE>
5. FIXED ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
---------- ------------ ----------
<S> <C> <C> <C>
1999
Machinery, equipment and office
furniture................................ $1,284,112 $487,230 $ 796,882
Leasehold improvements..................... 424,436 189,041 235,395
Equipment under capital leases............. 209,740 64,624 145,116
---------- -------- ----------
$1,918,288 $740,895 $1,177,393
========== ======== ==========
1998
Machinery, equipment and office
furniture................................ $1,103,800 $416,553 $ 687,247
Leasehold improvements..................... 338,493 79,835 258,658
Equipment under capital leases............. 150,401 60,992 89,409
---------- -------- ----------
$1,592,694 $557,380 $1,035,314
========== ======== ==========
</TABLE>
F-9
<PAGE> 80
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
6. OTHER ASSETS
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Patent costs, net......................................... $ 970,380 $760,184
Other..................................................... 31,938 21,628
---------- --------
$1,002,318 $781,812
========== ========
</TABLE>
Patent costs are net of accumulated amortization of $184,002 at March 31,
1999 [1998 -- $116,737].
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Trade accounts payable.................................. $ 641,915 $356,968
Accrued compensation.................................... 601,433 337,433
Accrued expenses........................................ 134,095 278,136
---------- --------
$1,377,443 $972,537
========== ========
</TABLE>
8. SHARE CAPITAL
AUTHORIZED
100,000,000 common shares without par value
100,000,000 Class A preferred shares without par value
F-10
<PAGE> 81
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
ISSUED AND OUTSTANDING
<TABLE>
<CAPTION>
NUMBER OF AMOUNT OF
COMMON SHARES ISSUED CAPITAL
------------- --------------
<S> <C> <C>
BALANCE, FEBRUARY 29, 1996......................... 12,583,398 $ 6,499,497
For cash
Pursuant to exercise of stock options............ 162,500 167,625
Pursuant to exercise of warrants................. 80,000 165,659
For settlement of debt [note 14]................... 22,476 50,000
---------- -----------
BALANCE, FEBRUARY 28, 1997......................... 12,848,374 6,882,781
For cash
Pursuant to exercise of stock options............ 290,756 390,868
Pursuant to exercise of warrants................. 1,408,000 3,248,172
Issued pursuant to exercise of Special Warrants.... 1,268,000 2,781,515
For cash
Pursuant to issue and exercise of warrants....... 1,300,000 3,976,342
Pursuant to private placement.................... 1,955,000 6,050,128
Share issue costs.................................. -- (1,767,404)
---------- -----------
BALANCE, MARCH 31, 1998............................ 19,070,130 21,562,402
For cash
Pursuant to private placement.................... 2,242,611 6,000,000
Pursuant to exercise of stock options............ 61,525 90,423
Pursuant to exercise of warrants................. 292,000 830,985
Share issue costs.................................. -- (125,947)
---------- -----------
BALANCE, MARCH 31, 1999............................ 21,666,266 $28,357,863
========== ===========
</TABLE>
At March 31, 1999, the stated capital amount of the Company, as determined
in accordance with the provisions of the Company Act (British Columbia), is
$30,400,688 [1998 -- $23,605,227].
SPECIAL WARRANTS
<TABLE>
<CAPTION>
NUMBER OF
SPECIAL WARRANTS AMOUNT
---------------- -----------
<S> <C> <C>
BALANCE, FEBRUARY 28, 1997........................ 1,268,000 $ 2,346,485
Converted into common shares upon exercise........ (1,268,000) (2,346,485)
---------- -----------
BALANCE, MARCH 31, 1998 AND 1999.................. -- $ --
========== ===========
</TABLE>
Pursuant to an Agency Agreement dated October 25, 1996, the Company issued
1,268,000 Special Warrants at Cdn. $3.00 each for a total consideration of
$2,781,515 (Cdn. $3,804,000) before deducting the agent's commission of $278,151
(Cdn. $380,400) and other estimated share issue costs. Each Special Warrant is
exchangeable into one common share, which were qualified for distribution by
final receipt for a prospectus dated April 16, 1997.
F-11
<PAGE> 82
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
STOCK OPTIONS
During the period ended March 31, 1998 the shareholders approved the
adoption of a 1997 stock option plan which was amended by the directors during
the year ended March 31, 1999, which is subject to shareholder approval, whereby
6,400,000 common shares were reserved for issuance [1998 -- 4,200,000]. The
directors have the discretion to specify the vesting terms at the time of grant.
As at March 31, 1999, 1,231,083 common shares are available for grant under the
option plan.
The following table summarizes the stock options outstanding at March 31,
1999:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES ($CDN.) EXPIRY DATE
- ------------------------------- -------------- -----------
<S> <C> <C>
390,500....................... 4.00 October 1, 1999 - September 10, 2007
350,000....................... 1.25 January 3, 2000
110,000....................... 1.43 April 24, 2000
150,500....................... 2.25 December 14, 2000 - 2005
40,000...................... 2.31 December 14, 2000
35,000...................... 3.42 September 3, 2001
145,400....................... 3.30 October 14, 2001 - 2006
65,000...................... 4.24 January 13, 2002
105,000....................... 4.62 January 26, 2002
186,500....................... 3.71 April 8, 2002 - August 21, 2007
40,000...................... 4.84 July 24, 2002
50,000...................... 2.92 January 22, 2003
250,000....................... 1.69 February 14, 2006
250,000....................... 2.00 April 24, 2006
145,000....................... 2.50 August 8, 2006 - January 29, 2008
92,500...................... 3.85 January 13, 2007
115,000....................... 4.20 January 26, 2007
35,000...................... 4.50 May 21, 2007
32,500...................... 4.40 July 24, 2007
80,000...................... 3.05 November 24, 2007
95,000...................... 3.20 January 23, 2008
157,500....................... 2.65 December 4, 2008
390,411....................... 3.40 July 7, 2003 - 2008
78,325...................... 3.74 July 7, 2003
64,500...................... 3.80 April 6, 2003 - 2008
422,500....................... 4.05 May 21, 2003 - October 15, 2008
104,000....................... 4.25 September 13, 2008
120,500....................... 4.40 May 13, 2003 - 2008
200,000....................... 4.45 October 19, 2003
19,000...................... 5.35 March 25, 2009
112,500....................... 5.50 December 3, 2003
222,000....................... 5.70 February 4, 2009
- ------------------------------- ---- ---------------------------------------
4,654,136
=============================== ==== =======================================
</TABLE>
The above table includes stock options as described in note 14(c).
F-12
<PAGE> 83
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
Stock option transactions for the respective periods and the number of
stock options outstanding are summarized as follows:
<TABLE>
<CAPTION>
RANGE OF
NO. OF COMMON EXERCISE PRICE
SHARES ISSUABLE ($CDN.)
--------------- --------------
<S> <C> <C>
BALANCE, FEBRUARY 29, 1996......................... 1,535,000 1.25 - 2.31
Options granted.................................. 1,357,000 2.00 - 4.62
Options exercised................................ (162,500) 1.25 - 1.40
Options cancelled................................ (135,000) 1.25 - 3.80
--------- -----------
BALANCE, FEBRUARY 28, 1997......................... 2,595,000 1.25 - 4.62
Options granted.................................. 1,331,150 2.65 - 4.84
Options exercised................................ (290,756) 1.25 - 3.80
Options cancelled................................ (568,344) 1.25 - 4.40
--------- -----------
BALANCE, MARCH 31, 1998............................ 3,067,050 1.25 - 4.84
Options granted.................................. 1,783,736 3.40 - 5.70
Options exercised................................ (61,525) 1.25 - 3.71
Options cancelled................................ (135,125) 1.25 - 5.70
--------- -----------
BALANCE, MARCH 31, 1999............................ 4,654,136 1.25 - 5.70
========= ===========
</TABLE>
WARRANTS
During the year ended February 29, 1996 the Company issued through a
private placement 1,380,000 units at Cdn. $2.50, each unit comprising one common
share and one warrant to purchase an additional share at a price of Cdn. $2.80
up to November 29, 1996 and Cdn. $3.20 thereafter to May 30, 1997. During the
year ended February 28, 1997, warrants to purchase 80,000 common shares at Cdn.
$2.80 per share were exercised. During the thirteen months ended March 31, 1998,
warrants to purchase the remaining 1,300,000 common shares at Cdn. $3.20 were
exercised.
In addition, in connection with the issuance of 1,955,000 common shares
pursuant to an agency agreement dated April 15, 1997, the Company granted the
agent warrants to acquire 200,000 common shares for Cdn. $4.30 per share until
May 26, 1998. During the year ended March 31, 1999, the Company amended the
terms of the warrants by increasing the exercise price to Cdn. $4.73 and
extending the expiry date to November 30, 1998. These warrants were exercised
during the year.
SHAREHOLDER RIGHTS PLAN
In 1997, the shareholders approved the adoption of a Shareholder Rights
Plan (the "Rights Plan") to protect the Company's shareholders from unfair,
abusive or coercive take-over strategies. Under the Rights Plan, holders of
common shares are entitled to one share purchase right ("Right") for each common
share held. If any person or group makes a take-over bid, other than a bid
permitted under the plan or acquires 20% or more of the Company's outstanding
common shares without complying with the Rights Plan, each
F-13
<PAGE> 84
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
Right entitles the registered holder thereof to purchase, in effect, $20
equivalent of common shares of the Company at 50% of the prevailing market
price.
9. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
(a) The Company leases its facilities and certain motor vehicles under operating
lease agreements which expire up to 2004. The facilities lease agreements
require the Company to pay maintenance costs. Rent expense under operating
leases was as follows:
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED MONTHS ENDED YEAR ENDED
MARCH 31, MARCH 31, FEBRUARY 28,
1999 1998 1997
---------- ------------ ------------
<S> <C> <C> <C>
Rentals.................. $277,906 $209,066 $135,757
======== ======== ========
</TABLE>
At March 31, 1999, future minimum lease payments under non-cancellable
operating leases are as follows:
<TABLE>
<S> <C>
2000................................................. $284,236
2001................................................. 68,503
2002................................................. 36,868
2003................................................. 9,352
2004................................................. 6,235
--------
$405,194
========
</TABLE>
(b) At March 31, 1999 future minimum lease payments under non-cancellable
capital leases are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASES
--------
<S> <C>
2000................................................. $ 67,172
2001................................................. 67,172
2002................................................. 59,573
003.................................................. 10,839
2004................................................. 4,070
--------
Total minimum lease payments......................... 208,826
Amounts representing interest (approximately 15%).... (44,550)
--------
Present value of future minimum lease payments....... 164,276
Less amounts due in one year......................... (45,892)
--------
$118,384
========
</TABLE>
(c) In accordance with the license and development agreement described in note
3, the Company is committed to fund certain research and development
activities based on a
F-14
<PAGE> 85
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
percentage of sales pursuant to the license agreement subject to a minimum
of $1,500,000 per annum.
CONTINGENCIES
(a) The Company may, from time to time, be subject to claims and legal
proceedings brought against them in the normal course of business. Such
matters are subject to many uncertainties. Management believes that adequate
provisions have been made in the accounts where required and the ultimate
resolution of such contingencies will not have a material adverse effect on
the financial position of the Company.
(b) The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the Year 2000 as 1900 or some other date, resulting in errors when
information using Year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect the Company's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the Company,
including those related to the efforts of customers, suppliers, or other
third parties will be fully resolved.
10. JOINT VENTURE
On October 1, 1995, the Company commenced certain research and development
activities in a 50% owned joint venture, PharmaTronics LLC, with Pharma Patch
PLC. The purpose of the joint venture was to jointly pursue the development of
an electrical assist method for the transdermal delivery of drugs, using an
electrode patch.
The joint venture conducted research activities which were funded by
capital contributions of the Company and its joint venture partner. The joint
venture did not have any significant assets, liabilities or revenues. On
November 15, 1995 Technical Chemicals and Products Inc. (TCPI) acquired the
assets of Pharma Patch PLC and became the new joint venture partner. On October
15, 1996, the Company agreed with TCPI to dissolve the joint venture.
The Company's proportionate share of expenses of the joint venture for the
period March 1, 1996 to October 15, 1996 was $99,516, which was included in
research and development expenses.
11. INCOME TAXES
At March 31, 1999, the U.S subsidiary has U.S. federal and California
income tax net operating loss carryforwards of approximately $17,620,000 and
$4,190,000, respectively. The difference between the U.S. federal and California
tax loss carryforwards is primarily attributable to the capitalization of
research and development expenses for California
F-15
<PAGE> 86
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
income tax purposes and the 50% limitation of California loss carryforwards. The
U.S. federal and California tax loss carryforwards expire as follows:
<TABLE>
<CAPTION>
U.S. FEDERAL CALIFORNIA
------------ ----------
<S> <C> <C>
1999................................. $ -- $ 71,000
2000................................. -- 346,000
2001................................. -- 769,000
2002................................. -- 1,356,000
2003................................. -- 1,648,000
2007................................. 46,000 --
2009................................. 542,000 --
2010................................. 1,816,000 --
2011................................. 2,947,000 --
2012................................. 6,184,000 --
2013................................. 6,085,000 --
----------- ----------
$17,620,000 $4,190,000
=========== ==========
</TABLE>
The U.S. subsidiary also has U.S. federal and California research tax
credit carryforwards of approximately $419,000 and $212,000, respectively, which
will begin to expire in 1999 unless previously utilized.
Pursuant to Internal Revenue Code Section 382 and 383, annual use of the
subsidiary's net operating loss and credit carryforwards may be limited because
of a cumulative change in ownership of more than 50% which occurred during 1993
and as a result of the reverse takeover which occurred in 1995. However, the
Company does not believe such limitations will have a material impact upon the
utilization of these carryforwards.
The French subsidiary has losses for French income tax purposes of
approximately $1,400,000 which will expire in 2004.
The Company has non-capital losses for Canadian income tax purposes which
may be used to reduce future taxable income, expiring as follows:
<TABLE>
<S> <C>
2001....................................... $ 216,000
2002....................................... 322,000
2003....................................... 393,000
2004....................................... 602,000
2005....................................... 818,000
----------
$2,351,000
==========
</TABLE>
In addition, the Company has unclaimed tax deductions of approximately
$1,060,000 related primarily to share issue costs available to reduce taxable
income of future years.
The income tax benefits of the operating loss and tax credit carryforwards
have not been recorded in the accounts as their realization is not virtually
certain.
F-16
<PAGE> 87
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
12. PENSION PLAN
In 1995, the U.S. subsidiary adopted a 401(k) Profit Sharing Plan covering
substantially all of its employees in the United States. The defined
contribution plan allows the employees to contribute a percentage of their
compensation each year. The Company currently matches 50% of the employees
contribution, up to 6% of annual compensation. The proceeds from contributions
are invested in common shares of the Company. The pension expense for the year
ended March 31, 1999 was $66,297 [thirteen months ended March 31,
1998 -- $44,911; year ended February 28, 1997 -- $42,200].
13. SEGMENTED INFORMATION
The Company's reportable business segments include the BTX division and the
Drug delivery division [note 1]. The Company evaluates performance based on many
factors including net results from operations before certain unallocated costs.
The Company does not allocate interest income and expenses and general and
administrative costs to its reportable segments. In addition, total assets are
not allocated to each segment.
The accounting policies of the segments are the same as those described in
the summary of accounting policies.
Substantially all of the Company's assets and operations are located in the
United States and predominantly all revenues are generated in the United States.
<TABLE>
<CAPTION>
BTX DRUG DELIVERY
DIVISION DIVISION TOTAL
---------- ------------- -----------
<S> <C> <C> <C>
YEAR ENDED MARCH 31, 1999
Reportable segment revenue............. $3,434,105 $ 4,887,183 $ 8,321,288
---------- ----------- -----------
Add reconciling items
Interest income...................... 300,911
---------- ----------- -----------
Total revenue................ 8,622,199
---------- ----------- -----------
Net results of reportable segment...... 366,386 (2,858,343) (2,491,957)
---------- ----------- -----------
Add (deduct) reconciling items
Interest income...................... 300,911
General and administrative........... (4,393,400)
Interest expense..................... (19,391)
---------- ----------- -----------
Net loss............................... (6,603,837)
========== =========== ===========
</TABLE>
F-17
<PAGE> 88
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
BTX DRUG DELIVERY
DIVISION DIVISION TOTAL
---------- ------------- -----------
<S> <C> <C> <C>
13 MONTHS ENDED MARCH 31, 1998
Reportable segment revenue............. $3,097,198 $ 134,094 $ 3,231,292
---------- ----------- -----------
Add reconciling items
Interest income...................... 427,498
---------- ----------- -----------
Total revenue................ 3,658,790
---------- ----------- -----------
Net results of reportable segment...... 478,499 (5,282,338) (4,803,839)
---------- ----------- -----------
Add (deduct) reconciling items
Interest income...................... 427,498
General and administrative........... (3,202,355)
Interest expense..................... (17,970)
---------- ----------- -----------
Net loss............................... (7,596,666)
========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
BTX DRUG DELIVERY
DIVISION DIVISION TOTAL
---------- ------------- -----------
<S> <C> <C> <C>
YEAR ENDED FEBRUARY 28, 1997
Reportable segment revenue............. $3,040,734 $ 47,439 $ 3,088,173
---------- ----------- -----------
Add reconciling items
Interest income...................... 71,206
---------- ----------- -----------
Total revenue................ 3,159,379
---------- ----------- -----------
Net results of reportable segment...... 752,917 (2,043,877) (1,290,960)
---------- ----------- -----------
Add (deduct) reconciling items
Interest income...................... 71,206
General and administrative........... (1,756,392)
Interest expense..................... (18,464)
---------- ----------- -----------
Net loss............................... (2,994,610)
========== =========== ===========
</TABLE>
14. RELATED PARTY TRANSACTIONS
(a) The payments to parties not at arm's length include the following:
- legal fees paid to a law firm where one of the partners is a director of
the Company
- accounting and administration fees paid to a company where the principal
is a director of the Company
F-18
<PAGE> 89
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
- rent and administration fees paid to a company where one of the
principals is an officer of the Company's French subsidiary, as follows:
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED MONTHS ENDED YEAR ENDED
MARCH 31 MARCH 31 FEBRUARY 28
1999 1998 1997
---------- ------------ -----------
<S> <C> <C> <C>
Legal services................... $ 93,778 $82,810 $76,155
Accounting and administration.... 26,735 24,020 17,855
Rent and administration.......... 114,900 -- --
======== ======= =======
</TABLE>
(b) Included in accounts payable and accrued expenses are the following amounts
owed to the parties identified in note 14(a) which are payable under normal
trade terms:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Legal services and accounting and
administration............................. $6,510 $3,635
====== ======
</TABLE>
(c) During the year ended February 28, 1997, the Company issued promissory notes
to an officer, shareholder and three directors (the "noteholders") amounting
to $500,000. The notes were interest bearing at a rate of 9.25% per annum
and repayable in January 1997. Prior to maturity the Company repaid $450,000
of these loans and issued 22,476 common shares in settlement of a $50,000
promissory note. The Company paid approximately $14,500 of interest to the
noteholders.
In addition, the Company issued to the noteholders options to acquire
70,000 common shares at various prices to Cdn. $3.42 expiring at various dates
to October 14, 2001.
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
The Company prepares the consolidated financial statements in accordance
with accounting principles generally accepted in Canada ("Canadian GAAP"). In
addition the Company provides supplementary descriptions of significant
differences between Canadian GAAP and those in the United States ("U.S. GAAP")
as follows:
(a) Under U.S. GAAP, the liability method is used in accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" (SFAS109). SFAS109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates that will be in effect for the year in
which the differences are expected to reverse.
Significant components of the Company's deferred tax assets as of March 31,
1999 and 1998 pursuant to U.S. GAAP are shown below. A valuation allowance
would be
F-19
<PAGE> 90
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
recognized to fully offset the deferred tax assets as of March 31, 1999 and
1998 as realization of such assets is uncertain.
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Capitalized research expense........ $ 393,000 $ 289,000
Net operating loss carryforwards.... 7,774,000 4,777,000
Research and development credits.... 557,000 299,000
Other -- net........................ 209,000 71,000
----------- -----------
Total deferred tax
assets................. 8,933,000 5,436,000
Valuation allowance for deferred tax
assets............................ (8,933,000) (5,436,000)
----------- -----------
Net deferred tax assets............. -- --
=========== ===========
</TABLE>
(b) Under U.S. GAAP, non-cash items such as assets acquired under capital lease
are excluded from the statements of cash flows. Under Canadian GAAP, the
gross amount of non-cash items are included in the respective operating,
investing, or financing activities as applicable.
(c) In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share" (SFAS128).
SFAS128 replaced the previously reported primary and fully diluted earnings
per share with basic and dilutive earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects
of options, warrants, and convertible securities. Dilutive earnings per
share are calculated in accordance with the treasury stock method and are
based on the weighted average number of common shares and dilutive common
share equivalents outstanding. For purposes of reconciling to U.S. GAAP, all
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to the SFAS128 requirements.
(d) Under U.S. GAAP, the Company's investment in its joint venture would have
been accounted for on an equity basis. This difference has no significant
impact on the Company's financial position or net loss for the year, from
that reported in these consolidated financial statements under Canadian
GAAP.
(e) The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" (APB25) in accounting for its
employee stock options. Under APB25, because the exercise price of the
Company's options for common shares granted to employees is not less than
the fair market value of the underlying stock on the date of grant, no
compensation expense has been recognized.
(f) Under U.S. GAAP, stock based compensation to non-employees must be recorded
at the fair market value of the options granted. This compensation,
determined using a Black-Scholes pricing model, is expensed over the vesting
periods of each option grant. For purposes of reconciliation to U.S. GAAP,
the Company will record an additional compensation expense of $431,000
[1998-$148,000] over future vesting periods.
(g) Under Canadian GAAP, costs incurred in connection with the Company's reverse
takeover in fiscal 1995 have been presented as a charge against
shareholder's equity.
F-20
<PAGE> 91
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
For U.S. GAAP purposes, these costs totaling $86,644 must be charged to
expense. Accordingly, the Company's deficit and share capital for the
periods presented have been increased by $86,644 for U.S. GAAP purposes.
The impact of significant variations to U.S. GAAP on the Consolidated
Statements of Loss are as follows:
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED MONTHS ENDED YEAR ENDED
MARCH 31 MARCH 31 FEBRUARY 28
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Loss for the period, Canadian GAAP.... $(6,603,837) $(7,596,666) $(2,994,610)
Adjustment for stock based
compensation -- non-employees....... (546,700) (307,500) (335,500)
----------- ----------- -----------
Loss for the period, U.S. GAAP........ (7,150,537) (7,904,166) (3,330,110)
=========== =========== ===========
Unrealized losses on foreign currency
translation......................... (83,294) 14,361 3,135
----------- ----------- -----------
Comprehensive loss for the period,
U.S. GAAP........................... (7,233,831) (7,889,805) (3,376,975)
----------- ----------- -----------
Loss per share, U.S. GAAP............. (0.35) (0.44) (0.26)
----------- ----------- -----------
Weighted average number of shares,
U.S. GAAP........................... 20,272,801 17,782,723 12,692,374
=========== =========== ===========
</TABLE>
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standard No. 123 "Accounting for
Stock Based Compensation" (SFAS123), which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted in fiscal periods beginning subsequent to December 1994 under the fair
value method of that statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes pricing model with the following
weighted average assumptions for the year ended March 31, 1999, the thirteen
months ended March 31, 1998 and year ended February 28, 1997, respectively: risk
free interest rates of 5.2%, 5.8% and 6.8%; dividend yields of 0%; volatility
factors of the expected market price of the Company's common stock of 0.68, 0.70
and 0.67; and a weighted average expected life of the options of five, seven and
one-half and eight years.
The Black Scholes options valuation model was developed for use in
estimating the fair value of trade options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-21
<PAGE> 92
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
The weighted-average fair value of options granted during the year ended
March 31, 1999 was $Cdn. $4.79 [thirteen months ended March 31, 1998 -- Cdn.
$2.58; year ended February 28, 1997 -- Cdn. $2.41].
Supplemental disclosure of pro forma loss and loss per share is as follows:
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED MONTHS ENDED YEAR ENDED
MARCH 31 MARCH 31 FEBRUARY 28
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Pro forma loss, US GAAP............... $(9,169,837) $(9,257,666) $(4,341,210)
Pro forma loss per share, US GAAP..... (0.45) (0.52) (0.34)
=========== =========== ===========
</TABLE>
The impact of significant variations to U.S. GAAP on the Consolidated
Balance Sheet items are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Share capital..................... $ 29,791,107 $ 22,448,946
Deficit........................... (21,431,745) (14,281,208)
============ ============
</TABLE>
The impact of significant variations to U.S. GAAP on the Consolidated
Statement of Cash Flow's cash flow items are as follows:
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED MONTHS ENDED YEAR ENDED
MARCH 31 MARCH 31 FEBRUARY 28
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Cash used in operating activities,
Canadian GAAP and U.S. GAAP......... $(6,603,837) $(6,788,195) $(2,990,450)
=========== =========== ===========
Cash used in investing activities,
Canadian GAAP....................... (791,839) (879,636) (661,832)
Capital assets acquired by capital
loans............................... 89,882 21,466 98,391
----------- ----------- -----------
Cash used in investing activities U.S.
GAAP................................ (701,957) (858,370) (563,441)
=========== =========== ===========
Cash provided by financing activities,
Canadian GAAP....................... 6,861,327 12,336,053 2,810,398
Increase in capital loans............. (89,882) (21,466) (98,391)
----------- ----------- -----------
Cash provided by financing activities,
U.S. GAAP........................... 6,771,445 12,314,587 2,712,007
=========== =========== ===========
</TABLE>
Supplemental disclosures of cash flow information is as follows:
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED MONTHS ENDED YEAR ENDED
MARCH 31 MARCH 31 FEBRUARY 28
1999 1998 1997
---------- ------------ -----------
<S> <C> <C> <C>
Interest paid during the
period......................... $19,391 $17,970 $18,464
======= ======= =======
</TABLE>
F-22
<PAGE> 93
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN US DOLLARS)
16. SUBSEQUENT EVENTS
Subsequent to March 31, 1999, the Company initiated a private placement of
Special Warrants and as of June 10, 1999, has received subscription agreements
for 4,187,500 Special Warrants for gross proceeds of $12,562,500 as part of the
total offering. Each Special Warrant entitles the holder to receive one common
share for no additional consideration.
F-23
<PAGE> 94
CONSOLIDATED BALANCE SHEETS
(UNAUDITED AS OF JUNE 30, 1999)
(IN US DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1999 1999
------------ ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents......................... $ 14,487,034 $ 6,189,284
Accounts receivable, net of allowance for
uncollectible accounts of $19,685 [March 31,
1999 -- $19,685]................................ 635,521 776,648
Inventories [note 2].............................. 754,809 655,906
Prepaid expenses and other........................ 59,736 6,095
------------ ------------
Total current assets.................... $ 15,937,100 $ 7,627,933
------------ ------------
Fixed assets, net................................. 1,093,371 1,177,393
Other assets, net................................. 1,132,386 1,002,318
------------ ------------
$ 18,162,857 $ 9,807,644
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued expenses............. $ 1,180,560 $ 1,377,443
Current portion of obligations under capital
leases.......................................... 47,694 45,892
------------ ------------
Total current liabilities............... $ 1,228,254 $ 1,423,335
------------ ------------
Obligations under capital leases.................. 105,727 118,384
Deferred rent..................................... 5,977 9,564
------------ ------------
Total liabilities....................... $ 1,339,958 $ 1,551,283
------------ ------------
SHAREHOLDERS' EQUITY
Share capital..................................... 28,540,182 28,357,863
Special Warrants [note 4]......................... 11,331,267 --
Cumulative translation adjustment................. (105,821) (103,001)
Deficit........................................... (22,942,729) (19,998,501)
------------ ------------
Total shareholders' equity.............. $ 16,822,899 $ 8,256,361
------------ ------------
$ 18,162,857 $ 9,807,644
============ ============
</TABLE>
- -------------------------
Note: The Financial statements at March 31, 1999 are derived from Audited
financial statements but do not include all of the footnote and other
disclosures required by generally accepted accounting principles.
See accompanying notes
F-24
<PAGE> 95
CONSOLIDATED STATEMENTS OF
LOSS AND DEFICIT
(UNAUDITED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
THREE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
REVENUE
Net sales......................................... $ 699,078 $ 814,405
Grant funding..................................... 198,385 62,883
Revenues under collaborative research and
development arrangements........................ -- 6,000
Interest income................................... 68,283 69,849
------------ ------------
$ 965,746 $ 953,137
------------ ------------
EXPENSES
Cost of sales..................................... $ 326,737 $ 380,634
Research and development.......................... 1,969,863 1,483,235
Selling, general and administrative............... 1,606,663 998,749
Interest expense.................................. 6,711 4,226
------------ ------------
$ 3,909,974 $ 2,866,844
------------ ------------
Net loss for the period........................... (2,944,228) (1,913,707)
Deficit, beginning of period...................... (19,998,501) (13,394,664)
------------ ------------
Deficit, end of period............................ $(22,942,729) $(15,308,371)
============ ============
Net Loss per common share -- basic and fully
diluted [note 3]................................ (0.14) (0.10)
============ ============
Weighted average number of Common Shares used in
computing net loss per share.................... 21,673,079 19,158,762
============ ============
</TABLE>
See accompanying notes
F-25
<PAGE> 96
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(UNAUDITED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
THREE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss for the period............................ $(2,944,228) $(1,913,707)
Items not involving cash:
Depreciation and amortization.................... 127,247 70,518
Changes in working capital items:
Accounts receivable.............................. 141,127 (53,634)
Inventories...................................... (98,903) 36,944
Prepaid expenses and other....................... (53,641) 1,067
Amount payable and accrued expenses.............. (196,883) (204,604)
Deferred rent.................................... (3,587) (3,586)
----------- -----------
Cash used in operating activities.................. (3,028,868) (2,067,002)
----------- -----------
INVESTING ACTIVITIES
Purchase of capital assets......................... (17,329) (139,676)
Increase in other assets........................... (155,964) (151,886)
----------- -----------
Cash used in investing activities.................. (173,293) (291,562)
----------- -----------
FINANCING ACTIVITIES
Payments on obligations under capital leases....... (10,855) (4,817)
Proceeds from issuance of Special Warrants --
net.............................................. 11,431,065 --
Proceeds from issuance of common shares -- net..... 82,521 220,980
----------- -----------
Cash provided by financing activities.............. 11,502,731 216,163
----------- -----------
Effect of exchange rate changes on cash............ (2,820) (29,293)
----------- -----------
Increase (decrease) in cash and cash equivalents... 8,297,750 (2,171,694)
Cash and cash equivalents, beginning of period..... 6,189,284 6,521,990
----------- -----------
Cash and cash equivalents, end of period........... $14,487,034 $ 4,350,296
=========== ===========
</TABLE>
See accompanying notes
F-26
<PAGE> 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN US DOLLARS)
1. BASIS OF PRESENTATION
The Consolidated Statements of Loss and Deficit for the three-month periods
ended June 30, 1999 and June 30, 1998, the Consolidated Balance Sheets as of
June 30, 1999, and the Consolidated Statements of Cash Flows for the three
month-periods ended June 30, 1999 and June 30, 1998 have been prepared by the
Company. In the opinion of management, all adjustments (which include
reclassifications and normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at June 30, 1999
and for all periods presented, have been made in accordance with accounting
principles generally accepted in Canada (see also note 6).
Certain information and note disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated financial statements
and notes thereto should be read in conjunction with the audited consolidated
financial statements for the year ended March 31, 1999 included in the
Genetronics Biomedical Ltd. Annual Report on Form 10-K filed with the Securities
and Exchange Commission. The results of operations for the three-month period
ended June 30, 1999 are not necessarily indicative of the results for the full
year.
In these financial statements, the Company has adopted the new cash flow
statement recommendations of the Canadian Institute of Chartered Accountants.
Accordingly, the comparative periods presented have been restated to exclude
non-cash investing and financing transactions.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1999 MARCH 31, 1999
------------- --------------
<S> <C> <C>
Raw Materials............. $537,793 $401,634
Work in process........... 68,262 81,863
Finished Goods............ 148,754 172,409
-------- --------
$754,809 $655,906
======== ========
</TABLE>
3. PER SHARE DATA
Basic loss per common share is computed by dividing the net loss by the
weighted average shares outstanding during the period. Diluted earnings per
share reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted to common stock.
Since the effect of the assumed exercise of common stock options and other
convertible securities was anti-dilutive, basic and diluted share as presented
on the consolidated statements of operations are the same.
F-27
<PAGE> 98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN US DOLLARS)
4. SHAREHOLDERS' EQUITY
PRIVATE PLACEMENT
On June 17, 1999 the Company closed a private placement of 4,187,500
special warrants at a price of US$3.00 per special warrant for gross proceeds of
US$12,562,500 less expenses of US$1,231,233. The special warrants are
convertible into common shares for no further consideration upon the earlier of
1) five days after receipt for the final prospectus is issued by the last of the
securities regulatory authorities in British Columbia and Ontario, or 2) request
for conversion made by special warrant holder after June 17, 1999, or 3) the
date of June 16, 2000.
In addition, the Company issued to the agents' nominee 30,000 common shares
and 418,750 special warrants exercisable for no consideration into 418,750
special warrants exercisable for no consideration into 418,750 share purchase
warrants which are exercisable into 418,750 common shares at a price of US$3.31
per share.
5. SEGMENT INFORMATION
The Company's reportable business segments include the BTX division and the
Drug Delivery division. The Company evaluates performance based on many factors
including net results from operations before certain unallocated costs. The
Company does not allocate interest income and expenses and general and
administrative costs to its reportable segments. In addition, total assets are
not allocated to each segment.
Substantially all of the Company's assets and operations are located in the
United States and predominantly all revenues are generated in the United States.
F-28
<PAGE> 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
BTX DRUG DELIVERY
DIVISION DIVISION TOTAL
--------- ------------- -----------
<S> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 1999
Reportable segment revenue............. $ 699,078 $ 198,385 $ 897,463
--------- ----------- -----------
Add reconciling items
Interest income...................... 68,283
-----------
Total revenue................ 965,746
-----------
Net results of reportable segment...... (134,531) (1,651,897) (1,786,428)
--------- ----------- -----------
Add (deduct) reconciling items
Interest income...................... 68,283
General and administrative........... (1,219,372)
Interest expense..................... (6,711)
-----------
Net loss............................... (2,944,228)
===========
THREE MONTHS ENDED JUNE 30, 1998
Reportable segment revenue............. 814,405 68,883 883,288
--------- ----------- -----------
Add reconciling items
Interest income...................... 69,849
-----------
Total revenue................ 953,137
-----------
Net results of reportable segment...... 98,724 (1,350,527) (1,251,803)
--------- ----------- -----------
Add (deduct) reconciling items
Interest income...................... 69,849
General and administrative........... (727,527)
Interest expense..................... (4,226)
-----------
Net loss............................... (1,913,707)
===========
</TABLE>
6. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada (Canadian GAAP), which,
in the case of the Company, conform in all material respects with those in the
United States (U.S. GAAP) and with the requirements of the Securities and
Exchange Commission (SEC), except as described in note 15 to the consolidated
financial statements for the year ended March 31, 1999.
F-29
<PAGE> 100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN US DOLLARS)
The impact of significant variations to U.S. GAAP on the consolidated
statements of loss and deficit are as follows:
<TABLE>
<CAPTION>
THREE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30 JUNE 30
1999 1998
------------ ------------
<S> <C> <C>
Loss for the period, Canadian GAAP.......... $(2,944,228) $(1,913,707)
Adjustment for stock based compensation --
non-employees............................. (102,543) (66,797)
----------- -----------
Loss for the period, U.S. GAAP.............. $(3,046,771) $(1,980,504)
=========== ===========
Unrealized losses on foreign currency
translation............................... (2,820) (29,293)
----------- -----------
Comprehensive loss for the period, U.S.
GAAP...................................... (3,049,591) (2,009,797)
----------- -----------
Loss per share, U.S. GAAP................... (0.14) (0.10)
=========== ===========
Weighted average number of shares, U.S.
GAAP...................................... 21,673,079 19,158,762
=========== ===========
</TABLE>
The impact of significant variations to U.S. GAAP on the Consolidated
Balance Sheet items are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999 MARCH 31, 1999
------------- --------------
<S> <C> <C>
Share capital............. $ 30,075,969 $ 29,791,107
Deficit................... (24,478,516) (21,431,745)
------------ ------------
</TABLE>
F-30
<PAGE> 101
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by us in connection
with the resale of the shares of common stock being registered. All of the
amounts shown are estimates, except for the SEC registration fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
Registration fee............................................ $ 4,103
Blue sky qualification fees and expenses.................... $ 5,000
Printing and engraving expenses............................. $ 3,500
Legal fees and expenses..................................... $ 50,000
Accounting fees and expenses................................ $ 30,000
Miscellaneous............................................... $ 7,397
--------
Total............................................. $100,000
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
As specified in our Articles of Incorporation, subject to the provisions of
the Company Act of the Province of British Columbia, the Directors shall cause
us to indemnify a Director or a former Director of ours and the Directors may
cause us to indemnify a Director or former Director of a corporation of which we
are or were a member and the heirs and personal representatives of any such
person against all costs, charges and expenses, including an amount paid to
settle an action or satisfy a judgment, actually and reasonably incurred by him
or them including an amount paid to settle an action or satisfy a judgment in a
civil, criminal or administrative action or proceeding to which he is or they
are made a party by reason of his being or having been a Director of ours or a
Director of such corporation, including any action brought by us or any such
corporation. Each of our Directors on being elected or appointed shall be deemed
to have contracted with us on the terms of the foregoing indemnity.
Additionally, the Directors may cause us to indemnify any of our officers,
employees or agents, or of a corporation of which we are or were a member, and
his heirs and personal representatives, against all costs, charges and expenses
whatsoever incurred by him or them and resulting from his acting as our officer,
employee or agent or such corporation. The Company shall also indemnify our
Secretary and any Assistant Secretary, if he is not a full-time employee and
notwithstanding that he may also be a Director and his respective heirs and
legal representatives against all costs, charges and expenses whatsoever
incurred by him or them and arising out of the functions assigned to the
Secretary by the Company Act or the Articles and each such Secretary and
Assistant Secretary shall, on being appointed be deemed to have contracted with
us on the terms of the foregoing indemnity.
The Directors may cause us to purchase and maintain insurance for the
benefit of any person who is or was serving a Director, officer, employee or
agent of ours or as a director, officer, employee or agent of any corporation of
which we are or were a shareholder and his heirs or personal representatives
against any liability incurred by him as such director, officer, employee or
agent.
II-1
<PAGE> 102
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On December 20, 1996, we announced the closing of a private placement of
1,268,000 special warrants, at $3.00 (CDN) per Unit. On March 31, 1997, we
announced the closing of a private placement of 1,300,000 special warrants, at
$4.25 (CDN) per Unit. Each special warrant entitled the holder thereof, upon
exercise, to acquire one of our common shares, for no additional consideration.
The combined special warrants private placement represented total gross proceeds
of $9,329,000 (CDN). The net proceeds of the private placement were released to
us at closing. Canaccord Capital Corporation acted as the agent in these private
placements and received a commission of 10% of the gross proceeds payable in
cash and an option to purchase 200,000 of our common shares on or before
December 20, 1997, at a price of $3.00 (CDN) per share. In connection with the
private placement, we issued the special warrants to investors outside the
United States.
The 2,568,000 special warrants were converted to our common shares on April
24, 1997, upon issuance of the final receipt for our prospectus by the British
Columbia Securities Commission. The prospectus further qualified the
distribution of 1,700,000 of our common shares (the "Treasury Shares") for sale
on a guaranteed best efforts agency basis, and a greenshoe option for an
additional 255,000 of our common shares of the Company to satisfy any
over-subscriptions of Treasury Shares. On June 2, 1997, we announced the closing
of our prospectus offering of 1,700,000 common shares at $4.30 (Canadian) per
share, and the exercise of the greenshoe option of 255,000 of our common shares
at $4.30 (CDN) per share to satisfy oversubscriptions. Total gross proceeds were
$8,406,500 (CDN) from the sale of our common shares. Canaccord Capital
Corporation acted as agent for sale of the common shares under the prospectus
and received commission of 10% of the gross proceeds payable in cash, and an
option to purchase 200,000 of our common shares at a price of $4.73 (CDN) per
share. We issued our common shares and options to purchase our common shares to
investors outside the United States.
In April of 1998, we announced the exercise of 200,000 of our special
warrants at CDN $3.30 per share, for gross proceeds of (CDN) $660,000. On
November 20, 1998, we announced that we received gross proceeds of (CDN)
$946,000 through the exercise of 200,000 of our special warrants at (CDN) $4.73
per common share. In connection with the private placement, we issued the
special warrants to investors outside the United States.
Pursuant to the Stock Purchase Agreement dated October 8, 1998 between us
and Johnson & Johnson Development Corporation, we issued and sold 2,242,611
shares of our common stock to Johnson and Johnson Development Corporation, an
accredited investor, for an aggregate purchase price of $6,000,000. We relied on
the exemption provided by Section 4(2) under the Securities Act and Regulation D
promulgated thereunder.
By an agency agreement dated June 8, 1999, we appointed Canaccord (L)
International Corporation as our exclusive agent to offer the special warrants
for sale on a best efforts basis. On June 16, 1999, 4,187,500 special warrants
were issued by us, at the price of US$3.00 per special warrant and 100% of the
net proceeds were immediately released to us. In connection with the private
offering to accredited investors within the United States, we relied on the
exemption provided by Regulation D of the Securities Act.
In consideration of the services performed by Canaccord in connection with
the offering of the special warrants, we paid to Canaccord a cash commission
equal to 8% of
II-2
<PAGE> 103
the aggregate gross proceeds raised from the sale of the special warrants. No
other cash fees will be paid by us with respect to the issuance of the common
shares upon the exercise of the special warrants.
Further, we issued to Canaccord special warrants exercisable, for no
additional consideration, to acquire common share purchase warrants to purchase
up to 418,750 of our common shares, exercisable at a price of US$3.31 per common
share on or before June 16, 2000 and we issued 30,000 of our common shares
valued at $99,798 to agent's nominee for services provided related to the
offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1 Articles of Incorporation(1)
3.2 Memorandum of the Registrant, as altered by Special
Resolution filed August 4, 1999
3.3 Bylaws of Genetronics, Inc.(1)
4.1 Reference is made to Exhibits 3.1 through 3.3
4.2 Specimen Stock Certificate(2)
4.3 Shareholder Rights Agreement dated June 20, 1997 by and
between the Registrant and Montreal Trust Company of Canada,
as amended on August 21, 1997
5.1 Opinion of Catalyst Corporate Finance Lawyers
10.1 1995 Stock Option Plan, as amended(3)
10.2 Forms of Incentive and Nonstatutory Stock Option Agreements
used in connection with the 1995 Stock Option Plan(3)
10.3 Amended 1997 Stock Option Plan(3)
10.4 Forms of Incentive and Nonstatutory Stock Option Agreements
used in connection with the 1997 Stock Option Plan(3)
10.5 Form of Stock Option Agreement used in connection with an
option grant outside of either of the stock option plans(3)
10.6 Employment Agreement dated January 9, 1995, Amendment No. 1
dated January 9, 1996 and Amendment No. 2 dated March 1,
1997 between the Registrant and Lois Crandell(1)
10.7 Employment Agreement dated January 9, 1995, Amendment No. 1
dated January 9, 1996 and Amendment No. 2 dated March 1,
1997 between the Registrant and Gunter A. Hofmann, Ph.D.(1)
10.8 Employment Agreement dated January 9, 1995, Amendment No. 1
dated January 9, 1996 and Amendment No. 2 dated March 1,
1997 between the Registrant and Martin Nash(1)
10.9 Employment Agreement dated February 5, 1996 between the
Registrant and James C. Lierman+
10.10 Amendment Number 3 dated January 15, 1999 to Employment
Agreement dated January 9, 1995, as amended, between the
Registrant and Lois Crandell(4)
10.11 Amendment Number 3 dated January 15, 1999 to Employment
Agreement dated January 9, 1995, as amended between the
Registrant and Gunter A. Hofmann, Ph.D.(4)
</TABLE>
II-3
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.12 Amendment Number 3 dated January 15, 1999 to Employment
Agreement dated January 9, 1995, as amended, between the
Registrant and Martin Nash(4)
10.13 401(k) Defined Contribution Plan of Registrant(1)
10.14 Lease by and between the Registrant and Olen Property
Corporation dated December 3, 1996 as modified on March 7,
1997 and August 26, 1999
10.15 Lease Agreement by and between the Registrant and Nexus
Sorrento Glen LLC dated August 26, 1999
10.16 Stock Purchase Agreement dated October 6, 1998 by and
between the Registrant and Johnson & Johnson Development
Corporation(4)
10.17 License and Development Agreement dated October 2, 1998 by
and between the Registrant and Ethicon, Inc.+
10.18 Supply Agreement dated October 2, 1998 by and between the
Registrant and Ethicon, Inc.+
10.19 Agency Agreement -- Special Warrant Private Placement dated
June 8, 1999 by and between the Registrant and Canaccord
International Corporation(5)
10.20 Special Warrant Indenture dated June 16, 1999 by and between
the Registrant and Montreal Trust Company of Canada(5)
21.1 Subsidiaries of the Registrant
23.1 Consent of Catalyst Corporate Finance Lawyers. Reference is
made to Exhibit 5.1
23.2 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney. Reference is made to page II-6
24.2 Power of Attorney of Felix Theeuwes
27.1 Financial Data Schedule
</TABLE>
- -------------------------
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(1) Filed as an exhibit to Registrant's Form 20-F for the period ended February
28, 1998 and incorporated herein by reference.
(2) Filed as an exhibit to Registrant's Form 8-A on December 3, 1998 and
incorporated herein by reference.
(3) Filed as an exhibit to Registrant's Form S-8 on September 1, 1999 and
incorporated herein by reference.
(4) Filed as an exhibit to Registrant's Form 10-K for the period ended March 31,
1999 and incorporated herein by reference.
(5) Filed as an exhibit to Registrant's Form 10-Q for the quarter ended June 30,
1999 and incorporated herein by reference.
II-4
<PAGE> 105
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
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.
We hereby undertake:
(1) That, for purposes of determining any liability under the Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration
statement 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.
(2) That, 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.
(3) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
County of San Diego, State of California, on October 4, 1999.
By: /s/ MARTIN NASH
-----------------------------------
Martin Nash
President, Chief Executive Officer
and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Martin Nash and James Lierman and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments, exhibits thereto and other documents in connection therewith) to
this Registration Statement and any subsequent registration statement filed by
the registrant pursuant to Rule 462(b) of the Securities Act of 1933, as
amended, which relates to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MARTIN NASH President, Chief October 4, 1999
- --------------------------------------------- Executive Officer, Chief
Martin Nash Financial Officer and
Director (Principal
Executive Officer and
Principal Financial
Officer)
/s/ JAMES LIERMAN Chief Operating Officer October 4, 1999
- ---------------------------------------------
James Lierman
/s/ JAMES L. HEPPELL Director October 4, 1999
- ---------------------------------------------
James L. Heppell
</TABLE>
II-6
<PAGE> 107
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GORDON POLITESKI Director October 4, 1999
- ---------------------------------------------
Gordon Politeski
/s/ WAYNE SCHNARR Director October 4, 1999
- ---------------------------------------------
Wayne Schnarr
/s/ FELIX THEEUWES Director October 4, 1999
- ---------------------------------------------
Felix Theeuwes
/s/ SUZANNE L. WOOD Director October 4, 1999
- ---------------------------------------------
Suzanne L. Wood
</TABLE>
II-7
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1 Articles of Incorporation(1)
3.2 Memorandum of the Registrant, as altered by Special
Resolution filed August 4, 1999
3.3 Bylaws of Genetronics, Inc.(1)
4.1 Reference is made to Exhibits 3.1 through 3.3
4.2 Specimen Stock Certificate(2)
4.3 Shareholder Rights Agreement dated June 20, 1997 by and
between the Registrant and Montreal Trust Company of Canada,
as amended on August 21, 1997
5.1 Opinion of Catalyst Corporate Finance Lawyers
10.1 1995 Stock Option Plan, as amended(3)
10.2 Forms of Incentive and Nonstatutory Stock Option Agreements
used in connection with the 1995 Stock Option Plan(3)
10.3 Amended 1997 Stock Option Plan(3)
10.4 Forms of Incentive and Nonstatutory Stock Option Agreements
used in connection with the 1997 Stock Option Plan(3)
10.5 Form of Stock Option Agreement used in connection with an
option grant outside of either of the stock option plans(3)
10.6 Employment Agreement dated January 9, 1995, Amendment No. 1
dated January 9, 1996 and Amendment No. 2 dated March 1,
1997 between the Registrant and Lois Crandell(1)
10.7 Employment Agreement dated January 9, 1995, Amendment No. 1
dated January 9, 1996 and Amendment No. 2 dated March 1,
1997 between the Registrant and Gunter A. Hofmann, Ph.D.(1)
10.8 Employment Agreement dated January 9, 1995, Amendment No. 1
dated January 9, 1996 and Amendment No. 2 dated March 1,
1997 between the Registrant and Martin Nash(1)
10.9 Employment Agreement dated February 5, 1996 between the
Registrant and James C. Lierman+
10.10 Amendment Number 3 dated January 15, 1999 to Employment
Agreement dated January 9, 1995, as amended, between the
Registrant and Lois Crandell(4)
10.11 Amendment Number 3 dated January 15, 1999 to Employment
Agreement dated January 9, 1995, as amended between the
Registrant and Gunter A. Hofmann, Ph.D.(4)
10.12 Amendment Number 3 dated January 15, 1999 to Employment
Agreement dated January 9, 1995, as amended, between the
Registrant and Martin Nash(4)
10.13 401(k) Defined Contribution Plan of Registrant(1)
10.14 Lease by and between the Registrant and Olen Property
Corporation dated December 3, 1996 as modified on March 7,
1997 and August 26, 1999
10.15 Lease Agreement by and between the Registrant and Nexus
Sorrento Glen LLC dated August 26, 1999
10.16 Stock Purchase Agreement dated October 6, 1998 by and
between the Registrant and Johnson & Johnson Development
Corporation(4)
10.17 License and Development Agreement dated October 2, 1998 by
and between the Registrant and Ethicon, Inc.+
</TABLE>
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.18 Supply Agreement dated October 2, 1998 by and between the
Registrant and Ethicon, Inc.+
10.19 Agency Agreement -- Special Warrant Private Placement dated
June 8, 1999 by and between the Registrant and Canaccord
International Corporation(5)
10.20 Special Warrant Indenture dated June 16, 1999 by and between
the Registrant and Montreal Trust Company of Canada(5)
21.1 Subsidiaries of the Registrant
23.1 Consent of Catalyst Corporate Finance Lawyers. Reference is
made to Exhibit 5.1
23.2 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney. Reference is made to page II-6
24.2 Power of Attorney of Felix Theeuwes
27.1 Financial Data Schedule
</TABLE>
- -------------------------
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(1) Filed as an exhibit to Registrant's Form 20-F for the period ended February
28, 1998 and incorporated herein by reference.
(2) Filed as an exhibit to Registrant's Form 8-A on December 3, 1998 and
incorporated herein by reference.
(3) Filed as an exhibit to Registrant's Form S-8 on September 1, 1999 and
incorporated herein by reference.
(4) Filed as an exhibit to Registrant's Form 10-K for the period ended March 31,
1999 and incorporated herein by reference.
(5) Filed as an exhibit to Registrant's Form 10-Q for the quarter ended June 30,
1999 and incorporated herein by reference.
<PAGE> 1
EXHIBIT 3.2
PROVINCE OF BRITISH COLUMBIA
FORM 19
(SECTION 348)
CERTIFICATE OF
INCORPORATION NO. 195077
COMPANY ACT
SPECIAL RESOLUTION
The following special resolutions were passed by the undermentioned company on
the date stated:
NAME OF COMPANY: GENETRONICS BIOMEDICAL LTD.
DATE RESOLUTION PASSED: JULY 26, 1999
RESOLUTION:
BE IT RESOLVED, AS A SPECIAL RESOLUTION, THAT:
(a) paragraphs 2 and 3 of the Memorandum of the Company be deleted
in its entirety and replaced with the following:
2. the authorized capital of the Company consists of
200,000,000 shares divided into:
(a) 100,000,000 common shares without par value;
and
(b) 100,000,000 Class A Preferred Shares without
par value; and
that the Memorandum be in the form attached hereto
and marked Schedule "A" so that the Altered
Memorandum complies with the Company Act (British
Columbia);
3. the aforementioned shares shall have attached thereto
the special rights and restrictions as set forth in
the Articles of the Company"; and
(b) the special rights and restrictions attached to the class A
preferred shares of the Company be deleted in their entirety
and replaced with the form of special rights and restrictions
as set out in Part 27 of the Articles of the Company in the
form presented to the Meeting."
<PAGE> 2
The Altered Memorandum is attached as Schedule "A".
CERTIFIED A TRUE COPY this 28th day of July, 1999.
(Signature) /s/ JAMES L. HEPPELL
---------------------
James L. Heppell
(Relationship to Company) Solicitor
---------------------
<PAGE> 3
SCHEDULE "A"
COMPANY ACT
PROVINCE OF BRITISH COLUMBIA
MEMORANDUM
(AS ALTERED BY SPECIAL RESOLUTION DATED JULY 26, 1999)
1. The name of the Company is Genetronics Biomedical Ltd.
2. The authorized capital of the Company consists of 200,000,000 shares
divided into:
(a) 100,000,000 common shares without par value; and
(b) 100,000,000 Class A Preferred Shares without par value.
3. The aforementioned shares shall have attached thereto the special
rights and restrictions as set forth in the Articles of the Company.
<PAGE> 4
PART 27
SPECIAL RIGHTS AND RESTRICTIONS ATTACHING
TO THE CLASS A PREFERRED SHARES
27.1 There are attached to the Class A Preferred Shares as a class, the
following rights, privileges, restrictions and conditions:
27.1.1 except as required by the Company Act (British Columbia) or as provided
in the special rights and restrictions attaching to any series of the
Class A Preferred Shares, holders of Class A Preferred Shares will not
as such be entitled to receive notice of, attend or vote at any general
meeting of members;
27.1.2 the Board of Directors may at any time and from time to time issue
Class A Preferred Shares in one or more series, each series to consist
of such number of shares as may before issuance of any thereof be
determined by the Board of Directors;
27.1.3 the Class A Preferred Shares of any series may have attached thereto
preferences, privileges, rights, restrictions, conditions or
limitations not inconsistent with the provisions of this Part
including, without limiting the generality of the foregoing,
preferences, privileges, rights, restrictions, conditions or
limitations with respect to:
(a) the payment of dividends, in cash or otherwise, on shares of
such series of the Company;
(b) the redemption or purchase of shares of that series by the
Company;
(c) the redemption, retraction, purchase or other retirement of
other shares of the Company or of any subsidiary of the
Company;
(d) sinking or other funds for the purchase or redemption of Class
A Preferred Shares;
(e) the exercise by the Company of any right to elect that any one
or more dividends are to be paid out of one or more special
surplus accounts recognized for tax purposes;
(f) the subdivision, consolidation or reclassification of shares
of the Company;
(g) borrowing by the Company or by any subsidiary of the Company;
(h) the creation or issue of any debt or equity securities by the
Company or by any subsidiary of the Company, including the
issue of Class A Preferred Shares in addition to the Class A
Preferred Shares at any time outstanding;
(i) the reduction of capital by the Company or by any subsidiary
of the Company;
<PAGE> 5
(j) the retirement of notes, bonds or debentures or other
indebtedness of the Company or of any subsidiary of the
Company;
(k) the conduct of the business of the Company or the investment
of its funds;
(l) the right to receive notice to vote at any general meeting of
the shareholders of the Company;
(m) meetings of holders of Class A Preferred Shares or of shares
of that series;
(n) the right of holders of Class A Preferred Shares of that
series to convert or exchange such shares into shares of the
Company of any other class or series or into or for other
securities of the Company or shares or other securities of any
other corporation;
(o) the right of holders of Class A Preferred Shares of that
series to receive a share price adjustment in connection with
any dilutive issuance of securities of the Company where the
price per share is less than the initial issuance price of the
Class A Preferred Shares, subject to certain exceptions. If
any shares are sold in a subsequent round of financing for
less than the initial issuance price then the holders of the
Class A Preferred Shares shall receive an additional number of
shares necessary to adjust the average price of their shares
to reflect the new, lower price; and
(p) the issuance of fractional Class A Preferred Shares;
27.1.4 holders of Class A Preferred Shares will be entitled to:
(a) preference with respect to payment of dividends on such shares
over the common shares and over any other shares ranking
junior to the Class A Preferred Shares with respect to payment
of dividends; and
(b) in the event of the liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary, or other
distribution of the assets of the Company among its members
for the purpose of winding up its affairs, preference with
respect to distribution of assets over the common shares and
over any other shares ranking junior to the Class A Preferred
Shares with respect to the repayment of capital paid up on and
the payment of unpaid dividends accrued on the Class A
Preferred Shares thereafter the holders of the Class A
Preferred Shares of any series shall not be entitled to share
in any further distribution of the assets;
27.1.5 the Board of Directors will, by resolution duly passed before the first
issue of Class A Preferred Shares of a series, alter the Memorandum and
Articles of the Company to fix
<PAGE> 6
the number of Class A Preferred Shares in, and to determine the
designation, preferences, privileges, rights, restrictions, conditions
and limitations to be attached to, the Class A Preferred Shares of that
series;
27.1.6 the Class A Preferred Shares of each series will rank rateably with the
Class A Preferred Shares of every other series:
(a) with respect to dividends, and
(b) on the return of capital and in the distribution of assets in
the event of the liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, or any other
distribution of the assets of the Company among its members
for the purpose of winding-up its affairs;
27.1.7 subject to the Company Act (British Columbia), holders of the Class A
Preferred Shares of any series will not, as such, be entitled as of
right to subscribe for or purchase or receive any part of any issue of
shares or bonds, debentures or other securities of the Company at any
time authorized otherwise than in accordance with any conversion,
exchange or other right which may from time to time be attached to
shares of that series;
27.1.8 the Company will not without, but may from time to time with, the
approval of the holders of the Class A Preferred Shares increase the
authorized number of Class A Preferred Shares or create any class of
shares ranking in priority to or on a parity with the Class A Preferred
Shares;
27.1.9 the provisions of the foregoing paragraphs 1 to 8 inclusive, the
provisions of this clause 9 and the provisions of the following clause
10 may be repealed, altered, modified, amended or amplified only with
the approval of the holders of the Class A Preferred Shares in addition
to any other approval required by the Company Act (British Columbia);
27.1.10 the approval of holders of the Class A Preferred Shares as to any and
all matters referred to in this Part or as to any change adversely
affecting the rights or restrictions of the holders of Class A
Preferred Shares may be given in writing by the holders of all the
Class A Preferred Shares for the time being outstanding, or may be
given by resolution passed at a meeting of holders of Class A Preferred
Shares governed by the following rules:
(a) not less than 21 days notice of the meeting indicating the
purpose for which the meeting is called must be given to all
holders of Class A Preferred Shares;
(b) subject as provided in subclause (e), the quorum for the
transaction of business will be one or more individuals
present at the beginning of the meeting in the
<PAGE> 7
aggregate holding, or representing the holder or holders of,
not less than 1/3 of the outstanding Class A Preferred Shares;
(c) if for any such meeting such a quorum is not present within
half an hour after the time appointed for the meeting, the
meeting will be adjourned to such date being not less than 15
days later and to such time and place as may be appointed by
the chairman;
(d) if the adjourned meeting is to reconvene more than 14 days
later, at least 10 days' notice must be given of such
adjourned meeting, but it will not be necessary in such notice
to indicate the purpose for which the meeting was originally
called;
(e) at such adjourned meeting, the individual or individuals
present as a holder or holders, or representing a holder or
holders of outstanding Class A Preferred Shares, will
constitute a quorum for the transaction of the business for
which the original meeting was convened;
(f) the vote required to pass a resolution will be the affirmative
vote of not less than 75% of the votes cast on the resolution
on a poll;
(g) on a poll taken at every such meeting or adjourned meeting a
holder of Class A Preferred Shares will be entitled to one
vote in respect of each Class A Preferred Share held; and
(h) subject as provided in this clause, the formalities to be
observed with respect to the giving of notice of any such
meeting or adjourned meeting, and the conduct thereof, will be
those which may from time to time be prescribed in the
Articles of the Company with respect to meetings of members of
the Company.
<PAGE> 1
EXHIBIT 4.3
THIS SHAREHOLDER RIGHTS AGREEMENT made as of June 20, 1997
BETWEEN:
GENETRONICS BIOMEDICAL LTD., a corporation incorporated under the laws
of the Provine of British Columbia, having its registered and records
office at 1100 - 1055 West Hastings Street, Vancouver, British
Columbia, V6E 2E9
(the "Corporation")
AND:
MONTREAL TRUST COMPANY OF CANADA, a trust company incorporated under
the laws of Canada, having an office address at 510 Burrard Street,
Vancouver, British Columbia, V6C 3B9
(the "Rights Agent")
WITNESSES THAT WHEREAS:
A. the Board of Directors has determined that it is advisable and in the best
interests of the Corporation to adopt a shareholder rights plan (the "Rights
Plan") to ensure, to the extent possible, that all shareholders of the
Corporation are treated fairly in connection with any take-over offer for the
Corporation;
B. in order to implement the Rights Plan the Board of Directors has:
(a) authorized and declared, subject to the approval of applicable regulatory
authorities, the issuance of one right (a "Right"), effective at the
Record Time, in respect of each Voting Share outstanding at that time and
each Voting Share issuable upon the exercise or conversion of Convertible
Securities outstanding at that time, and
(b) authorized, subject to the approval of applicable regulatory authorities,
the issuance of one Right in respect of each Voting Share and each Voting
Share issuable upon the exercise or conversion of Convertible Securities,
issued in either case after the Record Time and prior to the earlier of
the Separation Time and the Expiration Time;
C. each Right entitles the holder thereof, after the Separation Time, to
purchase securities of the Corporation pursuant to the terms and subject to the
conditions set forth herein; and
D. the Corporation desires to appoint the Rights Agent to act on behalf of the
Corporation, and the Rights Agent is willing to so act, in connection with the
issuance, transfer, exchange and replacement of Rights Certificates, the
exercise of Rights and other matters referred to herein.
NOW THEREFORE in consideration of the premises and their respective
agreements set forth herein, the parties hereby agree as follows:
1. INTERPRETATION
1.1 CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
indicated:
<PAGE> 2
2
(a) "Acquiring Person" means any Person who is the Beneficial Owner of 20% or
more of the outstanding Voting Shares, but does not include:
(i) the Corporation, any Subsidiary of the Corporation or any employee
benefit plan, deferred profit sharing plan, stock participation plan
or trust for the benefit of employees of the Corporation or any
Subsidiary of the Corporation;
(ii) any Person who becomes the Beneficial Owner of 20% or more of the
outstanding Voting Shares as a result of:
(A) a Voting Share Reduction;
(B) a Permitted Bid Acquisition;
(C) an Exempt Acquisition; or
(D) a Pro Rata Acquisition;
provided, however, that if a Person becomes the Beneficial Owner of
20% or more of the outstanding Voting Shares by reason of a Voting
Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition
or a Pro Rata Acquisition, and thereafter becomes the Beneficial
Owner of any additional Voting Shares (other than pursuant to a
Voting Share Reduction, a Permitted Bid Acquisition, an Exempt
Acquisition or a Pro Rata Acquisition) then, as of the date that
such Person becomes the Beneficial Owner of such additional Voting
Shares, such Person shall become an "Acquiring Person";
(iii) for the period of ten days after the first date of public
announcement of facts indicating that any Person has participated
in, has made, proposes or intends to make or is participating in a
Takeover Bid or any plan or proposal relating thereto or resulting
therein including, without limitation, a report filed pursuant to
Section 93 of the Securities Act, any Person who becomes the
Beneficial Owner of 20% or more of the outstanding Voting Shares as
a result of such Person becoming disqualified from relying on Clause
1.1 (d)(vii) solely because such Person or the Beneficial Owner of
such Voting Shares has participated in, has made, proposes or
intends to make or is participating in a Takeover Bid or any plan or
proposal relating thereto or resulting therein, either alone or by
acting jointly or in concert with any other Person; or
(iv) an underwriter or member of a banking or selling group that
becomes the Beneficial Owner of 20% or more of the Voting Shares in
connection with a bona fide distribution to the public of
securities.
(b) "Affiliate", when used to indicate a relationship with a specified
Person, means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, such specified Person and a Person shall be deemed to be controlled
by another Person if controlled in any manner whatsoever that results in
control in fact by that other Person, whether directly or indirectly, and
whether through share ownership, a trust, a contract or otherwise.
(c) "Associate", when used to indicate a relationship with a specified
Person, means:
<PAGE> 3
3
(i) any body corporate, partnership or other organization of which such
specified Person is a director, officer or partner;
(ii) any trust or other estate in which such specified Person has a 10%
or greater beneficial interest or as to which such specified Person
serves as trustee or in a similar fiduciary capacity;
(iii) any relative of such specified Person who has the same home as
such specified Person, or any person to whom such specified Person
is married, or any person with whom such specified Person is living
in a conjugal relationship outside marriage, or any relative of such
spouse or other person who has the same home as such specified
Person;
(iv) any Person who is a director, officer, partner or trustee of such
specified Person or of any body corporate, partnership or other
organization (other than the Corporation or any Subsidiary of the
Corporation) which is an Affiliate or Associate of such specified
Person; and
(v) any body corporate of which such specified Person beneficially
owns, directly or indirectly, voting shares carrying more than 10%
of the voting rights attaching to all voting shares of the body
corporate for the time being outstanding.
(d) A Person is deemed the "Beneficial Owner" and to have "Beneficial Ownership"
of, and to "Beneficially Own":
(i) any securities as to which such Person or any of such Person's
Affiliates or Associates is, or may be deemed to be, the direct or
indirect beneficial owner and, for this purpose, a Person shall be
deemed to be a beneficial owner of all securities;
(A) owned by a partnership of which such Person or any of such
Person's Affiliates or Associates is a partner;
(B) owned by a trust of which such Person or any of such Person's
Affiliates or Associates is a beneficiary (whether their interest
in the trust is present or future, and/or vested or contingent);
(C) over which such Person or any of such Person's Affiliates or
Associates exercises control or is deemed to exercise control
pursuant to the Securities Act;
(D) owned jointly or in common with others; and
(E) of which such Person or any of such Person's Affiliates or
Associates is deemed to be the beneficial owner pursuant to the
Company Act or the Securities Act for the purposes of insider
trading or take-over bids, whether or not such laws or
regulations apply to such Person or such Person's Affiliates or
Associates and whether or not such beneficial owner or deemed
beneficial owner is the holder of record of such securities;
(ii) any securities as to which such Person or any of such Person's
Affiliates or Associates has, directly or indirectly:
<PAGE> 4
4
(A) the right to become Beneficial Owner within the meaning of
Clause (i) of this Subsection 1.1(d), (whether such right is
exercisable immediately or after the passage of time or upon the
occurrence of a contingency or payment of instalments or
otherwise) pursuant to any agreement, arrangement, pledge or
understanding or otherwise, whether or not in writing, other than
(x) customary agreements with and between underwriters and/or
banking group and/or selling group members with respect to a bona
fide distribution to the public of securities and (y) pledges of
securities to financial institutions or registered brokers or
dealers in the ordinary course of business for the purpose of
giving collateral for a debt made in good faith and not entered
into with the purpose nor with the effect of changing or
influencing the control of the Corporation nor in connection with
any transaction having such purpose or effect and not providing
for a grant to the pledgee of the power to vote or direct the
vote of the pledged securities or the power to dispose or direct
the disposition of the pledged securities (other than for
purposes of a bona fide realization of the security constituted
thereby), or upon the exercise of conversion rights, exchange
rights, rights (other than the Rights), or options, or otherwise;
or
(B) the right to vote or to direct the vote of such securities
(whether such right is exercisable immediately or after the
passage of time or upon the occurrence of a contingency or
payment of instalments or otherwise) pursuant to any agreement,
arrangement or understanding or otherwise (whether or not in
writing); and
(iii) any securities which are Beneficially Owned within the meaning of
Clauses (i) or (ii) of this Subsection 1.1(d) by any other Person
with which such Person or any of such Person's Affiliates or
Associates is acting jointly or in concert or has any agreement,
arrangement or understanding, whether or not in writing, other than
(x) customary agreements with and between underwriters and/or
banking group and/or selling group members with respect to a bona
fide distribution to the public of securities and (y) pledges of
securities to financial institutions or registered brokers or
dealers in the ordinary course of business for the purpose of giving
collateral for a debt made in good faith and not entered into with
the purpose nor with the effect of changing or influencing the
control of the Corporation nor in connection with any transaction
having such purpose or effect and not providing for a grant to the
pledgee of the power to vote or direct the vote of the pledged
securities or the power to dispose or direct the disposition of the
pledged securities (other than for purposes of a bona fide
realization of the security constituted thereby), with respect to,
or for the purpose of, acquiring, holding, voting or disposing of
any Voting Shares or Convertible Securities or acquiring, holding or
disposing of a significant portion of the property or assets of the
Corporation or any Subsidiary of the Corporation, and any securities
which are Beneficially Owned (within the meaning of Clauses (i) or
(ii) of this Subsection 1.1(d)) by any Affiliate or Associate of
such other Person or any Person that is acting jointly or in concert
with, or has any agreement, arrangement or understanding of the type
referred to above with, such other Person;
provided, however, that a Person shall not be deemed the "Beneficial
Owner" or to have "Beneficial Ownership" of, or to "Beneficially Own",
any security:
(iv) solely because such security has been deposited or tendered
pursuant to a tender or exchange offer or take-over bid made by such
Person or any of such Person's Affiliates
<PAGE> 5
5
or Associates until the earlier of such deposited or tendered
security being accepted unconditionally for payment or exchange or
being taken up and paid for;
(v) solely because such Person or any of such Person's Affiliates or
Associates has or shares the power to vote or direct the voting of
such security pursuant to a revocable proxy given in response to a
public proxy solicitation made pursuant to, and in accordance with,
the applicable rules and regulations under the Company Act and the
Securities Act, except if such power (or the arrangements relating
thereto) is then reportable under Section 112 of the Securities Act
or under Item 4 of Form 30 under the Securities Act;
(vi) solely because such Person or any of such Person's Affiliates or
Associates has or shares the power to vote or direct the voting of
such security in connection with, or in order to participate in, a
public proxy solicitation made or to be made pursuant to, and in
accordance with, the applicable rules and regulations referred to in
clause (v) above, except if such power (or the arrangements relating
thereto) is then reportable under Section 112 of the Securities Act
or under Item 4 of Form 30 under the Securities Act;
(vii) solely because such Person (hereinafter in this Subclause (vii)
referred to as the "Manager"), being principally engaged in the
business of managing investment funds for other Persons who are not
Affiliates or Associates of the Manager and who do not act jointly
or in concert with the Manager as part of the Manager's duties as
agent for fully managed accounts, holds or exercises voting or
dispositive power over such security; provided, however, that:
(A) such security shall be deemed, in such case, to be Beneficially
Owned by such other Persons;
(B) the Manager does not, individually, Beneficially Own in excess
of five percent of the outstanding Voting Shares; and
(C) the Manager has not participated in, has not made, does not
propose or intend to make and is not participating in, a Takeover
Bid or any plan or proposal relating thereto or resulting
therein, either alone or by acting jointly or in concert with any
other Person;
and provided further that, notwithstanding the foregoing, the Board
of Directors shall have the right to and may determine, acting in
good faith, that conditions exist which should disentitle the
Manager from relying on this Subclause (vii) and, in such event, the
Manager's Beneficial Ownership of securities shall be determined
without reference to this Subclause (vii); or
(viii) held for or pursuant to the terms of any employee benefit plan,
deferred profit sharing plan, stock participation plan or trust for
the benefit of employees of the Corporation or any Subsidiary of the
Corporation.
For purposes of this Agreement, in determining the percentage of the
outstanding Voting Shares with respect to which a Person is or is
deemed to be the Beneficial Owner, all Voting Shares as to which such
Person is deemed the Beneficial Owner, including without limiting the
generality of the foregoing, all Voting Shares into which the
Convertible Securities as to which such Person is or is deemed to be
the Beneficial Owner are convertible or exchangeable, shall be deemed
outstanding.
<PAGE> 6
6
(e) "Board of Directors" means the board of directors of the Corporation.
(f) "Business Day" means any day other than a Saturday, Sunday or a day on
which chartered banks in the City of Vancouver are authorized or obliged
by law to close.
(g) "Close of Business" on any given date means the time on such date (or, if
such date is not a Business Day, the time on the next succeeding Business
Day) at which the office of the transfer agent for the Voting Shares in
the City of Vancouver (or, after the Separation Time, the office of the
Rights Agent in the City of Vancouver), is closed to the public.
(h) "Common Shares" means the common shares in the capital of the Corporation
and "common shares", when used with reference to any Person other than the
Corporation, means the class or classes of shares (or similar equity
interest) with the greatest per share voting power entitled to vote
generally in the election of all directors of such other Person or the
equity securities or other equity interest having power (whether or not
exercised) to control or direct the management of such other Person or, if
such other Person is a Subsidiary of another Person, the Person or Persons
that ultimately control such first-mentioned other Person.
(i) "Company Act" means the Company Act (British Columbia) and the
regulations made thereunder, as now in effect or as the same may from time
to time be amended, re-enacted or replaced.
(j) "Convertible Securities" means securities that are or may be, whether or
not on conditions, convertible into or exchangeable for Voting Shares,
directly or indirectly, or that carry the right or obligation to acquire
Voting Shares;
(k) "Election to Exercise" has the meaning attributed thereto in Clause
2.2(d)(i).
(l) "Exempt Acquisition" means a share acquisition in respect of which the
Board of Directors has waived the application of Section 3.1 pursuant to
the provisions of Subsections 5.l(d) or 5.1(e).
(m) "Exercise Price" means, as of any date, the price at which a holder of a
Right may purchase the securities issuable upon exercise of one whole
Right. Until adjustment thereof in accordance with the terms hereof, the
Exercise Price shall be $20.00.
(n) "Expiration Time" means the earlier of (i) the Termination Time, and (ii)
the Close of Business on the date on which the first annual meeting of
shareholders of the Corporation following the fifth anniversary of the
date of this Agreement is held; provided, however, that if the resolution
referred to in Section 5.21 is approved by the Independent Shareholders in
accordance with Section 5.21 at such annual meeting then "Expiration Time"
means the earlier of (x) the Termination Time and (y) the Close of
Business on the tenth anniversary of the date of this Agreement.
(o) "Expiry Date of the Permitted Bid" means the date, which shall not be
less than 90 days following the date on which the proper Takeover Bid
documentation relating to such Permitted Bid is sent to the shareholders
of the Corporation, which is indicated in such documentation as the date
until which such Permitted Bid is open for acceptance.
(p) "Flip-in Event" means a transaction or event in or pursuant to which any
Person becomes an Acquiring Person.
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(q) "Independent Shareholders" means holders of Voting Shares or Convertible
Securities, other than (i) any Acquiring Person, (ii) any Offeror, (iii)
any Affiliate or Associate of any Acquiring Person or Offeror, (iv) any
Person acting jointly or in concert with any Acquiring Person or Offeror,
or with any Affiliate or Associate of any Acquiring Person or Offeror and
(v) any Person holding Voting Shares or Convertible Securities that are
Beneficially Owned by any of such Persons.
(r) "Market Price" per security of any securities on any date of
determination means the weighted average price per security (determined as
described below) for the 20 consecutive Trading Days (the "Period")
through and including the Trading Day two trading days preceding such
date; provided, however, that if any of the events described in Section
2.3 hereof shall have caused the prices per security used to determine the
Market Price on any Trading Day not to be fully comparable with the price
per security on the Trading Day immediately preceding such date of
determination each such price per security so used shall be appropriately
adjusted in the manner provided for in Section 2.3 in order to make it
fully comparable with the price per security on the Trading Day
immediately preceding such date of determination. The weighted average
price per security of any securities on any date shall be:
(i) determined by dividing the aggregate value of securities sold on
The Toronto Stock Exchange or, if the securities are not listed
thereon, on such stock exchange on which the securities are then
listed (as may be selected for such purpose by the directors of the
Corporation) or, if the securities are not then listed on any stock
exchange, then on the over-the-counter market on which the
securities are then traded, during the Period by the aggregate
volume of securities sold during the Period; and
(ii) provided, however, that if for any reason there is no market for
the securities during the Period, the Market Price shall be as
determined by the Board of Directors, after consultation with an
internationally recognized investment dealer or investment banker.
(s) "Offer to Acquire" includes;
(i) an offer to purchase or a solicitation of an offer to sell Voting
Shares or Convertible Securities, or a public announcement of an
intention to make such an offer or solicitation; and
(ii) an acceptance of an offer to sell Voting Shares or Convertible
Securities, whether or not such offer to sell has been solicited;
or any combination thereof, and the Person accepting an offer to
sell shall be deemed to be making an Offer to Acquire to the Person
that made the offer to sell.
(t) "Offeror" means a Person who has announced an intention to make, or who
has made, a Takeover Bid.
(u) "Offeror's Securities" means the aggregate of the Voting Shares and
Convertible Securities Beneficially Owned on the date of a Takeover Bid by
an Offeror.
(v) "Permitted Bid" means a Takeover Bid made in compliance with, and not on
a basis which is exempt from or otherwise not subject to, the provisions
of Part XI of the Securities Act, subject to any exemptions ordered or
granted for purposes of uniformity, and which also complies with the
following additional requirements:
<PAGE> 8
8
(i) the same Takeover Bid is made for all outstanding Voting Shares and
Convertible Securities to all holders of record of Voting Shares and
Convertible Securities wherever resident as registered in the books
of the Corporation;
(ii) the Offeror's Securities do not, in the aggregate, exceed 5% of
the outstanding Voting Shares or Voting Shares issuable upon the
exercise of Convertible Securities, as the case may be, and the
Offeror does not become the Beneficial Owner of any additional
Voting Shares or Convertible Securities prior to the Close of
Business on the Expiry Date of the Permitted Bid;
(iii) the Takeover Bid contains, and the take-up and payment for
securities tendered or deposited thereunder is subject to,
irrevocable and unqualified provisions that:
(A) no Voting Shares or Convertible Securities will be taken up or
paid for pursuant to the Takeover Bid (x) prior to the Close of
Business on the Expiry Date of the Permitted Bid and (y) unless,
at the Close of Business on the Expiry Date of the Permitted Bid,
more than 50% of the then outstanding Voting Shares and
Convertible Securities, other than the Offeror's Securities, have
been deposited or tendered pursuant to the Takeover Bid and not
withdrawn;
(B) Voting Shares and Convertible Securities may be deposited
pursuant to such Takeover Bid at any time prior to the Close of
Business on the Expiry Date of the Permitted Bid;
(C) any Voting Shares and Convertible Securities deposited pursuant
to the Takeover Bid may be withdrawn until taken up and paid for;
(D) in the event that the requirement set forth in Subclause (A)(y)
of this Clause 1.1(v)(iii) is satisfied, the Offeror will make a
public announcement of that fact and the Takeover Bid will remain
open for deposits and tenders of Voting Shares and Convertible
Securities for not less than ten days from the date of such
public announcement; and
(E) if the consideration offered pursuant to the Takeover Bid is not
payable entirely in cash, the circular accompanying or forming
part of the Takeover Bid shall be accompanied by an opinion of an
internationally recognized investment dealer or investment banker
dated the date of the Takeover Bid and addressed to the offeree
holders of Voting Shares and Convertible Securities (x) that the
value of the consideration to be paid to the holders of Voting
Shares and Convertible Securities of the Corporation is fair to
such holders and (y) as to the market trading cash value of the
non-share consideration in the hands of the offeree holders of
Voting Shares and Convertible Securities on a fully distributed
basis.
For purposes of this Agreement, (i) should a Permitted Bid cease to be a
Permitted Bid because it ceases to meet any or all of the requirements mentioned
above at any time, any acquisition of Voting Shares or Convertible Securities
made pursuant to such Permitted Bid, including any acquisition of Voting Shares
and Convertible Securities theretofore made, shall cease to be a Permitted Bid
Acquisition, and (ii) should the initial terms of a Permitted Bid be varied by
reason only of an increase in the cash consideration offered to the shareholders
of the Corporation, the initial period of time during which shareholders may
deposit their Voting Shares and Convertible Securities pursuant to the Permitted
Bid shall continue to run, unaffected by such variation. In
<PAGE> 9
9
all other circumstances, any change or variation to the initial terms
or conditions of a Permitted Bid shall trigger a new period of at least
90 days during which Voting Shares and Convertible Securities may be
deposited pursuant to the Takeover Bid and the initial Expiry Date of
the Permitted Bid shall be modified accordingly.
(w) "Permitted Bid Acquisition" means an acquisition of Voting Shares and
Convertible Securities made pursuant to a Permitted Bid.
(x) "Person" includes any individual, firm, partnership, association, trust,
trustee, executor, administrator, legal personal representative,
government, governmental body or authority, corporation or other
incorporated or unincorporated organization.
(y) "Pro Rata Acquisition" means an acquisition by a Person of Voting Shares
or Convertible Securities pursuant to (w) any dividend reinvestment plan
or share purchase plan of the Corporation, (x) a stock dividend, a stock
split or other event pursuant to which such Person becomes the Beneficial
Owner of Voting Shares or Convertible Securities on the same pro rata
basis as all other holders of Voting Shares or Convertible Securities of
the same class or series, (y) the exercise of rights to purchase Voting
Shares or Convertible Securities distributed to all holders of Voting
Shares or Convertible Securities pursuant to a rights offering which
complies with the requirements of Policy No. 3-05 of the British Columbia
Securities Commission or is made pursuant to a prospectus or (z) a
distribution to the public of Voting Shares, or Convertible Securities
made pursuant to a prospectus or by way of a private placement completed
in accordance with applicable securities legislation; provided, however,
in the case of an acquisition referred to in Subclause (z), such
acquisition is made for such number of Voting Shares or Convertible
Securities or of such securities as is necessary for such Person to
maintain the percentage of Voting Shares and Convertible Securities, as
the case may be, that such Person held immediately prior to the
announcement of such distribution to the public or private placement.
(z) "Record Time" means the Opening of Business (Vancouver time) on June 20,
1997.
(aa) "Redemption Price" has the meaning attributed thereto in Clause 5.1(a).
(bb) "Regular Periodic Cash Dividend" means cash dividends paid on the Voting
Shares at regular intervals in any fiscal year of the Corporation to the
extent that such cash dividends do not exceed in the aggregate in any
fiscal year, on a per share basis, the greatest of:
(i) 200% of the aggregate amount of cash dividends declared payable by
the Corporation on the Voting Shares in its immediately preceding
fiscal year divided by the number of Voting Shares outstanding as at
the end of such fiscal year;
(ii) 300% of the arithmetic mean of the aggregate amounts of cash
dividends declared payable by the Corporation on the Voting Shares
in its three immediately preceding fiscal years divided by the
arithmetic mean of the numbers of Voting Shares outstanding as at
the end of each of such fiscal years; and
(iii) 100% of the aggregate consolidated net income of the Corporation,
before extraordinary items, for its immediately preceding fiscal
year divided by the number of Voting Shares outstanding as at the
end of such fiscal year.
(cc) "Rights Certificate" means the certificates representing the Rights
after the Separation Time which shall be substantially in the form
attached hereto as Exhibit A.
<PAGE> 10
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(dd) "Securities Act" means the Securities Act (British Columbia), as
amended, and the regulations made thereunder, as now in effect or as the
same may from time to time be amended, re-enacted or replaced.
(ee) "Separation Time" means the Close of Business on the tenth day after the
earlier of:
(i) the Stock Acquisition Date; and
(ii) the date of the commencement of, or first public announcement of
the intent of any Person (other than the Corporation or any
Subsidiary of the Corporation) to commence a Takeover Bid (other
than a Permitted Bid, so long as such Takeover Bid continues to
satisfy the requirements of a Permitted Bid);
or such earlier or later date as may from time to time be determined
by the Board of Directors, provided that if any such Takeover Bid
expires, is cancelled, is terminated or is otherwise withdrawn prior
to the Separation Time, such offer shall be deemed, for the purposes
of this Subsection 1.1(ae), never to have been made.
(ff) "Stock Acquisition Date" means the first date of public announcement
(which for purposes of this definition includes, without limitation, a
report filed pursuant to Section 112 of the Securities Act) of facts
indicating that a Person has become an Acquiring Person.
(gg) "Subsidiary" of any specified Person means any corporation or other
entity of which a majority of the voting power of the equity securities or
a majority of the equity interest is Beneficially Owned, directly or
indirectly, by such Person.
(hh) "Takeover Bid" means an Offer to Acquire Voting Shares or Convertible
Securities where the Voting Shares subject to the Offer to Acquire,
together with the Voting Shares into which the Convertible Securities
subject to the Offer to Acquire are convertible or exchangeable, and the
Offeror's Securities constitute in the aggregate 20% or more of the
outstanding Voting Shares at the date of the Offer to Acquire.
(ii) "Termination Time" means the time at which the right to exercise Rights
shall terminate pursuant to Subsections 3.2(b) or 5.1(c).
(jj) "Trading Day", when used with respect to any securities, means any day
on which the principal securities exchange (as determined by the Board of
Directors) on which such securities are listed or admitted to trading is
open for the transaction of business or, if the securities are not listed
or admitted to trading on any securities exchange, a Business Day.
(kk) "Voting Shares" means the Common Shares of the Corporation and any other
shares of capital stock or voting interests of the Corporation entitled to
vote generally in the election of directors and "voting shares", when used
with reference to any Person other than the Corporation, means common
shares of such other Person and any other shares of capital stock or
voting interests of such other Person entitled to vote generally in the
election of the directors of such other Person. For purposes of this
Agreement, the percentage of Voting Shares Beneficially Owned by any
Person shall be, and be deemed to be, the product determined by the
formula;
100 x A
-
B
where
<PAGE> 11
11
A = the aggregate number of votes for the election of all directors
generally attaching to the Voting Shares Beneficially Owned by such
Person, including without limitation the Voting Shares into which the
Convertible Securities Beneficially Owned by such Person are convertible
or exchangeable; and
B = the aggregate number of votes for the election of all directors
generally attaching to all outstanding Voting Shares.
Where such Person is deemed to Beneficially Own unissued Voting Shares,
such unissued Voting Shares Beneficially Owned by such person shall be
deemed to be outstanding for the purpose of both A and B above.
(ll) "Voting Share Reduction" means an acquisition or redemption by the
Corporation of Voting Shares which, by reducing the number of Voting
Shares outstanding, increases the percentage of Voting Shares Beneficially
Owned by any Person to 20% or more of the Voting Shares then outstanding.
1.2 CURRENCY
All sums of money which are referred to in this Agreement are expressed in
lawful money of Canada, unless otherwise specified.
(A) NUMBER AND GENDER. Wherever the context so requires, terms used herein
importing the singular number only shall include the plural and vice versa
and words importing any one gender shall include all others.
(B) SECTIONS AND HEADINGS. The division of this Agreement into Articles,
Sections, Subsections, Clauses and Subclauses and the insertion of
headings are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement. The terms "this
Agreement", "hereof"', "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion
hereof and include any agreement or instrument supplemental or ancillary
hereto. Unless something in the subject matter or context is inconsistent
therewith, references herein to Articles, Sections, Subsections, Clauses
and Subclauses are to Articles, Sections, Subsections, Clauses and
Subclauses of this Agreement.
(C) STATUTORY REFERENCES. Unless the context otherwise requires, any
reference herein to a specific Section, Subsection, Clause or Rule of any
act or regulation shall be deemed to refer to the same as it may be
amended, re-enacted or replaced or, if repealed and there shall be no
replacement therefor, to the same as it is in effect on the date of this
Agreement.
(D) ACTING JOINTLY OR IN CONCERT. For the purposes of this Agreement, a
Person shall be deemed to be acting jointly or in concert with another
Person if such Person would be deemed to be acting jointly or in concert
with such Person for the purpose of Part 11 of the Securities Act.
2. THE RIGHTS
2.1 LEGEND ON VOTING SHARE CERTIFICATES
(a) Certificates for Voting Shares and Convertible Securities issued after
the Record Time but prior to the earlier of (i) the Separation Time and
(ii) the Expiration Time shall, subject to Subsection 2.3(j), also
evidence one Right for each Voting Share represented thereby or issuable
upon the
<PAGE> 12
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exercise or conversion thereof and shall have impressed on, printed on,
written on or otherwise affixed to them the following legend:
"Until the Separation Time (as defined in the Rights Agreement referred to
below), this certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Shareholder Rights Agreement made as of June
20, 1997 (the "Rights Agreement"), between the Corporation and Montreal Trust
Company of Canada, as Rights Agent, the terms of which are incorporated herein
by reference and a copy of which is on file at the records office of the
Corporation. Under certain circumstances, as set forth in the Rights Agreement,
such Rights may be amended or redeemed, may expire, may become void (if, in
certain cases, they are "Beneficially Owned" by an "Acquiring Person", as such
terms are defined in the Rights Agreement, or a transferee thereof) or may be
evidenced by separate certificates and may no longer be evidenced by this
certificate. The Corporation will mail, or arrange for the mailing of, a copy of
the Rights Agreement to the holder of this certificate without charge promptly
after the receipt of a written request therefor."
2.2 CERTIFICATES REPRESENTING VOTING SHARES AND CONVERTIBLE SECURITIES THAT ARE
ISSUED AND OUTSTANDING AT THE RECORD TIME SHALL EVIDENCE ONE RIGHT FOR EACH
VOTING SHARE EVIDENCED THEREBY OR ISSUABLE UPON THE EXERCISE OR CONVERSION
THEREOF, NOTWITHSTANDING THE ABSENCE OF THE FOREGOING LEGEND, UNTIL THE EARLIER
OF (I) THE SEPARATION TIME AND (II) THE EXPIRATION TIME.
(a) Initial Exercise Price; Exercise of Rights; Detachment of Rights
(i) Subject to adjustment as herein set forth, each Right will entitle
the holder thereof, after the Separation Time and prior to the
Expiration Time, to purchase one Common Share for the Exercise
Price, as at the Business Day immediately preceding the Separation
Time (which Exercise Price and number of Common Shares are subject
to adjustment as set forth below). Notwithstanding any other
provision of this agreement, any Rights held by the Corporation or
any of its Subsidiaries shall be void.
(ii) Until the Separation Time (i) the Rights shall not be exercisable
and no Right may be exercised and (ii) for administrative purposes,
each Right will be evidenced by the certificate for the associated
Voting Share or Convertible Security registered in the name of the
holder thereof (which certificate shall be deemed to represent a
Rights Certificate) and will be transferable only together with, and
will be transferred by a transfer of, such associated Voting Share
or Convertible Security.
(iii) After the Separation Time and prior to the Expiration Time, the
Rights may be exercised and the registration and transfer of the
Rights shall be separate from and independent of the Voting Shares
and the Convertible Securities. Promptly following the Separation
Time, the Rights Agent will mail to each holder of record of Voting
Shares and Convertible Securities as of the Separation Time (other
than an Acquiring Person and, in respect of any Rights Beneficially
Owned by such Acquiring Person which are not held of record by such
Acquiring Person, the holder of record of such Rights), at such
holder's address as shown on the records of the Corporation (the
Corporation hereby agreeing to furnish copies of such records to the
Rights Agent for this purpose):
(A) a Rights Certificate appropriately completed, representing the
number of Rights held by such holder at the Separation Time and
having such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the
Corporation may deem appropriate and as are not inconsistent with
the provisions of this Agreement, or as may be required to
<PAGE> 13
13
comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or
quotation system on which the Rights may from time to time be listed
or traded, or to conform to usage; and
(B) a disclosure statement prepared by the Corporation describing
the Rights.
(iv) Rights may be exercised in whole or in part on any Business Day
after the Separation Time and prior to the Expiration Time by
submitting to the Rights Agent at its office in Vancouver:
(A) the Rights Certificate evidencing such Rights, with an Election
to Exercise (an "Election to Exercise") substantially in the form
attached to the Rights Certificate appropriately completed and
duly executed by the holder or his executors or administrators or
other legal personal representatives or his or their attorney
duly appointed by an instrument in writing in form and executed
in a manner satisfactory to the Rights Agent; and
(B) payment in cash, or by certified cheque or money order payable
to the order of the Corporation, of a sum equal to the Exercise
Price multiplied by the number of Rights being exercised and a
sum sufficient to cover any transfer tax or charge which may be
payable in respect of any transfer involved in the transfer or
delivery of Rights Certificates or the issuance or delivery of
certificates for Common Shares in a name other than that of the
holder of the Rights being exercised.
(v) Upon receipt of a Rights Certificate, with an Election to Exercise
appropriately completed and duly executed, which does not indicate
that such Right is void as provided by Subsection 3.1 (b),
accompanied by payment as set forth in Clause 2.2(d)(ii), the Rights
Agent (unless otherwise instructed by the Corporation) will
thereupon promptly:
(A) requisition from the transfer agent of the Corporation
certificates for the number of Common Shares to be purchased (the
Corporation hereby irrevocably agreeing to authorize such
transfer agent to comply with all such requisitions);
(B) after receipt of such Common Share certificates, deliver such
certificates to, or to the order of, the registered holder of
such Rights Certificate, registered in such name or names as may
be designated by such holder;
(C) when appropriate, requisition from the Corporation the amount of
cash, if any, to be paid in lieu of issuing fractional Common
Shares;
(D) after receipt of such cash, deliver such cash to, or to the
order of, the registered holder of the Rights Certificate; and
(vi) tender to the Corporation all payments received on exercise of the
Rights.
<PAGE> 14
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(vii) If the holder of any Rights exercises less than all the Rights
evidenced by such holder's Rights Certificate, a new Rights
Certificate evidencing the Rights remaining unexercised will be
issued by the Rights Agent to such holder or to such holder's duly
authorized assigns.
(viii) The Corporation covenants and agrees that it will:
(A) take all such action as may be necessary and within its power to
ensure that all Common Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such
Common Shares(subject to payment of the Exercise Price), be duly
and validly authorized, executed, issued and delivered as fully
paid and non-Assessable;
(B) take all such action as may reasonably be considered to be
necessary and within its power to comply with any applicable
requirements of the Company Act, the Securities Act and the
securities legislation of each applicable jurisdiction in
connection with the issuance and delivery of the Rights
Certificates and the issuance of any Common Shares upon exercise
of Rights; and
(C) use reasonable efforts to cause all Common Shares issued upon
exercise of Rights to be listed upon issuance on the stock
exchange(s) and/or over-the-counter market where the Common
Shares may be listed and/or quoted at that time.
2.3 ADJUSTMENTS TO EXERCISE PRICE; NUMBER OF RIGHTS
(a) The Exercise Price, the number and kind of securities subject to purchase
upon exercise of each Right and the number of Rights outstanding are
subject to adjustment from time to time as provided in this Section 2.3.
(b) In the event that the Corporation at any time after the Record Time and
prior to the Expiration Time:
(i) declares or pays a dividend on the Common Shares payable in Common
Shares (or other securities exchangeable for or convertible into or
giving a right to acquire Common Shares) other than pursuant to any
dividend reinvestment plan;
(ii) subdivides or changes the then outstanding Common Shares into a
greater number of Common Shares;
(iii) consolidates or changes the then outstanding Common Shares into a
smaller number of Common Shares; or
(iv) issues any Common Shares (or other securities exchangeable for or
convertible into or giving a right to acquire Common Shares) in
respect of, in lieu of, or in exchange for existing Common Shares,
the Exercise Price and the number of Rights outstanding shall be adjusted as
follows:
(A) the Exercise Price in effect after such adjustment will be equal
to the Exercise Price in effect immediately prior to such
adjustment divided by the number of Common Shares (the
"Adjustment Factor") that a holder of one Common Share
<PAGE> 15
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immediately prior to such dividend, subdivision, change,
consolidation or issuance would hold thereafter as a result thereof
(assuming the exercise of all such exchange or conversion rights, if
any); and
(B) each Right held prior to such adjustment will become that number
of Rights equal to the Adjustment Factor, and the adjusted number
of Rights will be deemed to be distributed among the Common
Shares with respect to which the original Rights were associated
(if they remain outstanding) and the shares issued in respect of
such dividend, subdivision, change, consolidation or issuance, so
that each such Common Share will have exactly one Right
associated with it.
(v) In the event that the Corporation at any time after the Record Time
and prior to the Expiration Time fixes a record date for the making
of a distribution to substantially all holders of Common Shares of
rights entitling them to subscribe for or purchase Common Shares (or
securities convertible into or exchangeable for or carrying a right
to purchase or subscribe for Common Shares) at a price per Common
Share (or, in the case of a security convertible into or
exchangeable for or carrying a right to purchase or subscribe for
Common Shares, having a conversion, exchange or exercise price per
Common Share (including the price required to be paid to purchase
such convertible or exchangeable security or right)) less than 85
percent of the Market Price per Common Share on such record date,
the Exercise Price shall be adjusted. The Exercise Price in effect
after such record date will equal the Exercise Price in effect
immediately prior to such record date multiplied by a fraction, of
which the numerator shall be the number of Common Shares outstanding
on such record date plus the number of Common Shares which the
aggregate price of the total number of Common Shares so to be
offered (and/or the aggregate initial conversion, exchange or
exercise price of the convertible or exchangeable securities or
rights so to be offered (including the price required to be paid to
purchase such convertible or exchangeable securities or rights))
would purchase at such Market Price per Common Share and of which
the denominator shall be the number of Common Shares outstanding on
such record date plus the number of additional Common Shares to be
offered for subscription or purchase (or into which the convertible
or exchangeable securities or rights to be so offered are initially
convertible, exchangeable or exercisable). In case such subscription
price may be paid in consideration, part or all of which will be in
a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors. To the extent
that such rights are not exercised prior to the expiration thereof,
the Exercise Price shall be readjusted to the Exercise Price which
would then be in effect based on the number of Common Shares (or
securities convertible into or exchangeable for Common Shares)
actually issued upon the exercise of such rights. For purposes of
this Agreement, the granting of the right to purchase Common Shares
(whether from treasury shares or otherwise) pursuant to any dividend
reinvestment plan and/or any share purchase plan (so long as such
right to purchase is in no case evidenced by the delivery of rights
by the Corporation) shall not be deemed to constitute an issue of
rights by the Corporation; provided, however, that, in the case of
any dividend reinvestment plan or share purchase plan, the right to
purchase Common Shares is at a price per share of not less than 85
percent of the current Market Price per share (determined in
accordance with such plans) of the Common Shares.
(vi) In the event that the Corporation at any time after the Record
Time and prior to the Expiration Time fixes a record date for the
making of a distribution to substantially all holders of Common
Shares of evidences of indebtedness or assets (other than a Regular
<PAGE> 16
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Periodic Cash Dividend or a dividend paid in Common Shares but
including any dividend payable in securities other than Common
Shares) or rights entitling them to subscribe for or purchase Common
Shares (or securities convertible into or exchangeable for or
carrying a right to purchase or subscribe for Common Shares) at a
price per Common Share (or, in the case of a security convertible
into or exchangeable for or carrying a right to purchase or
subscribe for Common Shares, having a conversion, exchange or
exercise price per share (including the price required to be paid to
purchase such convertible or exchangeable security or right)) less
than 85 percent of the Market Price per Common Share on such record
date (excluding rights referred to in Subsection 2.3(c)), the
Exercise Price in effect after such record date shall be equal to
the Exercise Price in effect immediately prior to such record date
less the fair market value (as determined by the Board of Directors)
of the portion of the assets, evidences of indebtedness, or rights
so to be distributed applicable to a Common Share.
(vii) Each adjustment made pursuant to this Section 2.3 shall be made
as of:
(A) the payment or effective date for the applicable dividend,
subdivision, change, consolidation or issuance, in the case of an
adjustment made pursuant to Subsection 2.3(b); and
(B) the record date for the applicable dividend or distribution, in
the case of an adjustment made pursuant to Subsections 2.3(c) or
(d).
(viii) In the event that the Corporation shall at any time after the
Record Time and prior to the Expiration Time issue any shares of
capital stock (other than Common Shares), or rights to subscribe for
or purchase any such capital stock, or securities convertible into
or exchangeable for any such capital stock, in a transaction
referred to in Clauses 2.3(b)(i) or (iv), if the Board of Directors
acting in good faith determines that the adjustments contemplated by
Subsections 2.3(b), (c) and (d) in connection with such transaction
will not appropriately protect the interests of the holders of
Rights, the Corporation may determine what other adjustments to the
Exercise Price, number of Rights and/or securities purchasable upon
exercise of Rights would be appropriate and, notwithstanding
Subsections 2.3(b), (c) and (d), such adjustments, rather than the
adjustments contemplated by Subsections 2.3(b), (c) and (d), shall
be made. The Corporation and the Rights Agent shall amend this
Agreement as appropriate to provide for such adjustments.
(ix) Notwithstanding anything herein to the contrary, no adjustment of
the Exercise Price shall be required unless such adjustment would
require an increase or decrease of at least one per cent in such
Exercise Price; provided, however, that any adjustments which by
reason of this Subsection 2.3(g) are not required to be made shall
be carried forward and taken into account in any subsequent
adjustment. All adjustments made pursuant to this Section 2.3 shall
be made to the nearest cent or to the nearest one thousandth of a
Common Share or a Right, as the case may be.
(x) All Rights originally issued by the Corporation subsequent to any
adjustment made to an Exercise Price hereunder shall evidence the
right to purchase, at the adjusted Exercise Price, the number of
Common Shares purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(xi) Unless the Corporation shall have exercised its election, as
provided in Subsection 2.3(j), upon each adjustment of an Exercise
Price as a result of the calculations made in
<PAGE> 17
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Subsection 2.3(c) and (d), each Right outstanding immediately prior
to the making of such adjustment shall thereafter evidence the right
to purchase, at the adjusted Exercise Price, that number of Common
Shares obtained by multiplying (A) the number of Common Shares
covered by a Right immediately prior to this adjustment, by (B) the
relevant Exercise Price in effect immediately prior to such
adjustment of the relevant Exercise Price; and (ii) dividing the
product so obtained by the relevant Exercise Price in effect
immediately after such adjustment of the relevant Exercise Price.
(xii) The Corporation may elect on or after the date of any adjustment
of an Exercise Price to adjust the number of Rights, in lieu of any
adjustment in the number of Common Shares purchasable upon the
exercise of a Right. Each of the Rights outstanding after the
adjustment in the number of Rights shall be exercisable for the
number of Common Shares for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become the
number of Rights obtained by dividing the relevant Exercise Price in
effect immediately prior to adjustment of the relevant Exercise
Price by the relevant Exercise Price in effect immediately after
adjustment of the relevant Exercise Price. The Corporation shall
make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment and, if known
at the time, the amount of the adjustment to be made. This record
date may be the date on which the relevant Exercise Price is
adjusted or any day thereafter but, if the Rights Certificates have
been issued, shall be at least ten calendar days later than the date
of the public announcement. If Rights Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this
Subsection 2.3(j), the Corporation shall, as promptly as
practicable, cause to be distributed to holders of record of Rights
Certificates on such record date, Rights Certificates evidencing,
subject to Section 5.6, the additional Rights to which such holders
shall be entitled as a result of such adjustment, or, at the option
of the Corporation, shall cause to be distributed to such holders of
record in substitution and replacement for the Rights Certificates
held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Corporation, new Rights
Certificates evidencing all the Rights to which such holders shall
be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the
manner provided for herein and may bear, at the option of the
Corporation, the relevant adjusted Exercise Price and shall be
registered in the names of holders of record of Rights Certificates
on the record date specified in the public announcement.
(xiii) Irrespective of any adjustment or change in the securities
purchasable upon exercise of the Rights, the Rights Certificates
theretofore and thereafter issued may continue to express the
securities so purchasable which were expressed in the initial Rights
Certificates issued hereunder.
(xiv) In any case in which this Section 2.3 shall require that an
adjustment in an Exercise Price be made effective as of a record
date for a specified event, the Corporation may elect to defer until
the occurrence of such event the issuance to the holder of any Right
exercised after such record date of the number of Common Shares and
other securities of the Corporation, if any, issuable upon such
exercise over and above the number of Common Shares and other
securities of the Corporation, if any, issuable upon such exercise
on the basis of the relevant Exercise Price in effect prior to such
adjustment; provided, however, that the Corporation shall deliver to
such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional
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Common Shares (fractional or otherwise) or other securities upon the
occurrence of the event requiring such adjustment.
(xv) Notwithstanding anything in this Section 2.3 to the contrary, the
Corporation shall be entitled to make such reductions in the
Exercise Price, in addition to those adjustments expressly required
by this Section 2.3, as and to the extent that in its good faith
judgment the Board of Directors shall determine to be advisable in
order that any (i) subdivision or consolidation of the Common
Shares, (ii) issuance wholly for cash of any Common Shares at less
than the applicable Market Price, (iii) issuance wholly for cash of
any Common Shares or securities that by their terms are exchangeable
for or convertible into or give a right to acquire Common Shares,
(iv) stock dividends or (v) issuance of rights, or options referred
to in this Section 2.3, hereafter made by the Corporation to holders
of its Common Shares, subject to applicable taxation laws, shall not
be taxable to such shareholders.
(xvi) The Corporation covenants and agrees that, after the Separation
Time, it will not, except as permitted by Sections 5.1 or 5.5, take
(or permit any Subsidiary of the Corporation to take) any action if
at the time such action is taken it is reasonably foreseeable that
such action will diminish substantially or otherwise eliminate the
benefits intended to be afforded by the Rights.
(xvii) Whenever an adjustment to the Exercise Price or a change in the
securities purchasable upon exercise of the Rights is made pursuant
to this Section 2.3, the Corporation shall promptly:
(A) file with the Rights Agent and with the transfer agent for
Corporation a certificate specifying the particulars of such
adjustment or change; and
(B) cause notice of the particulars of such adjustment or change to
be given to the holders of the Rights.
Failure to file such certificate or to cause such notice to be given as
aforesaid, or any defect therein, shall not affect the validity of any
such adjustment or change.
2.4 DATE ON WHICH EXERCISE IS EFFECTIVE
Each Person in whose name any certificate for Common Shares is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Common Shares represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered (together with an appropriately
completed and duly executed Election to Exercise) and payment of the Exercise
Price for such Rights (and any applicable transfer taxes or charges payable by
such Person hereunder) was made in accordance with Subsection 2.2(d); provided,
however, that if the date of such surrender and payment is a date upon which the
Common Share transfer books of the Corporation are closed, such Person shall be
deemed to have become the holder of record of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the Common
Share transfer books of the Corporation are open.
2.5 EXECUTION, AUTHENTICATION, DELIVERY AND DATING OF RIGHTS CERTIFICATES
(a) The Rights Certificates shall be executed on behalf of the Corporation by
its Chief Executive Officer, its Chief Financial Officer or its Secretary.
The signature of any of these officers on the Rights Certificates may be
manual or facsimile. Rights Certificates bearing the manual or facsimile
signatures of individuals who were at any time the proper officers of the
Corporation
<PAGE> 19
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shall bind the Corporation, notwithstanding that such individuals or any
of them have ceased to hold such offices prior to the countersignature and
delivery of such Rights Certificates.
(b) Promptly following the Separation Time, the Corporation will notify the
Rights Agent of such Separation Time and will deliver Rights Certificates
executed by the Corporation to the Rights Agent for countersignature, and
the Rights Agent will countersign (manually or by facsimile signature in a
manner satisfactory to the Corporation) and deliver such Rights
Certificates to the holders of the Rights pursuant to Subsection 2.2(c).
No Rights Certificate shall be valid for any purpose until countersigned
by the Rights Agent as aforesaid.
(c) Each Rights Certificate shall be dated the date of countersignature
thereof.
2.6 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE
(a) After the Separation Time, the Corporation will cause to be kept a
register (the "Rights Register") in which, subject to such reasonable
regulations as it may prescribe, the Corporation will provide for the
registration and transfer of Rights. The Rights Agent is hereby appointed
"Rights Registrar" for the purpose of maintaining the Rights Register for
the Corporation and registering Rights and transfers and exchanges of
Rights as herein provided. In the event that the Rights Agent shall cease
to be the Rights Registrar, the Rights Agent will have the right to
examine the Rights Register at all reasonable times.
(b) After the Separation Time and prior to the Expiration Time, upon
surrender for registration of transfer or exchange of any Rights
Certificate, and subject to the provisions of Subsection 2.6(d) and
3.1(b), the Corporation will execute, and the Rights Agent will
countersign, deliver and register, in the name of the holder or the
designated transferee or transferees, as required pursuant to the holder's
instructions, one or more new Rights Certificates evidencing the same
aggregate number of Rights as did the Rights Certificate so surrendered.
(c) All Rights issued upon any registration of transfer or exchange of Rights
Certificates shall be the valid obligations of the Corporation, and such
Rights shall be entitled to the same benefits under this Agreement as the
Rights surrendered upon such registration of transfer or exchange.
(d) Every Rights Certificate surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument
of transfer in form satisfactory to the Corporation or the Rights Agent,
as the case may be, duly executed by the holder thereof or such holder's
attorney duly authorized in writing. As a condition to the issuance of any
new Rights Certificate under this Section 2.6, the Corporation may require
the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Rights Agent) connected therewith.
2.7 MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES
(a) If any mutilated Rights Certificate is surrendered to the Rights Agent
prior to the Expiration Time, the Corporation shall execute and the Rights
Agent shall countersign and deliver in exchange therefor a new Rights
Certificate evidencing the same number of Rights as did the Rights
Certificate so surrendered.
(b) If there shall be delivered to the Corporation and the Rights Agent prior
to the Expiration Time (i) evidence to their satisfaction of the
destruction, loss or theft of any Rights Certificate and (ii) such
security or indemnity as may be required by them to save each of them and
any of their agents harmless, then, in the absence of notice to the
Corporation or the Rights Agent that such
<PAGE> 20
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Rights Certificate has been acquired by a bona fide purchaser, the
Corporation shall execute and, upon request by the Corporation, the Rights
Agent shall countersign and deliver, in lieu of any such destroyed, lost
or stolen Rights Certificate, a new Rights Certificate evidencing the same
number of Rights as did the Rights Certificate so destroyed, lost or
stolen.
(c) As a condition to the issuance of any new Rights Certificate under this
Section 2.7, the Corporation may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses
of the Rights Agent) connected therewith.
(d) Every new Rights Certificate issued pursuant to this Section 2.7 in lieu
of any destroyed, lost or stolen Rights Certificate shall evidence a
contractual obligation of the Corporation, whether or not the destroyed,
lost or stolen Rights Certificate shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Agreement
equally and proportionately with any and all other Rights duly issued
hereunder.
2.8 PERSONS DEEMED OWNERS
Prior to due presentment of a Rights Certificate (or, prior to the Separation
Time, the associated Voting Share certificate or Convertible Security
certificate) for registration of transfer, the Corporation, the Rights Agent and
any agent of the Corporation or the Rights Agent may deem and treat the person
in whose name such Rights Certificate (or, prior to the Separation Time, such
Voting Share certificate or Convertible Security certificate) is registered as
the absolute owner thereof and of the Rights evidenced thereby for all purposes
whatsoever. As used in this Agreement, unless the context otherwise requires,
the term "holder" of any Rights means the registered holder of such Rights (or,
prior to the Separation Time, the holder of such associated Voting Shares or
Convertible Securities).
2.9 DELIVERY AND CANCELLATION OF CERTIFICATES
All Rights Certificates surrendered upon exercise or for redemption, or for
registration of transfer or exchange shall, if surrendered to any person other
than the Rights Agent, be delivered to the Rights Agent and, in any case, shall
be promptly cancelled by the Rights Agent. The Corporation may at any time
deliver to the Rights Agent for cancellation any Rights Certificates previously
countersigned and delivered hereunder which the Corporation may have acquired in
any manner whatsoever, and all Rights Certificates so delivered shall be
promptly cancelled by the Rights Agent. No Rights Certificate shall be
countersigned in lieu of or in exchange for any Rights Certificates cancelled as
provided in this Section 2.9, except as expressly permitted by this Agreement.
The Rights Agent shall destroy all cancelled Rights Certificates and deliver a
certificate of destruction to the Corporation.
2.10 AGREEMENT OF RIGHTS HOLDERS
Every holder of Rights, by accepting such Rights, consents and agrees with
the Corporation and the Rights Agent and with every other holder of Rights that:
(a) such holder shall be bound by and subject to the provisions of this
Agreement, as amended from time to time in accordance with the terms
hereof, in respect of all Rights held;
(b) prior to the Separation Time, each Right will be transferable only
together with, and will be transferred by a transfer of, the associated
Voting Share;
(c) after the Separation Time, the Rights will be transferable only on the
Rights Register as provided herein;
<PAGE> 21
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(d) prior to due presentment of a Rights Certificate (or, prior to the
Separation Time, the associated Voting Share certificate or Convertible
Security certificate) for registration of transfer, the Corporation, the
Rights Agent and any agent of the Corporation or the Rights Agent may deem
and treat the person in whose name the Rights Certificate (or, prior to
the Separation Time, the associated Voting Share certificate or
Convertible Security certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations
of ownership or writing on such Rights Certificate, the associated Voting
Share certificate or the associated Convertible Security certificate made
by anyone other than the Corporation or the Rights Agent) for all purposes
whatsoever, and neither the Corporation nor the Rights Agent shall be
affected by any notice to the contrary;
(e) such holder is not entitled to receive any fractional Rights or
fractional Common Shares upon the exercise of Rights; and
(f) without the approval of any holder of Rights and upon the sole authority
of the Board of Directors this Agreement may be supplemented or amended
from time to time as provided herein.
3. ADJUSTMENTS TO THE RIGHTS
3.1 FLIP-IN EVENT
(a) Subject to Section 3.2 and Subsections 5.1(d) and 5.1(e), in the event
that prior to the Expiration Time a Flip-in Event occurs, each Right shall
constitute, effective from and after the Close of Business on the tenth
day following the Stock Acquisition Date, the right to purchase from the
Corporation, upon exercise thereof in accordance with the terms hereof,
that number of Common Shares of the Corporation having an aggregate Market
Price on the date of consummation or occurrence of such Flip-in Event
equal to twice the Exercise Price for an amount in cash equal to the
Exercise Price (such right to be appropriately adjusted in a manner
analogous to the applicable adjustment provided for in Section 2.3 in the
event that, after such date of consummation or occurrence, an event of a
type analogous to any of the events described in Section 2.3 shall have
occurred with respect to such Common Shares).
(b) Notwithstanding anything in this Agreement to the contrary, upon the
occurrence of any Flip-in Event, any Rights that are or were Beneficially
Owned on or after the earlier of the Separation Time and the Stock
Acquisition Date by an Acquiring Person shall become null and void without
any further action and any holder of such Rights (including any transferee
of, or other successor in title to, such Rights, whether directly or
indirectly) shall thereafter have no right to exercise such Rights under
any provision of this Agreement and shall have no other rights whatsoever
with respect to such Rights, whether under any provision of this Agreement
or otherwise. The holder of any Rights represented by a Rights Certificate
which is submitted to the Rights Agent upon exercise or for registration
of transfer or exchange which does not contain the necessary
certifications set forth in the Rights Certificate establishing that such
Rights are not void under this Subsection 3.1(b) shall be deemed to be an
Acquiring Person for the purposes of this Subsection 3.1(b) and such
Rights shall become null and void.
(c) After the Separation Time, the Corporation shall do all such acts and
things as are necessary and within its power to ensure compliance with the
provisions of this Section 3.1 including, without limitation, all such
acts and things as may be required to satisfy the requirements of the
Company Act in respect of the issue of Common Shares upon the exercise of
Rights in accordance with this Agreement.
3.2 EXCHANGE OPTION
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(a) In the event that the Board of Directors determines that conditions exist
which would eliminate or otherwise materially diminish in any respect the
benefits intended to be afforded to the holders of Rights pursuant to this
Agreement, the Board of Directors may, at its option and without seeking
the approval of the holders of Voting Shares or Rights, at any time after
a Flip-in Event has occurred, authorize the Corporation to issue or
deliver in respect of each Right which is not void pursuant to Subsection
3.1(b), either:
(i) in return for the Exercise Price and the Right, cash, debt or
equity securities or other assets (or a combination thereof) having
a cash value equal to twice the Exercise Price; or
(ii) in return for the Right and without further charge, subject to any
amounts that may be required to be paid under applicable law, cash,
debt or equity securities or other assets (or a combination thereof)
having a cash value equal to the Exercise Price,
in full and final settlement of all rights attaching to the Rights, where
in either case the value of such debt or equity securities or other assets
shall be determined by the Board of Directors who may rely upon the advice
of an internationally recognized investment dealer or investment banker
selected by the Board of Directors. To the extent that the Board of
Directors determines that some action need be taken pursuant to this
Section 3.2, the Board of Directors may suspend the exercisability of the
Rights for a period of up to 90 days following the date of the occurrence
of the relevant Flip-in Event in order to decide the appropriate form of
distribution to be made and to determine the value thereof. In the event
of any such suspension, the Corporation shall notify the Rights Agent and
issue as promptly as practicable a public announcement stating that the
exercisability of the Rights has been temporarily suspended and indicating
the period of such suspension.
(b) If the Board of Directors authorizes the exchange of debt or equity
securities or other assets (or a combination thereof) for Rights pursuant
to Subsection 3.2(a), then, without any further action or notice, the
right to exercise the Rights will terminate and the only right thereafter
of a holder of Rights shall be to receive such debt or equity securities
or other assets (or a combination thereof) in accordance with the exchange
formula authorized by the Board of Directors. Within ten Business Days
after the Board of Directors has authorized the exchange of debt or equity
securities or other assets (or a combination thereof) for Rights pursuant
to Subsection 3.2(a), the Corporation shall give notice of such exchange
to the holders of such Rights. Each such notice of exchange will state the
method by which the exchange of debt or equity securities or other assets
(or a combination thereof for Rights will be effected.
4. THE RIGHTS AGENT
4.1 GENERAL
(a) The Corporation hereby appoints the Rights Agent to act as agent for the
Corporation and the holders of Rights in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment.
The Corporation may from time to time appoint such Co-Rights Agents as it
may deem necessary or desirable. In the event the Corporation appoints one
or more Co-Rights Agents, the respective duties of the Rights Agents and
Co-Rights Agents shall be as the Corporation may determine. The
Corporation agrees to pay to the Rights Agent reasonable compensation for
all services rendered by it hereunder and, from time to time, on demand of
the Rights Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The
Corporation also agrees to indemnify the Rights Agent for, and to
<PAGE> 23
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hold it harmless against, any loss, liability, or expense, incurred
without negligence, bad faith or wilful misconduct on the part of the
Rights Agent, for anything done or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement,
including the costs and expenses of defending against any claim of
liability, which right to indemnification will survive the termination of
this Agreement.
(b) The Rights Agent shall be protected and shall incur no liability for or
in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any certificate
for Voting Shares, Rights Certificate, certificate for other securities of
the Corporation, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to
be signed, executed and, where necessary, verified or acknowledged, by the
proper Person or Persons.
4.2 MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT
(a) Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or amalgamated or with which it may be consolidated, or any
corporation resulting from any merger, amalgamation or consolidation to
which the Rights Agent or any successor Rights Agent is a party, or any
corporation succeeding to the shareholder or stockholder services business
of the Rights Agent or any successor Rights Agent, will be the successor
to the Rights Agent under this Agreement without the execution or filing
of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 4.4 hereof. In case
at the time such successor Rights Agent succeeds to the agency created by
this Agreement any of the Rights Certificates have been countersigned but
not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates have not been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such
cases such Rights Certificates will have the full force provided in the
Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent is changed and at such
time any of the Rights Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior
name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates
and in this Agreement.
4.3 DUTIES OF RIGHTS AGENT
The Rights Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the
Corporation and the holders of Rights Certificates, by their acceptance thereof,
shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal counsel
for the Corporation), and the opinion of such counsel will be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion;
the Rights Agent may also, with the approval of the Corporation (such
approval not to be unreasonably withheld), consult with such other experts
as the Rights
<PAGE> 24
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Agent shall consider necessary or appropriate to properly carry out the
duties and obligations imposed under this Agreement and the Rights Agent
shall be entitled to rely in good faith on the advice of any such expert;
(b) Whenever in the performance of its duties under this Agreement the Rights
Agent deems it necessary or desirable that any fact or matter be proved or
established by the Corporation prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved
and established by a certificate signed by the Chief Executive Officer or
the Chief Financial Officer of the Corporation and delivered to the Rights
Agent; and such certificate will be full authorization to the Rights Agent
for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate;
(c) The Rights Agent will be liable hereunder only for its own negligence,
bad faith or wilful misconduct;
(d) The Rights Agent will not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the
certificates for Voting Shares or the Rights Certificates all such
statements and recitals are and will be deemed to have been made by the
Corporation only;
(e) The Rights Agent will not be under any responsibility in respect of the
validity of this Agreement or the execution and delivery hereof (except
the due authorization, execution and delivery hereof by the Rights Agent)
or in respect of the validity or execution of any Voting Share certificate
or Rights Certificate (except its countersignature thereof); nor will it
be responsible for any breach by the Corporation of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor
will it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Subsection 3.1(b)) or any
adjustment required under the provisions of Section 2.3 or responsible for
the manner, method or amount of any such adjustment or the ascertaining of
the existence of facts that would require any such adjustment (except with
respect to the exercise of Rights after receipt of the certificate
contemplated by Subsection 2.3(o) hereof describing any such adjustment);
nor will it by any act hereunder be deemed to make any representation or
warranty as to the authorization of any Common Shares to be issued
pursuant to this Agreement or any Rights or as to whether any Common
Shares will, when issued, be duly and validly authorized, executed, issued
and delivered and fully paid and non-assessable;
(f) The Corporation agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably
be required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement;
(g) The Rights Agent is hereby authorized and directed to accept instructions
with respect to the performance of its duties hereunder from the Chief
Executive Officer, Chief Financial Officer or the Secretary of the
Corporation, and to apply to such Persons for advice or instructions in
connection with its duties and it shall not be liable for any action taken
or suffered by it in good faith in accordance with instructions of any
such Person;
(h) Subject to compliance with all applicable laws, the Rights Agent and any
shareholder or stockholder, director, officer or employee of the Rights
Agent may buy, sell or deal in Voting Shares, Rights or other securities
of the Corporation or become pecuniarily interested in any transaction in
which the Corporation may be interested, or contract with or lend money to
the Corporation or otherwise act as fully and freely as though it were not
Rights Agent under this
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Agreement. Nothing herein shall preclude the Rights Agent from acting in
any other capacity for the Corporation or for any other legal entity; and
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent will not be
answerable or accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the Corporation resulting
from any such act, default, neglect or misconduct, provided reasonable
care was exercised in the selection and continued employment thereof.
4.4 CHANGE OF RIGHTS AGENT
The Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice (or such lesser notice as is acceptable to the
Corporation) in writing mailed to the Corporation and to the transfer agent(s)
of the Corporation by registered or certified mail, and to the holders of the
Rights in accordance with Section 5.10. The Corporation may remove the Rights
Agent upon 30 days' notice in writing, mailed to the Rights Agent and to the
transfer agent(s) of the Corporation by registered or certified mail, and to the
holders of the Rights in accordance with Section 5.10. If the Rights Agent
should resign or be removed or otherwise become incapable of acting, the
Corporation will appoint a successor to the Rights Agent. If the Corporation
fails to make such appointment within a period of 30 days after such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent then any holder of Rights may apply to
any court of competent jurisdiction for the appointment of a new Rights Agent.
After appointment, the successor Rights Agent will be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
as Rights Agent without further act or deed; but the predecessor Rights Agent
shall deliver and transfer to the successor Rights Agent any property at the
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Corporation will file notice thereof in
writing with the predecessor Rights Agent and each transfer agent of the
Corporation, and mail a notice thereof in writing to the holders of the Rights.
Failure to give any notice provided for in this Section 4.4, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
5. MISCELLANEOUS
5.1 REDEMPTION AND WAIVER
(a) The Board of Directors may, at its option, at any time prior to the
occurrence of a Flip-in Event, elect to redeem all but not less than all
of the then outstanding Rights at a redemption price of $0.001 per Right,
appropriately adjusted in a manner analogous to the applicable adjustment
provided for in Section 2.3 in the event that an event of the type
analogous to any of the events described in Section 2.3 shall have
occurred (such redemption price being herein referred to as the
"Redemption Price"). The redemption of the Rights by the Board of
Directors may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
(i) If an Offeror successfully completes a Permitted Bid, the Board of
Directors shall, without further formality, be deemed to have
elected to redeem the Rights at the Redemption Price on the Expiry
Date of the Permitted Bid.
(ii) If the Board of Directors elects to or is deemed to have elected
to redeem the Rights, the right to exercise the Rights will
thereupon without further action and without notice terminate and
the only right thereafter of the holder of a Right shall be to
receive the
<PAGE> 26
26
Redemption Price. Within ten days of the Board of Directors electing
or being deemed to have elected to redeem the Rights, the
Corporation shall give notice of such redemption to the holders of
the then outstanding Rights. Each such notice of redemption shall
state the method by which the payment of the Redemption Price shall
be made.
(iii) The Board of Directors may, until the occurrence of a Flip-in
Event, determine, upon prior written notice delivered to the Rights
Agent, to waive the application of Section 3.1 to any particular
Flip-in Event.
(iv) The Board of Directors may, prior to the Close of Business on the
tenth day following the Stock Acquisition Date, determine, upon
prior written notice delivered to the Rights Agent, to waive or to
agree to waive the application of Section 3.1 to that Flip-in Event,
provided that the Acquiring Person has reduced its Beneficial
Ownership of Voting Shares (or has entered into a contractual
arrangement with the Corporation, acceptable to the Board of
Directors, to do so within 30 days of the date on which such
contractual arrangement is entered into) such that at the time the
waiver becomes effective pursuant to this Subsection 5.1(e) it is no
longer an Acquiring Person. In the event of such a waiver, for the
purposes of this Agreement, such Flip-in Event shall be deemed not
to have occurred.
5.2 RIGHTS UPON EXERCISE OR CONVERSION OF CONVERTIBLE SECURITIES
For the sake of certainty, it is agreed that, upon the issue of a Voting
Share upon the exercise or conversion of a Convertible Security, the Right in
respect of the Voting Share issuable upon the exercise or conversion of the
Convertible Security shall be deemed to be exchanged for a Right in respect of
the Voting Share so issued.
5.3 EXPIRATION
No Person shall have any rights pursuant to this Agreement or in respect of
any Right after the Expiration Time, except the Rights Agent as specified in
Subsection 4.1(a) hereof.
5.4 ISSUANCE OF NEW RIGHTS CERTIFICATES
Notwithstanding any of the provisions of this Agreement or of the Rights to
the contrary, the Corporation may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by the Board of Directors to
reflect any adjustment or change in the number or kind or class of shares
purchasable upon exercise of Rights made in accordance with the provisions of
this Agreement.
5.5 SUPPLEMENTS AND AMENDMENTS
(a) Subject to Subsections 5.5(b) and (c), the Corporation may from time to
time, without the approval of any holders of Rights, Voting Shares or
Convertible Securities, amend, vary or delete any of the provisions of
this Agreement and the Rights in order to:
(i) Make such changes as the Board of Directors, acting in good faith,
may determine are necessary or desirable, provided that no such
amendment, variation or deletion made on or after the Stock
Acquisition Date shall materially adversely affect the interests of
the holders of Rights generally and provided further that no such
amendment, variation or deletion shall be made to the provisions of
Article 4 except with the written concurrence of the Rights Agent
thereto;
<PAGE> 27
27
(ii) cure any ambiguity or to correct or supplement any provision
contained herein which may be inconsistent with any of the other
provisions herein or otherwise defective; or
(iii) increase or decrease the Exercise Price.
(b) Any amendment, variation or deletion made by the Board of Directors
pursuant to Clause 5.5(a)(i) in connection with the definitions of
"Acquiring Person", "Expiration Time", "Flip-in Event" or "Permitted Bid"
shall:
(i) if made prior to the Separation Time, be submitted to the
shareholders of the Corporation at the next meeting of shareholders
and the shareholders may, by resolution passed by a majority of the
votes cast by Independent Shareholders who vote in respect of such
amendment, variation or deletion, confirm or reject such amendment
or supplement; or
(ii) if made after the Separation Time, be submitted to the holders of
Rights at a meeting to be called on a date not later than
immediately following the next meeting of shareholders of the
Corporation and the holders of Rights may, by resolution passed by a
majority of the votes cast by the holders of Rights who vote in
respect of such amendment, variation or deletion, confirm or reject
such amendment or supplement.
An amendment, variation or deletion shall be effective from the date of
the resolution of the Board of Directors adopting such amendment,
variation or deletion until it is confirmed or rejected or until it ceases
to be effective (as described in the next sentence) and, where such
amendment, variation or deletion is confirmed, it continues in effect in
the form so confirmed. If such amendment, variation or deletion is
rejected by the shareholders or the holders of Rights or is not submitted
to the shareholders or holders of Rights as required, then such amendment,
variation or deletion shall cease to be effective from and after the
termination of the meeting at which it was rejected or to which it should
have been but was not submitted or from and after the date of the meeting
of holders of Rights that should have been but was not held, and no
subsequent resolution of the Board of Directors to amend, vary or delete
any provision of this Agreement to substantially the same effect shall be
effective until confirmed by the shareholders or holders of Rights, as the
case may be.
(c) The Corporation may, with the consent of the holders of Rights, at any
time on or after the Stock Acquisition Date, amend, vary or delete any of
the provisions of this Agreement and the Rights (whether or not such
action would materially adversely affect the interests of the holders of
Rights generally), provided that no such amendment, variation or deletion
shall be made to the provisions of Article 4 except with the written
concurrence of the Rights Agent thereto. The consent of the holders of the
Rights shall be deemed to have been given if such amendment, variation or
deletion is authorized by the affirmative votes of the holders of Rights
present or represented at and entitled to be voted at a meeting of the
holders of Rights and representing a majority of the votes cast in respect
thereof. For the purposes hereof, each outstanding Right (other than
Rights which are void pursuant to the provisions hereof) shall be entitled
to one vote, and the procedures for the calling, holding and conduct of
the meeting shall be those, as nearly as may be, which are provided in the
Corporation's by-laws and the Company Act with respect to meetings of
shareholders of the Corporation.
(d) Any approval of the holders of Rights shall be deemed to have been given
if the action requiring such approval is authorized by the affirmative
votes of the holders of Rights present or represented at and entitled to
be voted at a meeting of the holders of Rights and representing a majority
of the votes cast in respect thereof. For the purposes hereof, each
outstanding Right (other than Rights which are void pursuant to the
provisions hereof) shall be entitled to one vote,
<PAGE> 28
28
and the procedures for the calling, holding and conduct of the meeting
shall be those, as nearly as may be, which are provided in the
Corporation's by-laws and the Company Act with respect to meetings of
shareholders of the Corporation.
5.6 FRACTIONAL RIGHTS AND FRACTIONAL SHARES
(a) The Corporation shall not be required to issue fractions of Rights or to
distribute Rights Certificates which evidence fractional Rights. After the
Separation Time, there shall be paid to the registered holders of the
Rights Certificates with regard to which fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the Market
Value of a whole Right in lieu of such fractional Rights.
(b) The Corporation shall not be required to issue fractional Common Shares
upon exercise of the Rights or to distribute certificates which evidence
fractional Common Shares. In lieu of issuing fractional Common Shares, the
Corporation shall pay to the registered holder of Rights Certificates at
the time such Rights are exercised as herein provided, an amount in cash
equal to the same fraction of the Market Value of one Common Share.
5.7 RIGHTS OF ACTION
Subject to the terms of this Agreement, rights of action in respect of this
Agreement, other than rights of action vested solely in the Rights Agent, are
vested in the respective holders of the Rights; and any holder of any Rights,
without the consent of the Rights Agent or of the holder of any other Rights,
may, on such holder's own behalf and for such holder's own benefit and the
benefit of other holders of Rights, enforce, and may institute and maintain any
suit, action or proceeding against the Corporation to enforce, or otherwise act
in respect of, such holder's entitlement to exercise such holder's Rights in the
manner provided in such holder's Rights Certificate and in this Agreement.
Without limiting the foregoing or any remedies available to the holders of
Rights, it is specifically acknowledged that the holders of Rights would not
have an adequate remedy at law for any breach of this Agreement and will be
entitled to specific performance of the obligations under, and injunctive relief
against actual or threatened violations of, the obligations of any Person
subject to this Agreement.
5.8 HOLDER OF RIGHTS NOT DEEMED A SHAREHOLDER
No holder, as such, of any Rights shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of Common Shares or any other
securities which may at any time be issuable on the exercise of such Rights, nor
shall anything contained herein or in any Rights Certificate be construed to
confer upon the holder of any Rights, as such, any of the rights of a
shareholder of the Corporation or any right to generally vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to receive
notice of meetings or other actions affecting shareholders (except as provided
in Section 5.9 hereof), or to receive dividends or subscription rights or
otherwise, until such Rights shall have been exercised in accordance with the
provisions hereof.
5.9 NOTICE OF PROPOSED ACTIONS
In case the Corporation shall propose after the Separation Time and prior to
the Expiration Time to effect the liquidation, dissolution or winding up of the
Corporation or the sale of all or substantially all of the Corporation's assets,
then, in each such case, the Corporation shall give to each holder of a Right, a
notice of such proposed action, which shall specify the date on which such
liquidation, dissolution, or winding up is to take place, and such notice shall
be so given at least 20 Business Days prior to the date of taking of such
proposed action by the Corporation.
5.10 NOTICES
<PAGE> 29
29
(a) Notices or demands authorized or required by this Agreement to be given
or made by the Rights Agent or by the holder of any Rights to or on the
Corporation shall be sufficiently given or made if delivered or sent by
first class mail, postage prepaid, or by facsimile transmission addressed
(until another address is filed in writing with the Rights Agent) as
follows:
Genetronics Inc.
11199 Sorrento Valley Road
San Diego, CA USA
92121-1334
Telephone: (800) 289-2426
Facsimile: (619) 597-0119
(b) Any notice or demand authorized or required by this Agreement to be given
or made by the Corporation or by the holder of any Rights to or on the
Rights Agent shall be sufficiently given or made if delivered or sent by
first class mail, postage prepaid, or by facsimile transmission addressed
(until another address is filed in writing with the Corporation) as
follows:
Montreal Trust Company of Canada
510 Burrard Street
Vancouver, BC
V6C 3B9
Attention: Manager, Stock Transfer Department
----------------------------------------------
Telephone: (604) 661-9400
Facsimile: (604) 683-3694
(c) Notices or demands authorized or required by this Agreement to be given
or made by the Corporation or the Rights Agent to or on the holder of any
Rights shall be sufficiently given or made if delivered or sent by
first-class mail, postage prepaid, addressed to such holder at the address
of such holder as it appears on the Rights Register or, prior to the
Separation Time, on the registry books of the Corporation for the Voting
Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice.
5.11 COSTS OF ENFORCEMENT
The Corporation agrees that if the Corporation or any other Person, the
securities of which are purchasable upon exercise of Rights, fails to fulfil any
of its obligations pursuant to this Agreement, then the Corporation or such
Person will reimburse the holder of any Rights for the costs and expenses
(including legal fees) incurred by such holder in actions to enforce his rights
pursuant to any Rights or this Agreement.
5.12 REGULATORY APPROVALS
Any obligation of the Corporation or action or event contemplated by this
Agreement, or any amendment to this Agreement, shall be subject to the receipt
of any requisite approval or consent from any governmental or regulatory
authority. Without limiting the generality of the foregoing, any issuance or
delivery of debt or equity securities (other than non-convertible debt
securities) of the Corporation upon the exercise of Rights and any amendment to
this Agreement shall be subject to the prior approval, acceptance or consent of
The Toronto Stock Exchange and any other stock exchange on which the securities
of the Corporation are then listed.
5.13 OTHER JURISDICTIONS
<PAGE> 30
30
If in the opinion of the Board of Directors (who may rely upon the advice of
counsel) any action or event contemplated by this Agreement would require
compliance with the securities laws or comparable legislation of a jurisdiction
outside Canada and the United States, the Board of Directors acting in good
faith may take such actions as it may deem appropriate to ensure that such
compliance is not required, including without limitation establishing procedures
for the issuance to a resident fiduciary of Rights or securities issuable on
exercise of Rights, the holding thereof in trust for the Persons entitled
thereto (but reserving to the fiduciary or to the fiduciary and the Corporation,
as the Corporation may determine, absolute discretion with respect thereto) and
the sale thereof and remittance of the proceeds of such sale, if any, to the
Persons entitled thereto. In no event shall the Corporation or the Rights Agent
be required to issue or deliver Rights or securities issuable on exercise of
Rights to Persons who are citizens, residents or nationals of any jurisdiction
other than Canada and the United States, in which such issue or delivery would
be unlawful without registration of the relevant Persons or securities for such
purposes.
5.14 SUCCESSORS
All the covenants and provisions of this Agreement by or for the benefit of
the Corporation or the Rights Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
5.15 BENEFITS OF THIS AGREEMENT
Nothing in this Agreement shall be construed to give to any Person other than
the Corporation, the Rights Agent and the holders of the Rights any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Corporation, the Rights Agent and
the holders of the Rights.
<PAGE> 31
31
5.16 GOVERNING LAW
This Agreement and each Right issued hereunder shall be deemed to be a
contract made under the laws of the Province of British Columbia and for all
purposes shall be governed by and construed in accordance with the laws of such
province applicable to contracts to be made and performed entirely within such
province.
5.17 COUNTERPARTS
This Agreement may be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument.
5.18 SEVERABILITY
If any term or provision hereof or the application thereof to any
circumstance shall, in any jurisdiction and to any extent, be invalid or
unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions
hereof or the application of such term or provision to circumstances other than
those as to which it is held invalid or unenforceable.
5.19 EFFECTIVE DATE
This Agreement is effective from the date hereof. If the Rights Plan is not
confirmed by resolution passed by a majority of the votes cast by Independent
Shareholders who vote in respect of such Rights Plan at a meeting to be held on
December 31, 1997, then this Agreement and any then outstanding Rights shall be
of no further force and effect from that date which is the earlier of (a) the
date of such meeting, and (b) the last day of December, 1997.
5.20 TIME OF THE ESSENCE
Time shall be of the essence hereof.
5.21 SHAREHOLDER REVIEW
At the first annual meeting of shareholders of the Corporation following the
fifth anniversary of the date of this Agreement, provided that a Flip-in Event
has not occurred prior to such time, the Board of Directors shall submit a
resolution to the Independent Shareholders for their consideration and, if
thought fit, approval, ratifying the continued existence of the Rights Plan. If
a majority of the votes cast by Independent Shareholders who vote in respect of
such resolution are voted against the continued existence of the Rights Plan,
then the Board of Directors shall, immediately upon the confirmation by the
Chairman of such shareholders' meeting of the result of the vote on such
resolution and without further formality, be deemed to have elected to redeem
the Rights at the Redemption Price.
5.22 DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS
The Board of Directors shall have the exclusive power and authority to
administer and amend this Agreement in accordance with the terms hereof and to
exercise all rights and powers specifically granted hereunder to the Board of
Directors or the Corporation, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not to redeem the Rights or to
amend the Agreement, in accordance with the terms hereof). All such actions,
calculations and determinations (including, for purposes of
<PAGE> 32
32
clause (y) below, all omissions with respect to the foregoing) which are done or
made by the Board of Directors in good faith, shall (x) be final, conclusive and
binding on the Corporation, the Rights Agent, the holders of the Rights and all
other parties and (y) not subject the Board of Directors to any liability to the
holders of the Rights or any other parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
GENETRONICS BIOMEDICAL LTD.
Per:
signed "James L. Heppell"
- --------------------------------------------
Authorized Signatory
MONTREAL TRUST COMPANY OF CANADA
Per:
signed "Anne Boise"
- --------------------------------------------
Authorized Signatory
<PAGE> 33
EXHIBIT A
[Form of Rights Certificate]
CERTIFICATE NO._______________ RIGHTS
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE CORPORATION,
ON THE TERMS SET FORTH IN THE SHAREHOLDER RIGHTS AGREEMENT. UNDER
CERTAIN CIRCUMSTANCES (SPECIFIED IN SUBSECTION 3.1(B) OF SUCH
AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON, CERTAIN
RELATED P OF AN ACQUIRING PERSON OR A TRANSFEREE OF AN ACQUIRING PERSON
OR ANY SUCH RELATED PARTIES WILL BECOME VOID WITHOUT FURTHER ACTION.
RIGHTS CERTIFICATE
This certifies that_____________________ is the registered holder of the number
of Rights set forth above, each of which entitles the registered holder thereof,
subject to the terms, provisions and conditions of the Shareholder Rights
Agreement made as of June 20, 1997 (the "Rights Agreement") between Genetronics
Biomedical Ltd., a corporation incorporated under the laws of the Province of
British Columbia (the "Corporation"), and Montreal Trust Company of Canada, a
trust company incorporated under the laws of Canada, as Rights Agent (the
"Rights Agent", which term shall include any successor Rights Agent under the
Rights Agreement), to purchase from the Corporation, at any time after the
Separation Time and prior to the Expiration Time (as such terms are defined in
the Rights Agreement), one fully paid common share of the Corporation (a "Common
Share") at the Exercise Price referred to below, upon presentation and surrender
of this Rights Certificate, together with the Form of Election to Exercise
appropriately completed and duly executed, to the Rights Agent at its offices in
Vancouver. Until adjustment thereof in certain events as provided in the Rights
Agreement, the Exercise Price shall be $20.00 per Right (payable in cash,
certified cheque or money order payable to the order of the Corporation).
In certain circumstances described in the Rights Agreement, each Right evidenced
hereby may entitle the registered holder thereof to purchase or receive assets,
debt securities or shares in the capital of the Corporation other than Common
Shares, or more or less than one Common Share (or a combination thereof), all as
provided in the Rights Agreement.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Rights Agent, the Corporation and the holders of the Rights Certificates. Copies
of the Rights Agreement are on file at the head office of the Corporation and
are available upon written request.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the principal office of the Rights Agent in the City of Vancouver,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor evidencing an aggregate number of Rights equal to the aggregate number of
Rights evidenced by the Rights Certificate or Rights Certificates surrendered.
If this Rights Certificate shall be exercised in part, the registered holder
shall be entitled to receive, upon surrender hereof, another Rights Certificate
or Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by this
Certificate (i) may be redeemed by the Corporation at a redemption price of
$0.001 per Right, subject to adjustment in certain events, or (ii) may be
exchanged, at the option of the Corporation, for cash, debt or equity securities
or other assets (or a combination thereof).
<PAGE> 34
No fractional Common Shares will be issued upon the exercise of any Right or
Rights evidenced hereby, but in lieu thereof a cash payment will be made, as
provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Common Shares or
any other securities which may at any time be issuable upon the exercise hereof,
nor shall anything contained in the Rights Agreement or herein be construed to
confer upon the holder hereof, as such, any of the rights of a shareholder of
the Corporation or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of any meeting or other
actions affecting shareholders (except as provided in the Rights Agreement), or
to receive dividends or subscription rights or otherwise, until the Rights
evidenced by this Rights Certificate shall have been exercised as provided in
the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose until
it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Corporation.
Date:
---------------------------------------
GENETRONICS BIOMEDICAL LTD.
Per:
- --------------------------------------------
Authorized Signatory
Countersigned:
MONTREAL TRUST COMPANY OF CANADA
Per:
- --------------------------------------------
Authorized Signatory
<PAGE> 35
FORM OF ELECTION TO EXERCISE
TO: GENETRONICS BIOMEDICAL LTD.
The undersigned hereby irrevocably elects to exercise________________________
whole Rights represented by this Rights Certificate to purchase the Common
Shares issuable upon the exercise of such Rights and requests that certificates
for such Common Shares be issued in the name of and delivered to:
- --------------------------------------
Name
- --------------------------------------
Address
- --------------------------------------
City and Province
- --------------------------------------
Social Insurance No. or other taxpayer
identification number
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall be
registered in the name of and delivered to:
- --------------------------------------
Name
- --------------------------------------
Address
- --------------------------------------
City and Province
- --------------------------------------
Social Insurance No. or other taxpayer
identification number
- -------------------------------------- ------------------------------------
Date Signature
------------------------------------
Signature Guaranteed
Signature must correspond to name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
Signature must be guaranteed by a member firm of a recognised stock exchange in
Canada, a member of the Investment Dealers Association of Canada or a commercial
bank or trust company having an office or correspondent in Canada.
(To be completed if true)
<PAGE> 36
2
The undersigned hereby represents, for the benefit of the Corporation and all
holders of Rights and Voting Shares, that the Rights evidenced by this Rights
Certificate are not and, to the knowledge of the undersigned, have never been,
Beneficially Owned by an Acquiring Person or by any Affiliate or Associate of an
Acquiring Person, any other Person acting jointly or in concert with an
Acquiring Person or any Affiliate or Associate of any such other Person (as such
terms are defined in the Rights Agreement).
------------------------------------
Signature
<PAGE> 37
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
the Rights represented by this Rights Certificate, together with all right,
title and interest therein.
- -------------------------------------- ------------------------------------
Date Signature
------------------------------------
Signature Guaranteed
Signature must correspond to name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
Signature must be guaranteed by a member firm of a recognised stock exchange in
Canada, a member of the Investment Dealers Association of Canada or a commercial
bank or trust company having an office or correspondent in Canada.
(To be completed if true)
The undersigned hereby represents, for the benefit of the Corporation and all
holders of Rights and Voting Shares, that the Rights evidenced by this Rights
Certificate are not and, to the knowledge of the undersigned, have never been,
Beneficially Owned by an Acquiring Person or by any Affiliate or Associate of an
Acquiring Person, any other Person acting jointly or in concert with an
Acquiring Person or any Affiliate or Associate of any such other Person (as such
terms are defined in the Rights Agreement).
------------------------------------
Signature
NOTICE
In the event that the certifications set forth above in the Forms of Election to
Exercise and Assignment are not completed, the Corporation shall deem the
Beneficial Owner of the Rights represented by this Rights Certificate to be an
Acquiring Person (as defined in the Rights Agreement) and, accordingly, such
Rights shall be null and void.
<PAGE> 38
THIS AMENDING AGREEMENT made as of August 21, 1997,
BETWEEN:
GENETRONICS BIOMEDICAL LTD., a corporation incorporated under the
laws of the Province of British Columbia, having its registered
and records office at 1100 - 1055 West Hastings Street,
Vancouver, British Columbia, V6E 2E9
(the "Corporation")
AND:
MONTREAL TRUST COMPANY OF CANADA, a trust company incorporated
under the laws of Canada, having an office address at 510 Burrard
Street, Vancouver, British Columbia, V6C 3B9
(the "Rights Agent")
WITNESSES THAT WHEREAS:
A. the Corporation and the Rights Agent entered into a shareholder rights
agreement dated June 20, 1997 (the "Rights Agreement");
B. the Corporation and the Rights Agent wish to amend the Rights Agreement as
set out herein;
THEREFORE in consideration of the premises, and mutual covenants and
conditions hereinafter contained, the parties hereto both jointly and severally
covenant and agree with each other as follows:
1. AMENDMENTS
1.1 Section 3.2 of the Rights Agreement be amended by adding the following
subparagraph:
"(c) While the securities of the Company remain listed on The Toronto Stock
Exchange, any distribution pursuant to Subsections 3.2(a) or 3.2(b) shall
be subject to the prior written consent of The Toronto Stock Exchange."
2. CONFIRMATION
Except as amended hereby, the Rights Agreement continues in full force and
effect as of the date hereof.
<PAGE> 39
2
3. TIME OF THE ESSENCE
Time shall be of the essence of this Agreement and of every part hereof.
4. ENUREMENT
This Agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns.
5. COUNTERPARTS
This Agreement may be executed in several counterparts each of which when so
executed shall be deemed to be an original, and such counterparts shall
constitute one and the same instrument and notwithstanding their date of
execution shall be deemed to be executed as of the date first set out in this
Agreement.
IN WITNESS WHEREOF the parties have executed this Agreement all on the date
and year first above written.
GENETRONICS BIOMEDICAL LTD.
Per:
signed "James L. Heppell"
- --------------------------------
Authorized Signatory
Countersigned:
MONTREAL TRUST COMPANY OF CANADA
Per:
signed "Marina Reyes"
- --------------------------------
Authorized Signatory
<PAGE> 1
EXHIBIT 5.1
[CATALYST CORPORATE FINANCE LAWYERS LETTERHEAD]
October 4, 1999
Genetronics Biomedical Ltd.
11199 Sorrento Valley Road
San Diego, CA USA
92121-1334
Dear Sirs:
GENETRONICS BIOMEDICAL LTD. (THE "COMPANY")
We are Canadian counsel for the Company, a corporation incorporated pursuant to
the laws of the province of British Columbia. We write to provide our opinion
in connection with the filing of the Registration Statement on Form S-1 of the
Company registering 2,242,611 common shares (the "Common Shares") previously
issued by the Company, and 1,900,000 common shares (the "Special Warrant
Shares") issuable upon the exercise of special warrants of the Company. The
Common Shares and the Special Warrant Shares are, collectively, the "Shares".
We have made or caused to be made such investigations and examined originals or
copies certified or otherwise identified to our satisfaction, of such records
and corporate proceedings, certificates and other documents that we have
considered relevant to this opinion. We have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals
and the conformity to authentic original documents of all documents submitted to
us as certified or confirmed copies or facsimiles. We have assumed that the
Special Warrant Shares to be issued by the Company will not exceed the
authorized share capital of the Company at the time of issuance.
The opinions expressed herein are limited to the application of the laws of the
Province of British Columbia and the laws of Canada applicable therein, in
effect on the date hereof.
This opinion is given to you as of the date hereof and we disclaim any
obligation to advise you of any change after the date hereof in any matter set
forth herein, and we express no opinion as to the effect of any subsequent
course of dealing or conduct between the parties referred to herein.
Based on and subject to the foregoing, we are of the opinion that:
1. the Shares have been duly authorized; and
2. the Special Warrant Shares will be validly issued, fully paid and
non-assessable common shares of the Company upon the exercise of the
special warrants in accordance with the terms thereof.
James L. Heppell a director of the Company, is a partner in the law firm of
Catalyst Corporate Finance Lawyers. Mr. Heppell owns, directly or indirectly,
20,500 common shares of the Company.
This opinion may be delivered only to the Securities and Exchange Commission
(the "SEC") and is solely for the benefit of the SEC in connection with the
filing of the Registration Statement on Form S-1 of the Company. This opinion
may not be relied upon by the SEC for any other purpose or by any other person,
firm, or corporation for any purpose without the prior written consent of this
firm.
Yours truly,
CATALYST
signed "CATALYST"
<PAGE> 1
EXHIBIT 10.9
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTION SECTION 200.80(b)(4),
200.83 and 230.406
[Genetronics, Inc. Letterhead]
January 4, 1996
Mr. James C. Lierman
5376 Renaissance Ave
San Diego, CA 92122
Dear Jim,
We are pleased to extend to you an offer of a full-time exempt employment
position with Genetronics, Inc., as V.P. of Corporate Development effective
February 5, 1996. You will report to Martin Nash, Senior Vice President. Your
responsibilities will include:
- Licensing activities
- Assistance in equity management
- Strategic planning
Your base salary will be [...***...] per year, with the opportunity of a bonus.
The bonus will be determined by [...***...]. The calculation will be as follows:
[...***...]
The formula begins again at the start of each year. The bonus [...***...]. The
determination of the composition of the bonus will be solely at your discretion,
and will be made annually at the time of your annual performance appraisal. This
appraisal will be after the end of each fiscal year, i.e. after 2/28/97, and any
compensation adjustments will be effective as of 2/28/97. You will be considered
for a very substantial increase at the time of your appraisal after 2/28/97.
[...***...]
If your employment with the Company is terminated without cause at any time in
the period up to 2/28/99 you will be entitled to [...***...]. You will receive
[...***...]. (Refer to insert.)
As an employee, you have the option of participating in the company "Section
125" cafeteria plan, which has a 30-day waiting period and covers health care,
dental and life insurance, with
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 2
Genetronics picking up a front-end contribution. You will also have the option
of direct deposit of your payroll checks. After six months, you will be eligible
for the company's 401K plan with a matching contribution of Genetronics stock.
The Company's vacation and sick/PTO policy is defined in the Personnel Handbook.
You will receive a copy of this handbook that covers these and other company
policies, on your first day of employment. Genetronics has nine paid holidays;
Thanksgiving and the day after, Christmas Eve and Christmas Day, New Year's Day,
Good Friday, Memorial Day (last Monday in May), Independence Day and Labor Day.
This offer is contingent on satisfactory completion of reference checks.
Jim, we look forward to working with you and wish you a wonderful future as an
employee of Genetronics!
Sincerely,
/s/ Lois J. Crandell /s/ Martin Nash
- -------------------- -----------------------------
Lois J. Crandell Martin Nash
President and CEO Senior Vice President
The undersigned accepts the above employment offer, and agrees that it contains
the terms of employment with Genetronics, and that there are no other terms
expressed or implied. It is also understood that employment is subject to
verification of identity, and does not guarantee employment for any specific
length of time. Employment is at the mutual consent of the employee and the
company. Accordingly, either the employee or the company can terminate the
employment relationship at will, at any time, with or without cause or advance
notice.
ACCEPTED: /s/ James Lierman DATE: 1-19-96
--------------------------- ------------------------
Insert: For the purposes of this agreement, "cause" shall mean a good faith
determination by Genetronics, Inc. that you have materially breached this
agreement, you have been convicted of a felony, or you have engaged in an act of
willful misconduct or materially breached your fiduciary duties to Genetronics,
Inc. /s/JL. /s/ MN.
<PAGE> 1
EXHIBIT 10.14
STANDARD INDUSTRIAL LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease dated for reference purposes only, December 3, 1996 is
made by and between OLEN PROPERTIES CORP. and A FLORIDA CORPORATION (herein
called "lessor") and GENETRONICS, INC. A CALIFORNIA CORPORATION (herein called
"Lessee")
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of San Diego, State of California,
commonly known as 11199 Sorrento Valley Road, San Diego, CA 92121 and
described as Suites A, B, C, D, E, F, I, and K
Said real property including the land and all improvements therein, is herein
called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for Thirty-three (33) months
commencing on April 1, 1997 and ending on December 31, 1999 unless sooner
terminated pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent until possession of the Premises is tendered to Lessee; provided,
however, that if Lessor shall not have delivered possession of the Premises
within sixty (60) days from said commencement date, Lessee may, at Lessee's
option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT. Lessee shall pay to Lessor as rent for the Premises, monthly payments
of $14,345,76 in advance, on the first day of each month of the term hereof.
Lessee shall pay Lessor upon the execution hereof $14,345.76 as rent for April
1997.
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Lessor at the address stated herein or to
such other persons or at such other places as Lessor may designate in writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$14,345.76* as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of
1.
<PAGE> 2
any other sum to which Lessor may become obligated by reason of Lessee's
default, or to compensate Lessor for any loss or damage which Lessor may suffer
thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee
Shall within ten (10) days after written demand therefor deposit cash with
Lessor in an amount sufficient to restore said deposit to the full amount
hereinabove stated and Lessee's failure to do so shall be a material breach of
this Lease. If the monthly rent shall, from time to time, increase during the
term of this Lease. Lessee shall thereupon deposit with Lessor additional
security deposit so that the amount of security deposit held by Lessor shall at
all times bear the same proportion to current rent as the original security
deposit bears to the original monthly rent set forth in paragraph 4 hereof.
Lessor shall not be required to keep said deposit separate from its general
accounts. If Lessee performs all of Lessee's obligations hereunder, said
deposit, or so much thereof as has not theretofore been applied by Lessor, shall
be returned, without payment of interest or other increment for its use, to
Lessee (or, at Lessor s option, to the last assignee, it any, of Lessee's
interest hereunder) at the expiration of the term hereof, and after Lessee has
vacated the Premises No trust relationship is created herein between Lessor and
Lessee with respect to said Security Deposit. NOTE: SECURITY DEPOSIT SHALL NOT
BE APPLIED TOWARD THE LAST MONTH'S RENT.
6. USE.
6.1 USE. The Premises shall be used and occupied only for research and
development and warehousing and manufacturing and offices attendant thereto for
bio medical group as approved by the City of San Diego or any other use which is
reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(A) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. in the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2
(a) shall be of no force or effect it, prior to the date of this Lease, Lessee
was the owner or occupant of the Premises, and, in such event, Lessee shall
correct any such violation at Lessee's sole cost.
(B) Except as provided in paragraph 6.2(a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements in effect during the term or any part of the term hereof,
regulating the use by Lessee of the Premises. Lessee shall not use nor permit
the use of the Premises in any manner that will tend to create waste or a
nuisance or, if there shall be more than one tenant in the building containing
the Premises, shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES.
(A) Lessor shall deliver the Premises to Lessee clean and free
of debris on Lease commencement date (unless Lessee is already in possession)
and Lessor further warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the obligation
of Lessor, after receipt of written notice from Lessee setting forth with
specificity the nature of the violation, to promptly, at Lessor's sole cost,
rectify such violation. Lessee's failure to give such written notice to Lessor
within thirty (30) days after the Lease commencement date shall cause the
conclusive presumption that Lessor has compiled with all of Lessor's obligations
hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force
or effect if prior to the date of this Lease, Lessee was the owner or occupant
of the Premises.
2.
<PAGE> 3
(B) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 6.7.2
and 9 and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's agents, employees, or invitees in which event
Lessee shall repair the damage, Lessor, at Lessor's expense, shall keep in good
order, condition and repair the foundations, exterior walls and the exterior
roof of the Premises. Lessor shall not, however, be obligated to paint such
exterior, nor shall Lessor be required to maintain the interior surface of
exterior walls, windows, doors or plate glass. Lessor shall have no obligation
to make repairs under this Paragraph 7.1 until a reasonable time after receipt
of written notice of the need for such repairs. Lessee expressly waives the
benefits of any statute now or hereafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Premises in good order, condition and
repair.
7.2 LESSEE'S OBLIGATIONS.
(A) Subject to the provisions of Paragraphs 6.7.1 and 9, Lessee,
at Lessee's expense, shall keep in good order, condition and repair the Premises
and every part thereof (whether or not the damaged portion of the Premises or
the means of repairing the same are reasonably or readily accessible to Lessee)
including, without limiting the generality of the foregoing, all plumbing,
heating, air conditioning (Lessee shall procure and maintain, at Lessee's
expense, an air conditioning system maintenance contract) ventilating,
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surface of exterior walls, ceilings, windows, doors,
plate glass and skylights, located within the Premises, and all landscaping,
driveways, parking lots, fences and signs located in the Premises and all
sidewalks and parkways adjacent to the Premises. Lessee expressly waives the
benefit of any statute now or hereinafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Premises in good order, condition and
repair.
(B) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor s
option enter upon the Premises after 10 days prior written notice to Lessee
(except in the case of emergency, in which case no notice shall be required),
perform such obligations on Lessee's behalf and put the Premises in good order,
condition and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional rent
to Lessor together with Lessee's next rental installment
(C) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of its trade fixtures, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the premises in good
operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(A) Lessee shall not, without Lessors prior written consent make
any alterations, improvements, additions, or Utility Installations in, on or
about the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shad make no change or alteration to
the exterior of the Premises nor the exterior of the building(s) on the Premises
without Lessor's prior written consent. As used in this Paragraph 7.3 the term
"Utility
3.
<PAGE> 4
Installation" shall mean carpeting, window coverings, air lines, power panels,
electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing, and fencing. Lessor may require that Lessee remove any
or all of said alterations, improvements, additions or Utility Installations at
the expiration of the term. and restore the Premises to their prior condition.
Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense,
a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such improvements, to insure Lessor against any liability for
mechanic's and materialmen's liens and to insure completion of the work. Should
Lessee make any alterations, improvements, additions or Utility Installations
without the prior approval of Lessor, Lessor may require that Lessee remove any
or all of the same.
(B) Any alterations, improvements, additions or Utility
Installations in, or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent, the
consent shall be deemed conditioned upon Lessee acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(C) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(D) Unless Lessor requires their removal, asset forth in
Paragraph 7.3(a), all alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall become the
property of Lessor and remain upon and be surrendered with the Premises at the
expiration of the term. Notwithstanding the provisions of this Paragraph 7.3(d)
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to he Premises,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of Paragraph 7.2(c).
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises and all other areas appurtenant thereto. Such insurance shall be in
an amount not less than $1,000.000 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this Paragraph 8. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto in an amount not less than $1,000.000
per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Premises, but not Lessee's fixtures, equipment or tenant improvements in an
amount not to exceed the full replacement value thereof, as the same may exist
from time to time, providing protection against all perils included within the
classification of fire, extended coverage, vandalism,
4.
<PAGE> 5
malicious mischief, flood (in the event same is required by a lender having a
lien on the Premises) special extended perils ("all risk", as such term is used
in the insurance industry) but not plate glass insurance. In addition, the
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all real estate taxes and insurance
costs for said period
8.4 PAYMENT OF PREMIUM INCREASE.
(A) Lessee shall pay to Lessor, during the term hereof, in
addition to the rent, the amount of any increase in premiums for the insurance
required under Paragraphs 8.2 and 8.3 over and above such premiums paid during
the Base Period, as hereinafter defined, whether such premium increase shall be
the result of the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, or general rate increases. In the event
that the Premises have been occupied previously, the words "Base Period" shall
mean the last twelve months of the prior occupancy. In the event that the
Premises have never been previously occupied, the premiums during the "Base
Period" shall be deemed to be the lowest premiums reasonably obtainable for said
insurance assuming the most nominal use of the Premises. Provided, however, in
lieu of the Base Period, the parties may insert a dollar amount at the end of
this sentence which figure shall be considered as the insurance premium for the
Base Period $ 1997 Base Year Budget. In no event, however, shall Lessee be
responsible for any portion of the premium cost attributable to liability
insurance coverage in excess of $1,000,000 procured under paragraph 8.2.
(B) Lessee shall pay any such premium increases to Lessor within
30 days after receipt by Lessee of a copy of the premium statement or her
satisfactory evidence of the amount due If the insurance policies maintained
hereunder cover other improvements in addition to the premises, Lessor shall
also deliver to Lessee a statement of the amount of such increase attributable
to the Premises and showing in reasonable detail the manner in which such amount
was computed. If the term of this Lease shall not expire concurrently with the
expiration of the period covered by such insurance, Lessee's liability for
premium increases shall be prorated on an annual basis
(C) If the Premises are part of a larger building, then Lessee
shall not be responsible for paying any increase in the property insurance
premium caused by the acts or omissions of any other tenant of the building of
which the Premises are a part.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most Current issue of "Best Insurance Guide." Lessee shall
deliver to Lessor copies of policies of liability insurance required under
Paragraph 8.1 or certificates evidencing the existence and amounts of Such
insurance No such policy shall be cancelable or subject to reduction of coverage
or other modification except after thirty (30) days prior written notice to
Lessor Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with renewals or binders thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee upon demand. Lessee shall not do so or permit to be done
anything which shall invalidate the insurance policies referred to in Paragraph
8.3.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor's hall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees,
5.
<PAGE> 6
expenses and liabilities incurred in the defense of any such claim or any action
or proceeding brought thereon; and in case of any action or proceeding be
brought against Lessor by reason of any such consideration to Lessor, hereby
assumes all risk of damage to property or injury to persons, in, upon or about
the Premises arising from any cause and Lessee hereby waives all claims in
respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee. Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(A) "Premises Partial Damage" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is less than
50% of the fair market value of the Premises immediately prior to such damaged
or destruction. "Premises Building Partial Damage" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is less than 50% of the fair market value of such building as
a whole immediately prior to such damage or destruction.
(B) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the fair market value the Premises immediately prior to such damage or
destruction. "Premises Building Total Destruction" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is 50% or more of the fair market value of such building as a
whole immediately prior to such damage or destruction.
(C) "Insured Loss" shall herein mean damage or destruction which
was caused by an event required to be covered by the insurance described in
paragraph 8.
9.2 PARTIAL DAMAGE - INSURED LOSS. Subject to the provisions of
paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is an Insured Loss and which falls into the classification of
Premises Partial Damage or Premises Building Partial Damage, then Lessor shall,
at Lessor's sole cost. repair such damage, but not Lessee's fixtures, equipment
or tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is not an Insured Loss and which falls within the classification
of Premises Partial Damage or Premises Building Partial Damage, unless caused by
a negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease, as of the date
of the occurrence of such damage. In the event Lessor elects to give such notice
of Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee does not give such notice within such
10-day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
6.
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9.4 TOTAL DESTRUCTION. If at any time during the term of this Lease
there is damage, whether or not an Insured Loss, (including destruction required
by any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction.
9.5 DAMAGE NEAR END OF TERM.
(A) If at anytime during the last six months of the term of this
Lease there is damage, whether or not an Insured Loss, which falls within the
classification of Premises Partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(B) Notwithstanding paragraph 9.5(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than 20 days after the occurrence of
an Insured Loss falling within the classification of Premises Partial Damage
during the last six months of the term of this Lease. If Lessee duly exercises
such option during said 20 day period, Lessor shall, at Lessor's expense, repair
such damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option during said 20 day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said 20 day period by giving written notice to Lessee of
Lessor's election to do so within 10 days after the expiration of said 20 day
period, notwithstanding any term or provision in the grant of option to the
contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(A) In the event of damage described in paragraphs 9.2 or 9.3,
and Lessor or Lessee repairs or restores the Premises pursuant to the provisions
of this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated n proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(B) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence such
repair or restoration within 90 days after such obligations shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAX INCREASE. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which real
property taxes applicable to the Premises increase over the fiscal real estate
tax year 1996 1997. Such payment shall be made by Lessee within thirty (30) days
after receipt of Lessor's written statement setting forth the amount of such
increase and the computation thereof. If the term of this Lease shall not expire
concurrently with the expiration of the tax fiscal year, Lessee s liability for
increased taxes for the last partial lease year shall be prorated on an annual
basis.
7.
<PAGE> 8
10.2 ADDITIONAL IMPROVEMENTS. Notwithstanding paragraph 10.1 hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase in
real property tax if assessed solely by reason of additional improvements placed
upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessors work sheets or such other information as may be
reasonably available. Lessors reasonable determination thereof, in good faith,
shall be conclusive,
10.5 PERSONAL PROPERTY TAXES.
(A) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(B) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within 10 days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee, shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all of any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of
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Lessee under this Lease. Any such assignment shall not, in any way, affect or
limit the liability of Lessee under the terms of this Lease even if after such
assignment or subletting the terms of this Lease are materially changed or
altered without the consent of Lessee, the consent of whom shall not be
necessary.
12.3 NO RELEASE OR LESSEE. Regardless of Lessor's consent, no subletting
or assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof, Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, without notifying Lessee, or any successor of
Lessee, and without obtaining its or their consent thereto and such action shall
not relieve Lessee of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee.
(A) The vacating or abandonment of the Premises by Lessee.
(B) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(C) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee, other than described in paragraph (b) above, where such failure shall
continue for a period of 30 days after written notice hereof from Lessor to
Lessee provided, however, that if the nature of Lessee's default is such that
more than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion.
(D) (i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors, (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within 60
days), (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within 30
days, or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within 30 days.
Provided, however, in the event that any provision of this paragraph 13.1 (d) is
contrary to any applicable law such provision shall be of no force or effect.
(E) The discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
9.
<PAGE> 10
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(A) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(B) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(C) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and thereafter
diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of rent, then rent shall automatically become due and
payable quarterly in advance, rather than monthly, notwithstanding paragraph 4
or any other provision of this Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the
10.
<PAGE> 11
event of a default in the obligations of Lessee to perform under this Lease,
then any balance remaining from funds paid to Lessor under the provisions of
this paragraph may, at the option of Lessor, be applied to the payment of any
monetary default of Lessee in lieu of being applied to the payment of real
property tax and insurance premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award 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 Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess such
severance damages required to complete such repair.
15. BROKER'S FEE.
(A) Upon execution of this Lease by both parties, Lessor shall
pay to N/A Licensed real estate broker(s) a fee as set forth in a separate
agreement between Lessor and said broker(s), or in the event there is no
separate agreement between Lessor and said broker(s), the sum of $ per
agreement, for brokerage services rendered by said broker(s) to Lessor in this
transaction.
(B) Lessor further agrees that if Lessee exercises any Option as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, Lessor shall pay said broker(s) a fee in accordance with the schedule of
said broker(s) in effect at the time of execution of this Lease.
(C) Lessor agrees to pay said fee not only on behalf of Lessor
but also on behalf of any person, corporation, association, or other entity
having an ownership interest in said real property or any part thereof when such
fee is due hereunder. Any transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Said broker shall be a
third party beneficiary of the provisions of this Paragraph 15.
16. ESTOPPEL CERTIFICATE.
(A) Lessee shall at any time upon not less than ten (10) days'
prior written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(B) At Lessor's option, Lessee's failure to deliver such
statement within such time shall be a material breach of this Lease or shall be
conclusive upon Lessee (i) that this Lease is in full force and effect, without
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modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance of such failure may be considered by
Lessor as a default by Lessee under this Lease.
(C) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15, in the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
from and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and maybe given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of any act,
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach
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by Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted, regardless of Lessor's knowledge of such preceding
breach at the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(A) This Lease, at Lessor's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation or security
now or hereafter placed upon the real property of which the Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(B) Lessee agrees to execute any documents required to
effectuate an attornment, a subordination or to make this Lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case maybe. Lessee's
failure to execute such documents within 10 days after written demand shall
constitute a material default by Lessee hereunder, or, at Lessor's option,
Lessor shall execute such documents on behalf of Lessee as Lessee's
attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint
Lessor as Lessee's attorney-in fact and in Lessee's name, place and stead, to
execute such documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
13.
<PAGE> 14
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party, such consent shall not be
unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor, or
the right of first refusal to purchase other property or the rights of first
offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(A) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (1) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1 (b) or 13.1 (c) and continuing until the default
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) continuing until
the obligation is paid, or (iii) at any time after an event of default described
in paragraphs 13.1(a), 13.11(d) or 13.1(e) (without any necessity
14.
<PAGE> 15
of Lessor to give notice of such default to Lessee), or (iv) in the event that
Lessor has given to Lessee three or more notices of default under paragraph
13.1(b), where a late charge becomes payable under paragraph 13.4 for each of
such defaults, or paragraph 13.1(c), whether or not the defaults are cured
during the 12 month period prior to the time that Lessee intends to exercise the
subject Option.
(B) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(C) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 30 days after the date that
Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to
diligently prosecute said cure to completion, or (iii) Lessee commits a default
described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of
Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each such default, or paragraph
13.1(c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at anytime a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
15.
<PAGE> 16
46. ADDENDUM.
See Addenda A, B, and C and Exhibit A attached hereto and made a part
hereof. See Addenda D attached hereto and made a part hereof.
47. RENT PAYMENTS.
Rent payments are due on the first of each month. Please remit to Olen
Properties Corp., 7 Corporate Plaza, Newport Beach, CA 92660. LESSOR
DOES NOT INVOICE ON A MONTHLY BASIS.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION
OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO;
THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATES SPECIFIED
IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
<TABLE>
<S> <C>
OLEN PROPERTIES CORP.
Executed at Newport Beach A FLORIDA CORPORATION
0n 12-16-96 By: /s/ Charles C. Aufhammer
-------------------------------
Charles C. Aufhammer
Address: 7 Corporate Plaza By: Director of Marketing
Newport Beach, CA 92660 -------------------------------
"LESSOR" (Corporate seal)
GENETRONICS, INC.
Executed at A CALIFORNIA CORPORATION
-----------------------
on By /s/ Lois J. Crandell
-------------------------------- -------------------------------
Lois J. Crandell, President and
Chief Executive Officer
Address
---------------------------
- ----------------------------------
</TABLE>
16.
<PAGE> 17
ADDENDUM "A"
<TABLE>
<S> <C>
BY AND BETWEEN: OLEN PROPERTIES CORP.
A FLORIDA CORPORATION
AS LESSOR, AND: GENETRONICS, INC.
A CALIFORNIA CORPORATION
AS LESSEE
TO LEASE DATED: DECEMBER 3, 1996
</TABLE>
- --------------------------------------------------------------------------------
1. EXTERIOR STORAGE
Lessee shall neither store nor permit to be stored, any goods,
machinery, merchandise, equipment, or any other items whatsoever, on the
Premises, other than wholly within its leased Premises, without the
prior written consent of the Lessor.
2. PARKING
Tenant shall be entitled to park in common with other tenants of Lessor
in the parking areas. Tenant agrees not to overburden the parking
facilities and agrees to cooperate with Lessor and other tenants in the
use of parking, and not to park, or permit its employees, customers, or
guests to park anywhere in the industrial park, except in parking spaces
designated as such with parking lines and parking bumpers. No over-night
parking is allowed; violators will be subject to towing at owner's
expense.
3. SIGN CRITERIA
These regulations are established in order to ensure that all signs
comply with signage ordinances of the City of San Diego, and in order to
maintain a continuity in appearance throughout Sorrento Glen Business
Park. Conformance to the regulations will be strictly enforced:
A. GENERAL REQUIREMENTS:
(1) Each unit shall be allowed one identity sign.
(2) The signs shall be constructed and installed at Lessee's
expense. Sign permits and any annual sign fees or user fees
are the responsibility of the Tenant.
(3) No electrical or audible signs shall be permitted.
(4) Except as provided herein, no advertising placards,
banners, pennants, names, insignias, trademarks, or other
descriptive material shall be affixed or maintained upon
the glass panes or exterior walls of the building.
B. SPECIFICATIONS:
(1) Placement of the sign on the building shall be in the
specific location and installation shall be by the method
designated by Lessor.
(2) The materials, color, and dimensions of the sign are subject
to the approval of the City of San Diego.
(3) Lessee shall submit design, color selection and proposed
location of sign and logo prior to construction and
installation.
<PAGE> 18
4. COMMON AREA CHARGES
Lessee acknowledges a portion of its base rent includes Lessee's prorata
share of the 1997 base year common area budget. The budget includes, but
is not limited to Lessor's estimated cost of: landscape maintenance,
parking lot sweeping, maintenance and repair, trash removal, management
fees, utilities which are not separately metered, and all other costs or
expenses incurred by Lessor under this Lease which are not otherwise
reimbursed by tenants of the project. Should Lessor's common area budget
increase in 1997 or thereafter, then Lessee's prorata share of such
increases shall be passed on to Lessee annually beginning January 1,
1998, pursuant to Articles 7.2 and 11 of this Lease. Should Lessor's
common area budget decrease, then Lessor shall credit the difference to
Lessee's next monthly installment of rent. The 1997 monthly common area
budget is $5,833.00. Lessee's prorata share of the project is: 39.11%.
5. HVAC MAINTENANCE
Should the compressor for the HVAC unit fail during Lessee's lease term
and Lessee produces proof of quarterly maintenance service for said
unit, then Lessor agrees to replace the compressor at Lessor's cost. In
this event, Lessee agrees to contact Lessor and Lessor shall contract
for the replacement of the compressor. Lessor shall not be responsible
for the compressor cost if Lessee contracts to have it replaced before
notifying Lessor in writing and giving Lessor the opportunity to repair
same.
6. FIRST RIGHT OF REFUSAL
Should the adjacent space become available at any time during the term
of this Lease, and LESSEE REQUESTS IN WRITING the right to lease said
space prior to Lessor's acceptance of any other offer, Lessor agrees to
give Lessee First Right to Lease said space at a rental rate negotiated
between Lessor and Lessee. Upon Lessor's receipt of said written notice,
Lessee shall have seventy-two (72) hours in which to negotiate a
mutually acceptable lease. Lessor shall be relieved of its obligation to
lease said space to Lessee should Lessee and Lessor fail to negotiate
and sign a mutually acceptable Lease within seventy-two (72) hours.
7. TRANSFER OF SECURITY DEPOSIT:
Lessor shall transfer $11,363.82 of Lessee's existing Security Deposit
from current leases, Suite A-C, Suite D & E, Suite F, and Suite I to
apply toward the Security Deposit due for this Lease. Total amount of
Security Deposit due is $14,345.76. Lessor shall collect $2,981.94 to
equal one month's rent pursuant to the Article 5 herein.
<PAGE> 19
ADDENDUM "B"
<TABLE>
<S> <C>
BY AND BETWEEN OLEN PROPERTIES CORP.
A FLORIDA CORPORATION
AS LESSOR; AND
AS LESSEE GENETRONICS, INC.
A CALIFORNIA CORPORATION
TO LEASE DATED: DECEMBER 3, 1996
</TABLE>
- --------------------------------------------------------------------------------
1. No sign, placard, picture, advertisement, name or notice shall be inscribed,
displayed or printed or affixed on or to any part of the outside or inside
of the Building without the written consent of Lessor first had and obtained
and Lessor shall have the right to remove and destroy any such sign,
placard, picture, advertisement, name or notice without notice to and at the
expense of Lessee.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Lessee by a person approved by
the Lessor.
Lessee shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly
from outside the Premises; provided, however, that the Lessor may
furnish and install a Building standard window covering at all exterior
windows. Lessee shall not without prior written consent of Lessor cause
or otherwise install sunscreen on any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways,
driveways, and parking areas shall not be obstructed by Lessees or used by
them for any purpose other than for ingress and egress from their respective
Premises.
3. Lessee shall not alter any lock or install any new or additional locks or
bolts on any doors or windows of the Premises, without prior written consent
of Lessor and subsequent delivery of a duplicate key to Lessor.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage, or damage resulting from the violation of
this rule shall be borne by the Lessee who, or whose employees or invitees
shall have caused it.
5. Lessee shall not overload the floor of the Premises or in any way deface the
Premises or any part thereof.
6. Lessee shall not use, keep or permit to be used or kept any foul or noxious
gas or substances in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Lessor or
other occupants of the Building by reason of noise, odors and/or vibrations,
or interfere in any way with other Lessees or those having business therein,
nor shall any animals or birds be brought in or kept in or about the
Premises or the Building.
7. No cooking shall be done or permitted by any Lessee on the Premises, nor
shall the Premises be used for washing clothes, for lodging, or for any
improper, objectionable or immoral purpose.
8. Lessee shall not keep in the Premises or the Building any kerosene, gasoline
or inflammable or combustible fluid or material, or use any method of
heating or air conditioning other than that supplied or approved in writing
by the Lessor.
<PAGE> 20
9. Lessor will direct electricians as to where and how telephone and telegraph
wires are to be introduced. No boring or cutting for wires will be allowed
without the consent of the Lessor. The locations of telephones, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Lessor.
10. Lessor reserves the right to exclude or expel from the Building any person
who, in the judgment of Lessor, is intoxicated or under the influence of
liquor or drugs, or who shall in any manner do any act in violation of any
of the rules and regulations of the Building.
11. Lessee shall not disturb, solicit, or canvass any occupant of the Building
and shall cooperate to prevent same.
12. Without the written consent of Lessor, Lessee shall not use the name of the
Building in connection with or in promoting or advertising the business of
Lessee except as Lessee's address.
13. Lessor shall have the right to control and operate the public portions of
the Building, and the public facilities, and heating and air conditioning,
as well as facilities furnished for the common use of the Lessees, in such
manner as it deems best for the benefit of the Lessees generally.
14. All garbage and refuse shall be placed by Lessee in the containers at the
location prepared by Lessor for refuse collection, in the manner and at the
times and places specified by Lessor. Lessee shall not burn any trash or
garbage of any kind in or about the Leased Premises or the Business Park.
All cardboard boxes must be "broken down" prior to being placed in the trash
container. All styrofoam chips must be bagged or otherwise contained prior
to placement in the trash container, so as not to constitute a nuisance.
Pallets may not be disposed of in the trash bins or enclosures. It is the
Lessee's responsibility to dispose of pallets by alternative means.
Should any garbage or refuse not be deposited in the manner specified by
Lessor, Lessor may after three (3) hours verbal notice to Lessee, take
whatever action necessary to correct the infrastructure at Lessee's expense.
15. No aerial antenna shall be erected on the roof or exterior walls of the
Leased Premises, or on the grounds, without in each instance, the written
consent of Lessor first being obtained. Any aerial or antenna so installed
without such written consent shall be subject to removal by Lessor at any
time without notice.
16. No loud speakers, televisions, phonographs, radios or other devices shall be
used in a manner so as to be heard or seen outside of the Leased Premises or
in neighboring space without the prior written consent of Lessor.
17. The outside areas immediately adjoining the Leased Premises shall be kept
clean and free from dirt and rubbish by the Lessee, to the satisfaction of
the Lessor, and Lessee shall not place or permit any obstruction or
materials in such areas. No exterior storage shall be allowed.
18. Lessee shall use at Lessee's cost such peat extermination contractors as
Lessor may direct and at such intervals as Lessor may require.
19. These common types of damages will be charged back to the Lessee if they are
not corrected prior to vacating the premises:
- Keys not returned to Lessor for ALL locks, requiring the
service of a locksmith and rekeying.
- Removal of all decorator painting, wallpapering and paneling,
or Lessor's prior consent to remain.
- Electrical conduit and receptacles on the surface of walls.
<PAGE> 21
- Phone outlets, wiring, or phone equipment added on wall
surfaces.
- Security tape/magnetic tape switches for burglar alarm systems
added to windows and door surfaces.
- Penetration of roof membrane in any manner.
- Holes in walls, doors, and ceiling surfaces.
- Addition or change of standard door hardware.
- Painting or gluing of carpet or tile on warehouse floors.
- Glass damage.
- Damage to warehouse ceiling insulation.
- Stains or damage to carpeting beyond normal wear-and-tear.
- Damaged, inoperative, or missing electrical, plumbing, or HVAC
equipment.
- Debris and furniture requiring disposal.
- Damaged or missing mini-blinds, draperies, and baseboards.
- Installation of additional improvements without Lessor's prior
written approval or obtainment of required City building
permits.
Lessee agrees to comply with all such rules and regulations upon notice from
Lessor. Should Lessee not abide by these Rules and Regulations, Lessor may serve
a three (3) day notice to correct deficiencies. If Lessee has not corrected
deficiencies by the end of the notice period, Lessee will be in default of
lease.
Lessor reserves the right to amend or supplement the foregoing rules and
regulations and to adopt and promulgate additional rules and regulations
applicable to the leased premises. Notice of such rules and regulations and
amendments and supplements thereto, if any, shall be given to the Lessee.
<PAGE> 22
ADDENDUM "C"
<TABLE>
<S> <C>
BY AND BETWEEN: OLEN PROPERTIES CORP.
A FLORIDA CORPORATION
AS LESSOR, AND: GENETRONICS, INC.
A CALIFORNIA CORPORATION
AS LESSEE
TO LEASE DATED: DECEMBER 3, 1996
</TABLE>
- --------------------------------------------------------------------------------
ANNUAL RENT ADJUSTMENT
The minimum base monthly rent and security deposit set forth in Paragraphs 4 and
5 of this Lease shall be subject to an upward only adjustment at the end of each
ONE-(1) YEAR PERIOD of the lease term, including Option Periods, if any. The
first such adjustment shall take effect beginning with the first of the month
following one (1) year from the commencement date of the lease. If the
commencement date is the first day of the month, then the adjustment shall take
effect one (1) year thereafter. The new base monthly rent for each twelve- (12)
month period shall be determined by adding three (3%) to the annual rental for
the previous twelve- (12) months.
ANNUAL RENT ADJUSTMENT:
The minimum base monthly rent and security deposit set forth in Paragraphs 4 and
5 of this Lease shall be adjusted as follows:
Beginning on April 1, 1998, through March 31, 1999 the minimum base rent shall
be $14,776.13 per month, and the security deposit shall be $14,776.13.
Beginning on April 1, 1999, through December 31, 1999 the minimum base rent
shall be $15,219.41 per month, and the security deposit shall be $15,219.41.
<PAGE> 23
ADDENDUM "D"
<TABLE>
<S> <C>
TO LEASE DATED: DECEMBER 3, 1996
BY AND BETWEEN: OLEN PROPERTIES CORP.
A FLORIDA CORPORATION
AS LESSOR, AND: GENETRONICS, INC.
A CALIFORNIA CORPORATION
AS LESSEE
</TABLE>
- --------------------------------------------------------------------------------
OPTION TO EXTEND/LEASE EXTENSION
Providing Lessee is not in default under any of the terms of this Lease, Lessee
shall have the Option to Extend the term of this Lease for TWO (2) - TWO (2)
YEAR period on all the same terms and conditions as contained in this Lease,
except that the base monthly rent commencing with the first month of each Lease
Extension shall be the THEN MARKET RATE, but in no event shall the new monthly
rent be less than the base monthly rent for the previous twelve (12) months,
Thereafter, the base monthly rent shall be subject to an upward only adjustment
at the beginning of each one-(1) year period of the Lease Extension/Option
Period. The new base rent for each twelve (12) month period shall be determined
by adding to the annual rental for the previous twelve (12) months a sum equal
to Five percent (5%) for the previous twelve months.
To exercise this Option to Extend, Lessee must give notice IN WRITING to Lessor
by Certified mail, return receipt requested at least ONE HUNDRED AND EIGHTY DAYS
prior to the expiration of the previous term.
Ali terms and conditions of Article 39 of the Lease shall remain in fill force
and effect.
<PAGE> 24
[Diagram omitted]
<PAGE> 25
MODIFICATION OF LEASE #1
Pursuant to that certain Lease by and between OLEN PROPERTIES CORP., A FLORIDA
CORPORATION, as "Lessor", and GENETRONICS, INC. A CALIFORNIA CORPORATION, as
"Lessee", dated December 3, 1996 for property located at:
11199 Sorrento Valley Road, Suites A, B, C, D, E, F, I, and K
San Diego, Ca 92121
the undersigned parties hereby understand and agree that the above mentioned
Lease shall be amended and modified as follows:
ARTICLE 4. RENT: Shall be modified to read in part "... monthly payments of
$14,706.36."
ARTICLE 5. SECURITY DEPOSIT: Shall be modified to read in part "Lessee shall
deposit with Lessor upon execution hereof $360.60 as additional security deposit
to bring the total security deposit to $14,706.36 as security..."
ADDENDUM A. ITEM 8, ELECTRICITY: The monthly rental amount in Item 4 of this
Lease includes a fifteen cent (15 cent) per square foot charge for electricity
for Suite K ($360.60) which Lessee agrees to pay to Lessor as reimbursement for
electrical usage. Lessor reserves the right to reassess said usage at any time,
and if it finds Lessee's actual usage to be in excess of $360.60 per month, may
adjust this electrical assessment in accordance with Lessee's actual usage.
Upon execution hereof Lessee shall pay Lessor $721.20 as additional rent for
April, 1997 ($360.60); plus $360.60 as additional security deposit.
Except as amended and modified herein, all other terms and conditions of said
Lease, attached hereto, by and between the parties described above, shall
continue in full force and effect. The within modification shall become
effective upon the date of execution hereof.
LESSOR: LESSEE:
OLEN PROPERTIES CORP., GENETRONICS, INC.
A CALIFORNIA CORPORATION
By: /s/ Charles A. Aufhammer By: /s/ Lois J. Crandell
------------------------------ --------------------------------------
Charles A. Aufhammer Lois J. Crandell
Vice President, Marketing President and Chief Executive Officer
Date: 3-7-97 Date: 3/4/97
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MODIFICATION OF LEASE #2
This MODIFICATION OF LEASE #2 ("Modification") is entered into as of the
26th day of August, 1999 by and between NEXUS SORRENTO GLEN LLC, a California
Limited Liability Company ("Landlord") and GENETRONICS, INC., a California
Corporation ("Tenant").
RECITALS
A. Olen Properties Corp., as Landlord, and Genetronics, Inc., as Tenant,
entered into that certain Lease dated as of December 3, 1996, as amended by that
certain Modification of Lease #1 executed by Landlord on March 7, 1997 and
Tenant on March 4, 1997 (collectively, the "Lease"), of the certain premises
located in the building commonly known as 11199 Sorrento Valley Road, San Diego,
California, as more particularly described therein ("Premises"). Capitalized
terms used herein and not otherwise defined herein shall have the meanings set
forth in the Lease.
B. "Landlord" is the successor in interest to the landlord under the
"Lease."
C. Landlord and Tenant now desire to amend the Lease in order to, among
other things, add as of November 16, 1999 the suites currently being subleased
by Tenant from Genix to the Lease.
NOW, THEREFORE, Landlord and Tenant acknowledge their agreement of the
following:
1. Addition to the Leased Premises
As of November 16, 1999, 11189 Sorrento Valley Road, Suites E - G, and 11199
Sorrento Valley Road, Suite J, encompassing 4,445 rentable square feet and 3,183
rentable square feet respectively, and together totalling 7,628 rentable square
feet is added to the Premises in the Lease.
2. Rent on Addition to the Leased Premises.
From November 16, 1999 through December 31, 1999, the Rent paid by Tenant shall
be increased by $8,772.20 per month (7,628 rentable square feet multiplied by
$1.15). In addition, Tenant shall pay as additional rent the pro rata share of
project operating expenses for the addition to the Premises.
Effect.
Except as specifically amended herein, the terms and provisions of the Lease
shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Modification as of the
date first above written.
LANDLORD: TENANT:
NEXUS SORRENTO GLEN LLC, GENETRONICS, INC.
a California Limited Liability Company a California corporation
By: Michael Reidy By: Martin Nash
Its: Manager Its: CEO
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EXHIBIT 10.15
LEASE
NEXUS SORRENTO GLEN LLC
Landlord
and
GENETRONICS, INC.
Tenant
SORRENTO GLEN
SAN DIEGO, CALIFORNIA
<PAGE> 2
LEASE
THIS LEASE is made as of AUGUST 26, 1999, by and between NEXUS SORRENTO
GLEN LLC ("Landlord") and GENETRONICS, INC. ("Tenant").
LEASE OF PREMISES.
1.1 Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, those certain premises ("Premises") within the two buildings
located at the addresses set forth below (hereinafter collectively called the
"Building"), together with non-exclusive easements and rights of way to use the
Common Areas and parking and other privileges appurtenant to the Premises. The
Premises are crosshatched on the floor plan attached hereto as Exhibit "A", and
are situated on the floor and suite of the Building as set forth in Section
2.1.2. The real property upon which the Building is located and all landscaping,
parking facilities, and other improvements and appurtenances related thereto,
are hereinafter collectively referred to as the "Project". All portions of the
Project which are for the non-exclusive use of tenants of the Building,
including without limitation driveways, sidewalks, parking areas, landscaped
areas, service corridors, stairways, elevators, public restrooms and Building
lobbies, are hereinafter referred to as "Common Areas".
2. BASIC LEASE PROVISIONS.
2.1 For convenience of the parties, certain basic provisions of
this Lease are set forth herein. The provisions set forth herein are subject to
the remaining terms and conditions of this Lease and are to be interpreted in
light of such remaining terms and conditions.
2.1.1 Address of the Building:
11189 and 11199 Sorrento Valley Road
San Diego, California 92121
2.1.2 Designation of Premises: 11189 Sorrento Valley
Road, Suites E - G, and 11199 Sorrento Valley
Road, Suites A - F, I, K, and J.
2.1.3 Rentable Area of Premises: 24,931 square feet
2.1.4 Initial Basic Annual Rent: $397,898.76
2.1.5 Initial Monthly Rental Installments of Basic
Annual Rent: $33,158.23
2.1.6 Tenant's Pro Rata Share of Project: 56.15%
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2.1.7 (a) Term Commencement Date: January 1, 2000.
(b) Term Expiration Date: December 31, 2004.
2.1.8 Security Deposit: $22,190.86, to increase per
Section 9.1.
2.1.9 Permitted Use: Laboratory, vivarium, office,
light assembly, and research and development.
2.1.10 Address for Rent Payment and Notices to
Landlord:
Nexus Sorrento Glen LLC
c/o Nexus Properties, Inc.
4350 La Jolla Village Dr. Suite 930
San Diego, CA 92122
Tel: 619/587-2100
Fax: 619/587-9796
2.1.11 Address for Notice to Tenant:
Markus Hofmann
Genetronics, Inc.
11199 Sorrento Valley Road, Suite A
San Diego, CA 92121
3. TERM.
3.1 This Lease shall take effect upon the date of execution
hereof by both parties hereto and, except as specifically otherwise provided
within this Lease, each of the provisions hereof shall be binding upon and inure
to the benefit of Landlord and Tenant from the date of execution, subject to (i)
Landlord's completion of Landlord's Work (as defined below), and (ii) Landlord's
delivery of a Nondisturbance Agreement from Landlord's Mortgagee substantially
in the form of Exhibit "B" attached hereto.
3.2 The term of this Lease is as set forth in Section 2.1.7.
4. POSSESSION AND COMMENCEMENT DATE.
4.1 The Commencement Date of this Lease in January 1, 2000.
4.2 Possession of areas necessary for utilities, services,
safety and operation of the
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Building is reserved to Landlord, provided Landlord's use of such areas shall
not interfere with Tenant's quiet enjoyment of the Premises. Should Landlord
need to take space within the Tenant's Premises, and Tenant will no longer have
effective use of the space, Tenant's Rentable Area and Basic Annual Rent will be
reduced accordingly.
4.3 Tenant agrees to take the Premises "As Is" with no
additional work required of Landlord.
5. RENT.
5.1 Tenant agrees to pay Landlord as Basic Annual Rent for the
Premises the sum set forth in Section 2.1.4, subject to the rental adjustments
provided in Article 6 hereof. Basic Annual Rent shall be paid in the equal
monthly installments set forth in Section 2.1.5, subject to the rental
adjustments provided in Article 6 hereof, each in advance on the first day of
each and every calendar month during the term of this Lease.
5.2 In addition to Basic Annual Rent, Tenant agrees to pay to
Landlord as additional rent ("Additional Rent") at times hereinafter specified
in this Lease (i) Tenant's pro rata share, as set forth in Section 2.1.6, of
Operating Expenses as provided in Article 7 and (ii) any other amounts that
Tenant assumes or agrees to pay under the provisions of this Lease that are owed
to Landlord, including without limitation any and all other sums that may become
due by reason of any default of Tenant or failure on Tenant's part to comply
with the agreements, terms, covenants and conditions of this Lease to be
performed by Tenant.
5.3 Basic Annual Rent and Additional Rent shall together be
denominated "Rent". Rent shall be paid to Landlord, without abatement,
deduction, or offset, except as expressly provided in this Lease, in lawful
money of the United States of America, at the office of Landlord as set forth in
Section 2.1.10 or to such other person or at such other place as Landlord may
from time to time designate in writing. In the event the term of this Lease ends
on a day other than the first day of a calendar month, then the Rent for such
fraction of a month shall be prorated for such period on the basis of a thirty
(30) day month and shall be paid at the then current rate for such fractional
month.
5.4 It is the intent of the parties that Tenant shall pay its
Pro Rata share of all costs and expenses relating to the Premises unless
otherwise expressly provided in this Lease. Any amount or obligation herein
relating to the Premises which is not expressly declared to be that of Landlord
shall be deemed to be an obligation of Tenant to be performed by Tenant at
Tenant's expense.
6. RENT ADJUSTMENTS.
6.1 Basic Annual Rent shall increase by $0.05 per square foot
per month on each annual anniversary of of the Term Commencement Date.
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7. OPERATING EXPENSES.
7.1 As used herein, the term "Operating Expenses" shall include:
(a) Government impositions including, without
limitation, property tax costs consisting of real and personal property taxes
and assessments including amounts due under any improvement bond upon the
Building and/or Project including the parcel or parcels of real property upon
which the Building and areas serving such Building are located or assessments
levied in lieu thereof imposed by any governmental authority of agency, any tax
on or measured by gross rentals received from the rental of space in the
Building, or any other costs levied, assessed or imposed by, or at the direction
of, or resulting from statues or regulations, or interpretations thereof,
promulgated by any federal, state, regional, municipal or local government
authority in connection with the use or occupancy of the Building or the parking
facilities serving the Building, any tax on this transaction or any document to
which Tenant is a party creating or transferring an interest in the Premises,
any fee for a business license to operate an office building, and any expenses,
including the cost of attorneys or experts, reasonably incurred by Landlord in
seeking reduction by the taxing authority of the applicable taxes, less tax
refunds obtained as a result of an application for review thereof. Operating
Expenses shall not include any net income, franchise, capital stock, estate or
inheritance taxes or taxes which are the personal obligation of Landlord or of
another tenant of the Project.
(b) All reasonable and normal costs paid or incurred by
Landlord in connection with the operation and maintenance of the Building and
the Project in accordance with the terms of this Lease, including, by way of
examples and not as a limitation upon the generality of the foregoing, costs of
repairs and replacements (excluding capital replacements) to improvements within
the Project as appropriate to maintain the Project in first class condition;
costs of utilities furnished to the Common Areas; sewer fees; trash collection;
cleaning, including windows; heating, ventilation, and air conditioning;
maintenance of landscape and grounds; maintenance of drives and parking areas;
security services and devices; building supplies; maintenance and replacements
to equipment utilized for operation and maintenance of the Project; insurance
premiums (excluding earthquake premiums); portions of insured losses paid by
Landlord as part of commercially reasonable deductible portion of loss by reason
of insurance policy terms and excluding deductibles for earthquakes and other
uninsured casualties and provided that any capital items and insurance
deductibles shall be amortized over their useful life; service contracts; costs
of services of independent contractors retained to do work of nature before
referenced; and costs of compensation (including employment taxes and fringe
benefits) of all persons who perform regular and recurring duties connected with
the day-to-day operation and maintenance of the Project (but excluding corporate
overhead and anyone above the level of Building Manager), its equipment, the
adjacent walks, landscaped areas, drives, and parking areas, including without
limitation, janitors, floorwaxers, window-washers, watchmen, gardeners,
sweepers, and handymen, and costs of management services equal to three and
five-tenths percent (3.5%) of Basic Annual Rent.
(c) Notwithstanding the foregoing, Operating Expenses
shall not include any leasing commissions; expenses which relate to preparation
of rental space for a tenant; expenses of
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initial development and construction, including but not limited to, grading,
paving, landscaping, and decorating (as distinguished from repair and
replacement of an improvement previously located in the Project, but excluding
costs of correcting any construction defects or costs of complying with
Americans with Disabilities Act ("ADA") requirements unless such ADA
requirements are triggered by improvements to or use of the Premises by Tenant);
legal expenses relating to other tenants; costs of repair to the extent
reimbursed by payment received by Landlord of insurance proceeds, or recovery
from a third party (but less costs of obtaining such recovery); costs of capital
replacements (defined as items costing in excess of $5,000 and with useful lives
of 5 years or more), except for routine maintenance thereof, and except for
package HVAC units used exclusively for Tenant's Premises, and except for cost
saving capital items or capital items required by new laws enacted after the
date of this Lease, which costs of such capital items shall be amortized over
the useful life of such capital items; interest upon loans to Landlord or
secured by mortgage or deed of trust covering the Project or a portion thereof
(provided interest upon a government assessment or improvement bond payable in
installments is an Operating Expense under subparagraph (a) above); salaries of
executive officers of Landlord; costs of new improvements added to the Project
(as distinguished from repair or replacement of an improvement previously
located in the Project); depreciation claimed by Landlord for tax purposes;
taxes of the types set forth within the last sentence of subparagraph (a) above;
and any other expense otherwise chargeable as part of the cost of operation and
maintenance but which is not of general benefit to the Project but is primarily
for the benefit of Landlord or one or more specific tenant(s), in which case any
allocation of such expense shall be to Landlord or the specific tenant(s)
benefitted. In no event shall Landlord pay more than fair market value for any
Operating Expense items. All items of expenses shall be fairly and reasonably
allocated between other portions of the Project that are benefitted by such
services.
7.2 Tenant shall pay to Landlord on the first day of each
calendar month of the term of this lease, as Additional Rent, Landlord's
estimate of Tenant's Pro Rata Share (as set forth in 2.1.6) of Operating
Expenses with respect to the Project for such month.
(a) "Tenant's Pro Rata Share" under this Lease, as
defined in 2.1.6, shall mean (i) the Rentable Area in the Premises divided by
(ii) the Rentable Area in the Building.
(b) Within ninety (90) days after the conclusion of each
calendar year, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual Operating Expenses and Tenant's Pro Rata Share of
Operating Expenses for the previous calendar year. Any additional sum due from
Tenant to Landlord shall be due and payable within 30 days after Tenant's
receipt of the statement. If the amounts paid by Tenant pursuant to Section 7.2
exceeds Tenant's Pro Rata Share of Operating Expenses for the previous calendar
year, the difference shall be credited by Landlord against the Rent next due and
owing from Tenant; provided that, if the Lease term has expired, Landlord shall
accompany said statement with payment for the amount of such difference.
(c) Any amount due under Section 7.2 for any period
which is less than a full month shall be prorated (based on a 30-day month) for
such fractional month.
7.3 Tenant shall have the right, at Tenant's expense, upon
reasonable notice during
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reasonable business hours, to audit Operating Expenses and have a representative
inspect and make copies of Landlord's books and records relating to preparation
of this statement provided any request for such review shall be furnished within
three (3) months of Tenant's receipt of such statement for actual Operating
Expenses. Landlord shall keep and maintain its books and records in such detail
in accordance with real estate industry standards to permit such audit within
such time period. If the audit shows Landlord overcharged Tenant more than 5%,
Landlord shall pay the reasonable costs of the audit.
7.4 Tenant shall not be responsible for Operating Expenses
attributable to the time period prior to the Term Commencement Date, except that
if Landlord shall permit Tenant possession of the Premises for the purpose of
conducting business therefrom (as opposed to the purpose of preparing the
Premises for occupancy) prior to the Term Commencement Date, Tenant shall be
responsible for Operating Expenses from such earlier date of possession. The
responsibility of Tenant for Operating Expenses attributable to the Premises
shall continue to the later of (i) the date of termination of the Lease, or (ii)
the date Tenant has fully vacated the Premises.
7.5 Operating Expenses for the calendar year in which Tenant's
obligation to share therein commences and in the calendar year in which such
obligation ceases, shall be prorated. Expenses such as taxes, assessments and
insurance premiums which are incurred for an extended time period shall be
prorated based upon time periods to which applicable so that the amounts
attributed to the Premises relate in a reasonable manner to the time period
wherein Tenant has an obligation to share in Operating Expenses.
8. RENTABLE AREA.
8.1 The Rentable Area of the Premises is determined by measuring
to the center of partitions that separate the space of Tenant from adjoining
space of other tenants and to the outside finished surfaces of the permanent
outer Building wall, without deduction for columns, projections or vertical
penetrations (such as elevators and stairwells) which may be included in the
Building. The Premises shall not be subject to remeasurement or recalculation
during the Term of the Lease and shall be conclusively be deemed to be the
number stated in Section 2.1.3 hereof.
9. SECURITY DEPOSIT.
9.1 The initial Security Deposit required under this Lease of
$22,190.86 is currently in the possession of Landlord. On January 1, 2001, and
again on January 1, 2002, the Security Deposit shall increase by $1,246.55,
commensurate with the increase in the monthly Base Rent. No further increases in
the Security Deposit will be required by Landlord during the Term of the Lease.
9.2 In the event of bankruptcy or other debtor-creditor
proceedings against Tenant, such security deposit shall be deemed to be applied
first to the payment of Rent and other charges due Landlord for all periods
prior to the filing of such proceedings.
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9.3 Landlord may deliver the funds deposited hereunder by Tenant
to any purchaser of Landlord's interest in the Premises and thereupon Landlord
shall be discharged from any further liability with respect to such deposit.
This provision shall also apply to any subsequent transfers.
9.4 Provided Tenant is not then in default the security deposit,
or any balance thereof, shall be returned to Tenant within two (2) weeks after
the expiration or earlier termination of this Lease.
10. USE.
10.1 Tenant shall use the Premises for the purpose set forth in
Section 2.1.9 and shall not use the Premises, or permit or suffer the Premises
to be used, for any other purpose without the prior written consent of Landlord,
which shall not be unreasonably withheld, conditioned or delayed.
10.2 Tenant shall not use or occupy the Premises in violation of
law or of the certificate of occupancy issued for the Building, and shall, upon
five (5) days' written notice from Landlord, discontinue any use of the Premises
which is declared by any governmental authority having jurisdiction to be a
violation of law or of said certificate of occupancy. Tenant shall comply with
any direction of any governmental authority having jurisdiction which shall, by
reason of the nature of Tenant's particular use or occupancy of the Premises,
impose any duty upon Tenant or Landlord with respect to the Premises or with
respect to the use or occupation thereof.
10.3 Tenant shall not do or permit to be done anything which
will invalidate or increase the cost of any fire, extended coverage or any other
insurance policy covering the Building and Project and shall comply with all
rules, orders, regulations, and requirements of the insurers of the Building and
Project and Tenant shall promptly upon demand reimburse Landlord for any
additional premium charged for such policy by reason of Tenant's failure to
comply with the provisions of this Section.
10.4 Tenant shall keep all doors opening onto public corridors
closed, except when in use for ingress and egress.
10.5 No awnings or other projection shall be attached to any
outside wall of the Building. Neither the interior nor exterior of any windows
shall be coated or otherwise sunscreened without the express written consent of
Landlord, which shall not be unreasonably withheld, conditioned or delayed, nor
shall any bottles, parcels, or other articles be placed on the windowsills.
10.6 Tenant may install at its expense a Project-standard sign
on the exterior of the Building next to the entrance to the Premises. Any
current signs previously installed by Tenant are acceptable to Landlord and
shall be permitted to remain through the Term of the Lease.
10.7 Tenant shall not do or permit anything to be done in or
about the Premises
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which shall in any way obstruct or materially interfere with the rights of other
tenants or occupants of the Building, or injure them, or use or allow the
Premises to be used for unlawful purpose, nor shall Tenant cause, maintain or
permit any nuisance or waste in, on, or about the Premises.
11. BROKERS.
11.1 Tenant represents and warrants that it has had no dealings
with any real estate broker or agent in connection with the negotiation of this
Lease other than The Irving Hughes Group, which broker represents Tenant and not
Landlord, and that it knows of no other real estate broker or agent (other than
Landlord's broker, CB Richard Ellis) who is or might be entitled to a commission
in connection with this Lease.
11.2 Tenant represents and warrants that no other broker or
agent has made any representation or warranty relied upon by Tenant in Tenant's
decision to enter into this Lease other than as contained in this Lease.
11.3 The employment of brokers by Landlord is for the purpose of
solicitation of offers of lease from prospective tenants and no authority is
granted to any broker to furnish any representation (written or oral) or
warranty from Landlord unless placed within this Lease. Landlord is executing
this Lease does so in reliance upon Tenant's representations and warranties
contained within Sections 11.1 and 11.2.
12. HOLDING OVER.
12.1 If, with Landlord's consent, Tenant holds possession of all
or any part of the Premises after the term of this Lease, Tenant shall become a
tenant from month-to-month upon the date of such expiration or earlier
termination, and in such case Tenant shall continue to pay in accordance with
Article 6 the Basic Annual Rent as adjusted from the Term Commencement Date in
accordance with Article 7, and such month-to-month tenancy shall be subject to
every other term, covenant and agreement contained herein.
12.2 If Tenant remains in possession of the Premises after the
expiration or earlier termination of the term hereof without the express written
consent of Landlord, Tenant shall become a tenant at sufferance upon the terms
of this Lease except that monthly rental shall be equal to one hundred twenty
five percent (125%) of the monthly rental in effect during the last thirty (30)
days of the Lease term.
12.3 Acceptance by Landlord of rent after such expiration of
earlier termination shall not result in a renewal or reinstatement of this
Lease.
12.4 The foregoing provisions of this Article 12 are in addition
to and do not affect Landlord's right to re-entry or any other rights of
Landlord hereunder or as otherwise provided by law.
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13. TAXES ON TENANT'S PROPERTY.
13.1 Tenant shall pay before delinquency taxes levied against
any personal property or trade fixtures placed by Tenant in or about the
Premises.
13.2 If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or, if the assessed
valuation of the Building is increased by the inclusion therein of a value
attributable to Tenant's personal property or trade fixtures, and if Landlord
after written notice to Tenant pays the taxes based upon such increase in the
assessed valued, then Tenant shall upon demand repay to Landlord the taxes so
levied against Landlord.
14. CONDITION OF PREMISES.
14.1 Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty with respect to the condition
of the Premises or the Building or Project except as set forth herein, or with
respect to the suitability for the conduct of Tenant's business. To the best of
Landlord's knowledge, the Building, Project and Premises were constructed in
compliance with all applicable laws at that time.
15. COMMON AREAS AND PARKING FACILITIES.
15.1 Tenant shall have the nonexclusive right, in common with
others, to use the Common Areas, subject to reasonable rules and regulations
adopted by Landlord and attached hereto as Exhibit "C" together with such other
reasonable and nondiscriminatory rules and regulations as are hereafter
promulgated by Landlord (the "Rules and Regulations"); provided, however, that
no changes in the Rules and Regulations shall increase the Rent or costs to
Tenant or deprive Tenant of any of its rights under this Lease. Notwithstanding
anything to the contrary contained herein or in the Rules and Regulations, if
there is any conflict between the terms and conditions of this Lease and the
Rules and Regulations, the provisions of this Lease shall prevail.
15.2 Tenant agrees not to overburden the parking facilities and
agrees to cooperate with Landlord and other tenants in the use of parking
facilities. Landlord reserves the right to determine that parking facilities are
becoming overcrowded. Upon such determination, Landlord may allocate parking
spaces among Tenant and other tenants in a fair and equitable manner based on
each Tenant's pro rata share of space leased at the project. In the alternative,
if Landlord determines that Tenant's customers, clients, or invitees appear to
be using more than the number of parking spaces that would otherwise be
attributable to a reasonable number of parking spaces for Tenant's use, Landlord
may require Tenant and its employees to obtain additional parking outside the
Project to reduce any overburdening caused by Tenant. However, nothing in this
Section is intended to create an affirmative duty on Landlord's part of monitor
parking. Tenant shall have exclusive use on one (1) marked space through the
Term of the Lease.
15.3 Landlord reserves the right to modify Common Areas
including the right to
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add or remove real property, provided no such change is of the nature to have a
material adverse effect upon Tenant's use and enjoyment of Premises or Common
Area, including access to and from the Premises and parking in the Common Area.
16. UTILITIES AND SERVICES.
16.1 Tenant shall pay, prior to delinquency, for all water, gas,
heat, light, power, telephone and other utilities supplied to the Premises,
together with any taxes thereon. If any such utility is not separately metered
to Tenant, Tenant shall pay its proportionate share of all charges jointly
metered with other premises based on the square footage of the Premises not
separately metered over the square footage of the other premises that share a
meter with Tenant's Premisesas part of its share of Operating Expenses.
16.2 Landlord shall not be liable for, nor shall any eviction of
Tenant result from, Landlord's failure to furnish any such utility or service
when such failure is caused by accident, breakage, repairs, strikers, lockouts
or other labor disturbances or labor disputes of any character, governmental
regulation, moratorium or other governmental action, inability despite the
exercise of reasonable diligence or by any other cause beyond Landlord's
reasonable control; provided, if such failure continues for more than five (5)
consecutive days or more than ten (10) days during any twelve (12) month period,
Tenant shall be entitled to an abatement of Rent during the period of such
interruption of utilities or services (but shall pay to Landlord proceeds of
insurance, if any, covering any such Rent during the period of interruption).
16.3 Tenant shall not, without the prior written consent of
Landlord, which shall not be unreasonably withheld, conditioned or delayed, use
any device in the Premises, including but without limitation, data processing
machines, which will in any way increase the amount of electricity or water
usually furnished or supplied for the use set forth in Section 2.1.9. Landlord
acknowledges that as of the date of this Lease, all equipment being used by
Tenant is acceptable.
17. ALTERATIONS.
17.1 Tenant shall make no alterations, additions or improvements
in or to the Premises costing in excess of $10,000 other than wall coverings,
paneling, built-in cabinet work, installation of movable furniture, and trade
fixtures, without Landlord's prior written consent, which shall not be
unreasonably withheld, conditioned or delayed, and then only by contractors or
mechanics approved by Landlord, which approval shall not be unreasonably
withheld, conditioned or delayed.
17.2 Tenant agrees that there shall be no material construction
of partitions or other obstructions which materially interferes with access to
mechanical installation or service facilities of the Building or materially
interfere with the moving of Landlord's equipment to or from the enclosures
containing said installations or facilities.
17.3 Tenant agrees that any work by Tenant shall be accomplished
in such a manner as to permit any fire sprinkler system and fire water supply
lines to remain fully operable at all times.
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17.4 All such work shall be done at such times and in such
manner as Landlord may from time to time reasonably designate. Tenant covenants
and agrees that all work done by Tenant shall be performed in full compliance
with all laws, rules, orders, ordinances, directions, regulations, and
requirements of all governmental agencies, offices, departments, bureaus and
boards having jurisdiction, and in full compliance with the rules, orders,
directions, regulations, and requirements of any applicable fire rating bureau.
Tenant shall provide Landlord with "as-built" plans showing any change in the
Premises.
17.5 Before commencing any work, Tenant shall give Landlord at
least five (5) days' prior written notice of the proposed commencement of such
work and shall, if required by Landlord for any work in excess of $50,000,
secure at Tenant's own cost and expense a completion and lien indemnity bond,
reasonably satisfactory to Landlord, for said work.
17.6 All alterations, decorations, fixtures, additions and
improvements attached to or built into the Premises, made by either party,
including (without limiting the generality of the foregoing) all wallcovering,
paneling, and built-in cabinet work (unless removable as trade fixtures), shall,
unless Landlord elects otherwise, become the property of Landlord upon the
expiration or earlier termination of the term of this Lease, and shall remain
upon and be surrendered with the Premises as a part thereof.
17.7 Tenant shall repair any damage to the Premises caused by
Tenant's removal of any property from the Premises.
17.8 All articles of personal property and all business and
trade fixtures, machinery and equipment, fume hoods, glass wash equipment,
furniture and movable partitions owned by Tenant or installed by Tenant at its
expense in the Premises shall be and remain the property of Tenant and may be
removed by Tenant at any time during the term of this Lease, provided Tenant pay
for any damage to the Premises caused by such removal. If Tenant shall fail to
remove all of its effects from the Premises prior to termination of this Lease,
then Landlord may, at its option, remove the same in any manner that Landlord
shall choose, and store said effects without liability to Tenant for loss
thereof or damage thereto, and Tenant agrees to pay Landlord within 30 days
after demand any expenses incurred by such removal and storage or Landlord may,
at its option, after 30 days, sell said property or any of the same, at private
sale, for such price as Landlord may obtain and apply the proceeds of such sale
against any amounts due under this Lease from Tenant to Landlord and against any
expenses incident to the removal, storage and sale of said personal property.
17.9 Notwithstanding any other provision of this Article 17 to
the contrary, in no event may Tenant remove any improvement from the Premises as
to which Landlord contributed payment without Landlord's prior written consent.
18. REPAIRS AND MAINTENANCE.
18.1 Landlord shall repair and maintain the Building and
Project, including the
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structural and exterior portions and Common Areas of the Building and Project,
and including roofing and covering materials, the plumbing, fire sprinkler
system (if any), water, sewer, heating, ventilating, air conditioning, elevator,
and electrical and all mechanical and utility systems, installed or furnished by
Landlord in a first-class condition, and to comply with applicable laws.
18.2 Except for services of Landlord, if any, required by
Section 18.1, Tenant shall at Tenant's sole cost and expense keep the Premises
in good condition and repair, damage thereto from causes beyond the reasonable
control of Tenant and ordinary wear and tear excepted. Tenant shall upon the
expiration or sooner termination of the term hereof surrender the Premises to
Landlord in the same condition as when received, ordinary wear and tear damage
from causes beyond the reasonable control of Tenant excepted. Landlord shall
have no obligation to alter, remodel, improve, repair, decorate or paint the
Premises or any part thereof during the term or any extended term of the Lease.
Landlord shall also maintain and repair any damage to the Premises caused by
Landlord or its agents or employees' negligence, fault or breach of duty.
18.3 Landlord shall not be liable for any failure to make any
repairs or to perform any maintenance which is an obligation of Landlord unless
such failure shall persist for an unreasonable time after written notice of the
need of such repairs or maintenance is given to Landlord by Tenant. Except as
provided in Articles entitled, "Damage or Destruction" and "Eminent Domain" or
as otherwise provided in this Lease, there shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with Tenant's
business arising from the making of any repairs, alterations or improvements in
or to any portion of the Building or the Premises or in or to fixtures,
appurtenances and equipment therein. Tenant waives the rights under Section 1941
and 1942 of the California Civil Code or under any law, statute or ordinance now
or hereafter in effect to make repairs at Landlord's expense.
18.4 Repairs and maintenance under this Article 18 which are
obligations of Landlord are subject to allocation among tenants as Operating
Expenses. However, if the repairs or maintenance are required in whole or in
part because of any neglect, fault of or omissions of any duty by Tenant, its
agents or employees, and the cost of such maintenance and repair is not covered
by insurance maintained by Landlord, Tenant shall pay to Landlord the entire
cost of such maintenance and repairs, not just its Pro Rata Share.
18.5 This Article 18 relates to repairs and maintenance arising
in ordinary course of operation of the Building and any related facilities. In
the event of fire, earthquake, flood, vandalism, war, or similar cause of damage
or destruction this Article 18 shall not be applicable and the provisions of
Article 22 entitled "Damage or Destruction" shall apply and control.
19. LIENS.
19.1 Tenant shall keep the Premises, the Building and the
property upon which the Building is situated free from any liens arising out of
work performed, materials furnished or obligations incurred by Tenant. Tenant
further covenants and agrees that any mechanic's lien filed against the Premises
or against the Building for work claimed to have been done for, or materials
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claimed to have been furnished to Tenant, will be discharged by Tenant, by bond
or otherwise, within thirty (30) days after the filing thereof, at the cost and
expense of Tenant.
19.2 Should Tenant fail to discharge any lien of the nature
described in Section 19.1 when required as set forth therein, Landlord may at
Landlord's election pay such claim or post a bond or otherwise provide security
to eliminate the lien as a claim against title and the cost thereof shall be due
from Tenant as Additional Rent within thirty (30) days after demand.
19.3 In the event Tenant shall lease or finance the acquisition
of office equipment, furnishings, or other personal property of a removable
nature utilized by Tenant in the operation of Tenant's business, Tenant warrants
that any Uniform Commercial Code Financing Statement executed by Tenant will
upon its face or by exhibit thereto indicate that such Financing Statement is
applicable only to removable personal property of Tenant located within the
Premises. In no event shall the address of the Building be furnished on the
statement without qualifying language as to applicability of the lien only to
removable personal property, located in an identified suite held by Tenant.
Should any holder of a Financing Statement executed by Tenant record or place of
record a Financing Statement which appears to constitute a lien against any
interest of Landlord or against equipment which may be located other than within
the Premises, Tenant shall within thirty (30) days after filing such Financing
Statement cause (i) copy of Security Agreement or other documents to which
Financing Statement pertains to be furnished to Landlord to facilitate
Landlord's being in a position to show such lien is not applicable to Landlord's
interest and (ii) its lender to amend documents of record so as to clarify that
such lien is not applicable to any interest of Landlord in the Building or
Project. Landlord agrees to execute landlord's consents and waivers with respect
to any such financing obtained by Tenant that complies with the foregoing
provisions.
20. INDEMNIFICATION AND EXCULPATION.
20.1 Tenant, during the term of this Lease, agrees to indemnify
Landlord against and save Landlord harmless from all demands, claims, causes of
action or judgments, and all reasonable expenses incurred in investigating or
resisting the same (including reasonable attorneys' fees), for injury to person
or to property occurring within the Premises and arising out of Tenant's use and
occupancy of the Premises, except if caused by the willful acts or negligence of
Landlord, or covered by Landlord's insurance (the premiums of which are part of
the Operating Expenses).
20.2 Landlord, during the term of this Lease, agrees to
indemnify Tenant against and save Tenant harmless from all demands, claims,
causes of action or judgments, and all reasonable expenses incurred in
investigating or resisting the same (including reasonable attorney's fees), for
injury to person or property occurring within the Building and Project, except
those occurring within the Premises and except if caused by the willful acts or
negligence of Tenant.
20.3 Notwithstanding any provision of Sections 20.1 and 20.2 to
the contrary, Landlord shall not be liable to Tenant and Tenant assumes all risk
of damage to personal property, including loss of records kept within the
Premises including but not limited to, damage or losses caused by fire,
electrical malfunctions, gas explosion, and water damage of any type including
but not limited
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to broken water lines, malfunction of fire sprinkler system, roof leakage or
stoppages of lines unless and except if such loss is due to willful disregard of
Landlord of written notice of need for a repair for an unreasonable period of
time. Tenant further waives any claim against Landlord for injury to Tenant's
business or loss of income relating to any such damage or destruction of
personal property including any loss of records.
20.4 Landlord shall not be liable for any damages arising from
any act or neglect of any other tenant in the Building.
20.5 Security devices and services, if any, while intended to
deter crime may not in given instances prevent theft or other criminal acts and
it is agreed that Landlord shall not be liable for injuries or losses caused by
criminal acts of third parties. Tenant shall at Tenant's cost obtain insurance
coverages to the extent Tenant desires protection against such criminal acts.
21. INSURANCE - WAIVER OF SUBROGATION.
21.1 Landlord shall carry insurance upon the Building, in an
amount equal to full replacement cost (exclusive of the costs of excavation,
foundations, and footings, and without reference to depreciation taken by
Landlord upon its books or tax returns) or such lesser coverage as Landlord may
elect provided such coverage is not less than ninety percent (90%) of such full
replacement cost or the amount of such insurance Landlord's mortgage lender
requires Landlord to maintain, providing protection against any peril generally
included within the classification "Fire and Extended Coverage" together with
insurance against sprinkler damage (if applicable), vandalism and malicious
mischief. Landlord, subject to availability thereof, may further insure as
Landlord deems appropriate coverages against flood and/or earthquake (but the
cost of flood and earthquake insurance shall not be chargeable to Tenant as
Operating Expenses), loss or failure of building equipment, rental loss during
the period of repair or rebuild, workmen's compensation insurance and fidelity
bonds for employees employed to perform services. Notwithstanding the foregoing,
Landlord may, but shall not be deemed required to, provide insurance as to any
improvements installed by Tenant or which are in addition to the Standard
Improvements customarily furnished by Landlord without regard to whether or not
such are made a part of the Building.
21.2 Landlord shall further carry public liability insurance
with single limit of not less than One Million Dollars ($1,000,000.00) for death
or bodily injury, or property damage with respect to the Project and unrented,
uninsured or insured for less than loss claim, areas of the Building and walks,
drives, parking areas, landscaped areas, and other appurtenances thereto.
21.3 Tenant at its own cost shall procure and continue in effect
from the Term Commencement Date or the date of occupancy, whichever first
occurs, and continuing throughout the term of this Lease (and occupancy by
Tenant, if any, after termination of this Lease) comprehensive public liability
insurance with limits of not less than Two Million Dollars ($2,000,000.00) per
occurrence for death or bodily injury and not less than One Million Dollars
($1,000,000.00) for property damage with respect to the Premises.
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21.4 The aforesaid insurance required of Tenant shall name the
Landlord, its agents and employees, as an additional insured. Said insurance
shall be written by companies authorized to do business in California and rated
AVII or better in Best's Insurance Guide. Each party shall obtain from the
insurance companies or cause the insurance companies to furnish certificates of
coverage to the other party. No such policy shall be cancelable or subject to
reduction of coverage or other modification or cancellation except after thirty
(30) days' prior written notice to the other party from the insurer. Tenant's
policies shall be written as primary policies, not contributing with and not in
excess of the coverage which Landlord may carry. Any policy may be a "blanket
policy" which specifically provides that the amount of insurance shall not be
prejudiced by other losses covered by the policy. Each party shall, at least
twenty (20) days prior to the expiration of such policies, furnish the other
party with renewals or binders. Tenant agrees that if Tenant does not take out
and maintain such insurance, Landlord may (but shall not be required to) procure
said insurance on Tenant's behalf and charge Tenant the premiums for such
policies together with a five percent (5%) handling charge, payable upon demand.
21.5 Subject to Section 20 hereof, Tenant assumes the risk of
damage to any fixtures, goods, inventory, merchandise, equipment, and leasehold
improvements, and Landlord shall not be liable for injury to Tenant's business
or any loss of income therefrom relative to such damage all as more particularly
heretofore set forth within this Lease. Tenant at Tenant's cost shall carry such
insurance as Tenant desires for Tenant's protection with respect to personal
property of Tenant or business interruption.
21.6 In each instance where insurance is to name Landlord as
additional insured, Tenant shall upon written request of Landlord also designate
and furnish certificates so evidencing Landlord as additional insured to (i) any
lender to Landlord holding a security interest in the Building or real property
upon which the Building is situated, and/or (ii) the landlord under any lease
wherein Landlord is tenant of the real property whereupon the Building is
located if the interest of Landlord is or shall become that of a tenant under a
ground lease rather than that of a fee owner, and/or (iii) any management
company retained by Landlord to manage the Project.
21.7 Landlord and Tenant each hereby waive any and all rights of
recovery against the other or against the officers, employees, agents, and
representatives of the other, on account of loss or damage occasioned to such
waiving party or its property or the property of others under its control to the
extent that such loss or damage is insured against, or required to be insured
against, under any fire and extended coverage insurance policy which either may
have in force at the time of such loss or damage. Such waivers to continue as
long as their respective insurers so permit. Any termination of such a waiver
shall be by written notice of circumstances as hereinafter set forth. Landlord
and Tenant upon obtaining the policies of insurance required or permitted under
this Lease shall give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease. If such
policies shall not be obtainable with such waiver or shall be so obtainable only
at a premium over that chargeable without such waiver, the party seeking such
policy shall notify the other thereof, and the latter shall have twenty (20)
days thereafter to either (i) procure such insurance in companies reasonably
satisfactory to the other party or (ii) agree to pay such additional premium (in
the Tenant's case, in the proportion which the area of the Premises bears to the
insured area). If neither (i) nor (ii)
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are done, this Section 21.7 shall have no effect during such time as such
policies shall not be obtainable or the party in whose favor a waiver of
subrogation is desired shall refuse to pay the additional premium. If such
policies shall at any time be unobtainable, but shall be subsequently
obtainable, neither party shall be subsequently liable for a failure to obtain
such insurance until a reasonable time after notification thereof by the other
party. If the release of either Landlord or Tenant, as set forth in the first
sentence of this Section 21.7 shall contravene any law with respect to
exculpatory agreements, the liability of the party in question shall be deemed
not released but shall be secondary to the other's insurer.
21.8 Not more frequently than once each three (3) years,
Landlord may require insurance policy limits to be raised to conform with
requirements of Landlord's lender and/or to bring coverage limits to level then
being required of new tenant of space within the Project.
22. DAMAGE OR DESTRUCTION.
22.1 In the event of a partial destruction of the Building by
fire or other perils covered by extended coverage insurance, not exceeding
twenty-five percent (25%) of the full insurable value thereof, and if the damage
thereto is such that the Building may be repaired, reconstructed or restored
within a period of ninety (90) days from the date of the happening of such
casualty and Landlord will receive insurance proceeds sufficient to cover the
cost of such repairs (except for any deductible amount provided by Landlord's
policy, which deductible amount if paid by Landlord shall be an Operating
Expense), Landlord shall commence and proceed diligently with the work of
repair, reconstruction and restoration and this Lease shall continue in full
force and effect.
22.2 In the event of any damage to or destruction of the
Building other than as provided in Section 22.1, Landlord may elect to repair,
reconstruct and restore the Building, in which case this Lease shall continue in
full force and effect, provided Tenant may elect to terminate if Tenant will not
be either (i) furnished reasonably suitable substitute space during the
restoration period, or (ii) be restored to possession of the Premises within one
hundred twenty (120) days of the date of destruction. If Landlord elects not to
repair, then this Lease shall terminate as of date of destruction.
22.3 Landlord shall give written notice to Tenant of its
election not to repair, reconstruct or restore the Building or Project within
the ninety (90) day period commencing on the date of damage or destruction.
22.4 Upon any termination of this Lease under any of the
provisions of this Article, the parties shall be released thereby without
further obligation to the other from the date possession of the Premises is
surrendered to the Landlord except for items which have theretofore occurred.
22.5 In the event of repair, reconstruction and restoration as
herein provided, the rental provided to be paid under this Lease shall be abated
proportionately based on the extent to which Tenant's use of the Premises is
impaired during the period of such repair, reconstruction or restoration. Tenant
shall not be entitled to any compensation or damages occasioned by any such
damage, repair, reconstruction or restoration.
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22.6 Notwithstanding anything to the contrary contained in this
Article, should Landlord be delayed or prevented from completing the repair or
restoration of the damage to the Premises after the occurrence of such damage or
destruction by reason of acts of God or war, governmental restrictions,
inability to procure the necessary labor or materials, strikes, or other causes
beyond the control of Landlord, the time for Landlord to commence or complete
repairs shall be extended, provided, at the election of Landlord or Tenant,
Landlord shall be relieved of its obligation to make such repairs or restoration
and Tenant shall be released from its obligation under this Lease as of the end
of eight (8) months from date of destruction, if repairs required to provide
Tenant use of the Premises are not then substantially complete. Any such
election shall be by written notice delivered to the other party.
22.7 If Landlord is obligated to or elects to repair or restore
as herein provided, Landlord shall be obligated to make repairs or restoration
only of those portions of the Building and the Premises which were originally
provided at Landlord's expense; the repair and restoration of items not provided
at Landlord's expense shall be the obligation of Tenant. In the event Tenant
elected to upgrade certain improvements from the standard normally provided by
Landlord, Landlord shall upon the need for replacement due to insured loss,
provide only the standard Landlord improvements unless Tenant shall elect to
again upgrade and pay any additional cost of upgrades, except to such extent as
insurance proceeds are adequate to provide such upgrades in addition to
providing for basic reconstruction and standard improvements.
22.8 Notwithstanding anything to the contrary contained in this
Article, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Premises when the damage resulting from any casualty
covered under this Article occurs during the last twelve (12) months of the term
of this Lease or any extension hereof.
23. EMINENT DOMAIN.
23.1 In the event the whole of the Premises, or such part
thereof as shall substantially interfere with the Tenant's use, access and
occupancy thereof, shall be taken for any public or quasi-public purpose by any
lawful power or authority by exercise of the right of appropriation,
condemnation or eminent domain, or sold to prevent such taking, Tenant or
Landlord may terminate this Lease effective as of the date possession is
required to be surrendered to said authority.
23.2 In the event of a partial taking of the Building, the
Project or of drives, walkways, and parking areas serving the Building for any
public or quasi-public purpose by any lawful power or authority by exercise of
right of appropriation, condemnation, or eminent domain, or sold to prevent such
taking, then without regard as to whether any portion of the Premises occupied
by Tenant was so taken, Landlord may elect to terminate this Lease as of such
taking if such taking is of a material nature such as to make it uneconomical to
continue use of the unappropriated portion for purposes of office rentals.
Tenant may elect to terminate this Lease provided such taking is of material
detriment to Tenant's use of the Premises such as the permanent loss of the use
of Suites E - G of 11189 Sorrento Valley Road, or such as might be the case if a
material portion of parking areas serving
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the Building were taken and alternative parking facilities were not available.
In no event shall this Lease be terminated when such a partial taking does not
have a material adverse effect upon Landlord or Tenant or both.
23.3 Tenant shall be entitled to any award which is specifically
awarded as compensation for the taking of Tenant's personal property and
fixtures, including excess tenant improvements which were installed at Tenant's
expense and for costs of Tenant moving to a new location. Except as before set
forth, any award for such taking shall belong to Landlord.
23.4 If upon any taking of the nature described in this Article
23 this Lease continues in effect, then Landlord shall promptly proceed to
restore the Premises, Building, and Project to substantially their same
condition prior to such partial taking. To the extent such restoration is
feasible, the rent shall be abated proportionately on the basis of the
percentage of the rental value of the Premises after such taking and the rental
value of the Premises prior to such taking.
24. DEFAULTS AND REMEDIES.
24.1 Late payment by Tenant to Landlord of Rent and other sums
due will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of which will be extremely difficult and impracticable to ascertain. Such
costs include, not are not limited to, processing and accounting charges and
late charges which may be imposed on Landlord by the terms of any mortgage or
trust deed covering the Premises. Therefore, if any installment of Rent due from
Tenant is not received by Landlord within five (5) days of the date such payment
is due, Tenant shall pay to Landlord an additional sum of five percent (5%) of
the overdue rent as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the costs that Landlord will incur
by reason of late payment by Tenant. In addition to the late charge, Rent not
paid within 5 days of when due shall bear interest from the date due until paid
at the lesser of (i) twelve percent (12%) per annum or (ii) the maximum rate
permitted by law.
24.2 No payment by Tenant or receipt by Landlord of a lesser
amount than the rent payment herein stipulated shall be deemed to be other than
on account of the rent, nor shall any endorsement or statement on any check or
any letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
provided. If at any time a dispute shall arise as to any amount or sum of money
to be paid by Tenant to Landlord, Tenant shall have the right to make payment
"under protest" and such payment shall not be regarded as a voluntary payment,
and there shall survive the right on the part of Tenant to institute suit for
recovery of the payment paid under protest.
24.3 If Tenant fails to pay any sum of money (other than Basic
Annual Rent or Rental Adjustments) required to be paid by it hereunder, or shall
fail to perform any other act on its part to be performed hereunder, Landlord
may, without waiving or releasing Tenant from any
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obligations of Tenant, but shall not be obligated to, make such payment or
perform such act; provided, that such failure by Tenant continued for thirty
(30) days after notice from Landlord demanding performance by Tenant was
delivered to Tenant, or that such failure by Tenant unreasonably interfered with
the use of the Building by any other tenant or with the efficient operation of
the Building, or resulted or could have resulted in a violation of law or the
cancellation of an insurance policy maintained by Landlord. All sums so paid or
incurred by Landlord, together with interest thereon, from the date such sums
were paid or incurred, at the annual rate equal to twelve percent (12%) per
annum or highest rate permitted by law, whichever is less, shall be payable to
Landlord on demand as Additional Rent.
24.4 The occurrence of any one or more of the following events
shall constitute a "Default" hereunder by Tenant:
(a) The failure by Tenant to make any payment of Rent,
as and when due, where such failure shall continue for a period of ten (10) days
after written notice thereof from Landlord to Tenant. Such notice shall be in
lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161;
(b) The failure by Tenant to observe or perform any
obligation other than described in Section 24.4(a) to be performed by Tenant,
where such failure shall continue for a period of thirty (30) days after written
notice thereof from Landlord to Tenant. Such notice shall be in lieu of, and not
in addition to, any notice required under California Code of Civil Procedure
Section 1161; provided that if the nature of Tenant's default is such that it
reasonably requires more than thirty (30) days to cure, then Tenant shall not be
deemed to be in default if Tenant shall commence such cure within said thirty
(30) day period and thereafter diligently prosecute the same to completion;
(c) Tenant makes an assignment for the benefit of
creditors;
(d) A receiver, trustee or custodian is appointed to, or
does, take title, possession or control of all, or substantially all, of
Tenant's assets;
(e) An order for relief is entered against Tenant
pursuant to a voluntary or involuntary proceeding commenced under any chapter of
the Bankruptcy Code;
(f) Any involuntary petition if filed against the Tenant
under any chapter of the Bankruptcy Code and is not dismissed within sixty (60)
days; or
(g) Tenant's interest in this Lease is attached,
executed upon, or otherwise judicially seized and such action is not released
within sixty (60) days of the action.
Notices given under this Section shall specify the
alleged default and shall demand that Tenant perform the provisions of this
Lease or pay the Rent that is in arrears, as the case may be, within the
applicable period to time, or quit the Premises. No such notice shall be deemed
a forfeiture or a termination of this Lease unless Landlord elects otherwise in
such notice.
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24.5 In the event of a Default by Tenant, and at any time
thereafter, with or without notice or demand and without limiting Landlord in
the exercise of any right or remedy which Landlord may have, Landlord shall be
entitled to terminate Tenant's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event Landlord shall
have the immediate right to re-enter and remove all persons and property, and
such property may be removed and stored in a public warehouse or elsewhere at
the cost of, and for the account of Tenants, all without service of notice or
resort to legal process and without being deemed guilty of trespass, or becoming
liable for any loss or damage which may be occasioned thereby. In the event that
Landlord shall elect to so terminate this Lease, then Landlord shall be entitled
to recover from Tenant all damages incurred by Landlord by reason of Tenant's
default, including:
(a) The worth at the time of aware of any unpaid rent
which had been earned at the time of such termination; plus
(b) The worth at the time of aware of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds that portion of such rental loss which Tenant proves could
have been reasonably avoided; plus
(c) The worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss which Tenant proves could have been
reasonably avoided; plus
(d) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligation under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the cost of restoring
the Premises to the condition required under the terms of this Lease; plus
(e) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
As used in Subsections (a) and (b) above, "worth at the
time of award" shall be computed by allowed interest at the rate specified in
Section 24.1. As used in Subsection (c) above, the "worth at the time of award"
shall be computed by taking the present value of such amount, by using the
discount rate of the Federal Reserve Bank of San Francisco at the time of award,
plus one percentage point.
24.6 In the event of a Default by Tenant, and at any time
thereafter, with or without terminating this Lease, and with or without notice
or demand and without limiting Landlord in the exercise of any right or remedy
which Landlord may have, Landlord shall have the immediate right to re-enter and
remove all persons and property, and such property may be removed and stored in
a public warehouse or elsewhere at the cost of, and for the account of Tenant,
all without service of notice or resort to legal process and without being
deemed guilty of trespass, or becoming liable for
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any loss or damage which may be occasioned thereby. No such re-entry shall be
considered or construed to be a forcible entry by Landlord. If Landlord does not
elect to terminate this lease as provided in this Section, then Landlord may,
from time to time, recover all Rent as it becomes due under this Lease. At any
time thereafter, Landlord may elect to terminate this Lease and to recover
damages to which Landlord is entitled.
24.7 In the event Landlord elects to terminate this Lease and
relet the Premises, it may execute any new lease in its own name. Tenant
hereunder shall have no right or authority whatsoever to collect any Rent from
such tenant. The proceeds of any such reletting shall be applied as follows:
First, to the payment of any indebtedness other than
Rent due hereunder from Tenant to Landlord, including, but not limited to,
storage charges or brokerage commissions owing from Tenant to Landlord as the
result of such reletting;
Second, to the payment of the costs and expenses of
reletting the Premises, including reasonable alterations and repairs which
Landlord deems reasonably necessary and reasonable attorneys' fees incurred by
Landlord in connection with the retaking of the Premises and such reletting;
Third, to the payment of rent and other charges due and
unpaid hereunder; and
Fourth, to the payment of future rent and other damages
payable by Tenant under this Lease.
24.8 All rights, options, and remedies of Landlord contained in
this Lease shall be construed and held to be nonexclusive and cumulative.
Landlord shall have the right to pursue any one or all of such remedies or any
other remedy or relief which may be provided by law, whether or not stated in
this Lease. No waiver of any default of Tenant hereunder shall be implied from
any acceptance by Landlord of any rent or other payments due hereunder of any
omission by Landlord to take any action on account of such default if such
default persists or is repeated, and no express waiver shall affect defaults
other than as specified in said waiver.
24.9 Termination of this Lease or Tenant's right to possession
by Landlord shall not relieve Tenant from any liability to Landlord which has
theretofore accrued or shall arise based upon events which occurred prior to the
last to occur of (i) the date of Lease termination or (ii) the date possession
of Premises is surrendered.
24.10 Landlord shall not be in default unless Landlord fails to
perform obligations required of Landlord within a reasonable time, but (except
in case of emergency) in no event later than thirty (30) days after written
notice by Tenant specifying wherein Landlord has failed to perform such
obligation; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance, then Landlord
shall not be in default if Landlord commences performance within such thirty
(30) day period and thereafter diligently prosecutes the same to completion.
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24.11 Notwithstanding anything in the foregoing to the contrary,
if Landlord does not cure or diligently commence to cure a Landlord's default or
breach of any of the provisions of this Lease within thirty (30) days or such
longer period as may be reasonably necessary after written notice from Tenant
(or such lesser time as is reasonable in the event of an emergency) to Landlord
and any mortgagee or lender of landlord that requests notice, specifying such
default or breach, or thereafter fails to diligently complete such cure, any
such default or breach by Landlord shall be grounds for Tenant to elect, at its
option, to, subject to the following provisions, cure Landlord's breach or
default and to deduct the costs of cure plus interest compounded monthly at the
Default Rate from the date incurred until the date recovered from Rent and other
charges thereafter accruing; provided, however, in no event shall Tenant have
the right to deduct the costs of cure from rent if Landlord or its lender or
mortgagee contests in good faith and in writing the existence of any such breach
or default, unless a court of competent jurisdiction or an arbitrator, if
mutually acceptable to the parties, determines that Landlord is in default and
Landlord fails to pay the cost of such cure within twenty (20) days after such
determination. If after Tenant receives such judgment or determination,
Landlord's interest in the Project and the proceeds, income and rent received
from the Project and Tenant's deduction from rent and other charges thereafter
accruing are insufficient to satisfy such judgment of determination, Tenant may
extend the term of this Lease, if necessary, until full credit has been obtained
by Tenant.
25. ASSIGNMENT OR SUBLETTING.
25.1 Except as hereinafter provided, Tenant shall not, either
voluntarily or by operation of law, sell, hypothecate or transfer this Lease, or
sublet the Premises or any part hereof, or permit or suffer the Premises or any
part thereof to be used or occupied as work space, storage space, mailing
privileges, concession or otherwise by anyone other than Tenant or Tenant's
employees, without the prior written consent of Landlord in each instance, which
consent shall not be unreasonably withheld, conditioned or delayed; and
provided, however, Tenant shall be entitled to allow its consultants, customers
and investors to use the Premises for the purposes and use permitted under this
Lease without obtaining Landlord's consent.
25.2 If Tenant is a corporation the shares of which are not
actively traded upon a stock exchange or in the over-the-counter market, a
transfer or series of transfers whereby fifty percent (50%) or more of the
issued and outstanding shares of such corporation are transferred (but excepting
transfers upon deaths of individual shareholders) from a person or persons or
entities who were owners thereof at time of execution of this Lease to persons
or entities who were not owners of shares of the corporation at time of
execution of this Lease shall be deemed an assignment of this Lease; provided,
however, notwithstanding anything to the contrary contained herein, Landlord's
consent shall not be required for a successor in interest to Tenant by merger,
corporate combination or reorganization or sale of assets as long as the
successor in interest assumes the obligations of Tenant under this Lease.
25.3 If Tenant desires to assign this Lease to any entity into
which Tenant is merged, with which Tenant is consolidated, or which acquires all
or substantially all of the assets of Tenant, provided that the assignee first
executes, acknowledges and delivers to Landlord an agreement whereby the
assignee agrees to be bound by all of the covenants and agreements in this Lease
and that
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the assignee shall have a net worth (determined in accordance with generally
accepted accounting principles consistently applied) immediately after such
assignment which is at least equal to the net worth (as so determined) of Tenant
immediately prior to the assignment, then Landlord upon receipt of proof of the
foregoing will consent to the assignment.
25.4 In the event Tenant desires to assign, sublease,
hypothecate or otherwise transfer this Lease or sublet the Premises other than
pursuant to Sections 25.1, 25.2 or 25.3, then at least fifteen (15) days, but
not more than one hundred eighty (180) days, prior to the date when Tenant
desires the assignment or sublease to be effective (the "Assignment Date"),
Tenant shall give Landlord a notice ("the Assignment Notice") which shall set
forth the name, address and business of the proposed assignee or sublessee,
information (including references) concerning the character of the proposed
assignee or sublessee (to the extent reasonably available), the Assignment Date,
any ownership or commercial relationship between Tenant and the proposed
assignee or sublessee, and the consideration and all other material economic
terms and conditions of the proposed assignment or sublease in reasonable
detail.
25.5 Landlord in making its determination as to whether consent
should be given to a proposed assignment or sublease, may give consideration to
the successor's ability to perform the financial obligations of Tenant under
this Lease (notwithstanding the assignor remaining liable for Tenant's
performance), any change in use which such successor proposes to make in use of
Premises and desire of Landlord to exercise rights under Section 25.8 or 25.9 to
obtain cancellation of this Lease. In no event shall Landlord be deemed to be
unreasonable for declining to consent to a transfer to a successor of poor
reputation, lacking financial qualification, or seeking change in use, not by
determination to elect to recapture space under the provision of Sections 25.8
and 25.9. However, if Landlord fails to object to a proposed assignment or
sublease within fifteen (15) days after Tenant's written request for consent,
Landlord shall be deemed to have consented to the proposed assignment.
25.6 Any sale, assignment, hypothecation or transfer of this
Lease or subletting of the Premises that is not in compliance with the
provisions of this Article 25 shall be void and shall, at the option of
Landlord, terminate this Lease.
25.7 The consent by Landlord to an assignment or subletting
shall not relieve Tenant or any assignees of this Lease or sublessee of the
Premises from obtaining the consent of Landlord to any further assignment or
subletting or as releasing Tenant or any assignee or sublessee of Tenant from
full and primary liability.
25.8 If Tenant delivers to Landlord an Assignment Notice
indicating a desire to assign, sell, hypothecate or transfer this Lease to an
assignee other than as provided within Sections 25.2 or 25.3, then Landlord
shall have the option, exercisable by giving notice to Tenant at any time within
fifteen (15) days after Landlord's receipt of the Assignment Notice, to
terminate this Lease as of the date specified in the Assignment Notice as the
Assignment Date. If Landlord exercises such option, this Lease and the term and
estate hereby granted shall terminate as of the Assignment Date. No failure of
Landlord to exercise such option to terminate this Lease shall be deemed to be
Landlord's consent to the proposed assignment.
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25.9 In the event Tenant give notice of intention to sublease
and the sublease by itself or taken together with prior sublease(s) covers or
totals substantially all of the Usable Area in the Premises and is for the
period greater than sixty-five percent (65%) of the period remaining in the term
of this Lease as of the time of the date of such sublease, then Landlord shall
have the right, to be exercised by notice given to Tenant within fifteen (15)
days after receipt of Tenant's notice to recapture the space described in the
sublease. If such recapture notice is given, it shall serve to cancel and
terminate this Lease as of the proposed effective date of such sublease.
25.10 If Tenant sublets, with the consent of Landlord, the
Premises or any portion thereof, then one-half (1/2) of any net consideration
(after reimbursing Tenant for the cost of subleasing, including but not limited
to brokerage commissions, tenant improvement allowance, free rent, lease
assumption and other subtenant concessions) paid by the sublessee for the
portion of the Premises being sublet that exceeds one hundred percent (100%) of
the Basic Annual Rent and Additional Rental for such portion of the Premises
being sublet shall be due, owing and payable from Tenant to Landlord when paid
or owing under the sublease by the sublessee. For the purpose of this Section
the rent for each square foot of the Premises shall be deemed equal.
25.11 If Tenant shall sublet the Premises or any part Tenant
hereby immediately and irrevocably assigns to Landlord, as security for Tenant's
obligations under this Lease, all rent from any subletting of all or a part of
the Premises; except that, until the occurrence of an act of default by Tenant,
Tenant shall have the right to collect such rent.
25.12 Notwithstanding any subletting or assignment, Tenant shall
remain fully and primarily liable for the payment of all rental and other sums
due, or to become due hereunder, and for the full performance of all other
terms, conditions, and covenants to be kept and performed by Tenant, unless
Landlord exercises its right of recapture under Sections 25.8 or 25.9 above. The
acceptance of rent or any other sum due hereunder, or the acceptance of
performance of any other term, covenant, or condition hereof, from any other
person or entity shall not be deemed to be a waiver of any of the provisions of
this Lease or a consent to any subletting or assignment of the Demises Premises.
26. ATTORNEYS' FEES.
26.1 If either party becomes a party to any litigation
concerning this Lease, the Premises, or the Building or Project in which the
Premises are located, by reason of any act or omission of the other party or its
authorized representatives, and not by any act or omission of the party that
becomes a party to that litigation or any act or omission of its authorized
representatives, the party that causes the other party to become involved in the
litigation shall be liable to that party for reasonable attorneys' fees and
court costs incurred by it in the litigation.
26.2 If either party commences an action against the other party
arising out of or in connection with this Lease, the prevailing party shall be
entitled to have and recover from the losing party reasonable attorneys' fees
and costs of suit.
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27. BANKRUPTCY.
27.1 In the event a debtor, trustee, or debtor in possession
under the Bankruptcy Code, or other person with similar rights, duties and
powers under any other law, proposes to cure any default under this Lease or to
assume or assign this Lease, and is obliged to provide adequate assurance to
Landlord that (i) a default will be cured, (ii) Landlord will be compensated for
its damages arising from any breach of this Lease, or (iii) future performance
under this Lease will occur, then adequate assurance shall include any or all of
the following, as designated by Landlord:
(a) Those acts specified in the Bankruptcy Code or other
law as included within the meaning of adequate assurance, even if this Lease
does not concern a shopping center or other facility described in such laws;
(b) A prompt cash payment to compensate Landlord for any
monetary defaults or damages arising from a breach of this Lease;
(c) A cash deposit in an amount at least equal to the
Security Deposit originally required at time of execution of this Lease;
(d) The creditworthiness and desirability, as a tenant,
of the person assuming this Lease or receiving an assignment of this Lease, at
least equal to Landlord's customary and usual creditworthiness requirements and
desirability standards in effect at the time of the assumption or assignment;
and
(e) The assumption or assignment of all of Tenant's
interest and obligations under this Lease.
28. DEFINITION OF LANDLORD.
28.1 The term "Landlord" as used in this Lease, so far as
covenants or obligations on the part of Landlord are concerned, shall be limited
to mean and include only Landlord or the successor-in-interest of Landlord under
this Lease at the time in question. In the event of any transfer, assignment or
the conveyance of Landlord's title or leasehold, the Landlord herein named (and
in case of any subsequent transfers or conveyances, the then grantor) shall be
automatically freed and relieved from, and after the date of such transfer,
assignment or conveyance of all liability for the performance of any covenants
or obligations contained in this Lease thereafter to be performed by Landlord
and, without further agreement, the transferee of such title or leasehold shall
be deemed to have assumed and agreed to observe and perform any and all
obligations of Landlord hereunder, during its ownership or ground lease of the
Premises. Landlord may transfer its interest in the Premises or this Lease
without the consent of Tenant and such transfer or subsequent transfer shall not
be deemed a violation on the part of Landlord or the then grantor of any of the
terms or conditions of this Lease.
29. ESTOPPEL CERTIFICATE.
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29.1 The parties shall within ten (10) days of written notice
from the other party, execute, acknowledge and deliver to the requesting party a
statement in writing substantially in the form attached to this Lease as Exhibit
"D" with the blanks filled in, and on any other form reasonably requested by a
proposed lender, investor or purchaser, (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease as so modified is in full force
and effect) and the dates to which the rental and other charges are paid in
advance, if any, (ii) acknowledging that there are not, to such party's
knowledge, any uncured defaults on the part of the other party hereunder, or
specifying such defaults if any are claimed and (iii) setting forth such further
information with respect to this Lease or the Premises as may be requested
thereon. Any such statement may be relied upon by any prospective purchaser,
investor or encumbrancer of all or any portion of the real property of which the
Premises are a part.
30. [INTENTIONALLY LEFT BLANK]
31. LIMITATION OF LANDLORD'S LIABILITY.
31.1 If Landlord is in default of this Lease, and as a
consequence, Tenant recovers a money judgment against Landlord, the judgment
shall be satisfied only out of the Project and rents, issues and proceeds of
sale received on execution of the judgment and levy against the right, title,
and interest of Landlord in the Building and Project of which the Premises are a
part, and out of rent or other income from such real property receivable by
Landlord or out of the consideration received by Landlord from the sale or other
disposition of all or any part of Landlord's right, title,, and interest in the
Building and Project of which the Premises are a part.
31.2 Landlord shall not be personally liable for any deficiency.
If Landlord is a partnership or joint venture, the partners of such partnership
shall not be personally liable and no partner of Landlord shall be sued or named
as a party in any suit or action or service of process be made against any
partner of Landlord except as may be necessary to secure jurisdiction of the
partnership or joint venture. If Landlord is a corporation, the shareholders,
directors, officers, employees, and/or agents of such corporation shall not be
personally liable and no shareholder, director, officer, employee or agent of
Landlord shall be sued or named as a party in any suit or action or service of
process made against any shareholder, director, officer, employee or agent of
Landlord. No partner, shareholder, director, employee, or agent of Landlord
shall be required to answer or otherwise plead to any service of process and no
judgment will be taken or writ of execution levied against any partner,
shareholder, director, employee or agent of Landlord.
31.3 Each of the covenants and agreements of this Article 31
shall be applicable to any covenant or agreement either expressly contained in
this Lease or imposed by statute or by common law.
32. PROJECT CONTROL BY LANDLORD.
32.1 Landlord reserves full control over the Building and
Project to the extent not inconsistent with Tenant's quiet enjoyment and use of
Premises. This reservation includes but is not
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limited to right of Landlord to subdivide the Project, convert the Building and
or other buildings within the Project to condominium units, the right to grant
easements and licenses to others and the right to maintain or establish
ownerships of Building separate from fee title to land; provided, however, the
exercise of any such rights by Landlord shall not interfere with Tenant's access
to or use of the Premises or Common Area or increase Operating Expenses or
Tenant's Rent or obligations under the Lease or reduce Tenant's rights under
this Lease.
32.2 Tenant shall, should Landlord so request, promptly join
with Landlord in execution of such documents as may be appropriate to assist
Landlord to implement any such action provided Tenant need not execute any
document which is of nature wherein liability is created in Tenant or if by
reason of the terms of such document, Tenant will be deprived of the quiet
enjoyment and use of the Premises or Common Area as granted by this Lease.
33. QUIET ENJOYMENT.
33.1 So long as Tenant is not in default, Landlord covenants
that Landlord or anyone acting through or under Landlord will not disturb
Tenant's occupancy of the Premises except as permitted by the provisions of this
Lease.
34. QUITCLAIM DEED.
34.1 Tenant shall execute and deliver to Landlord on the
expiration or termination of this Lease, immediately on Landlord's request, a
quitclaim deed to the Premises and Project or other document in recordable form
suitable to evidence of record termination of this Lease.
35. RULES AND REGULATIONS.
35.1 Tenant shall faithfully observe and comply with the Rules
and Regulations attached hereto as Exhibit "C" and all reasonable and
nondiscriminatory modifications thereof and additions thereto from time to time
put into effect by Landlord. Landlord shall not be responsible to Tenant for the
violation or non-performance by any other tenant or any agent, employee or
invitee thereof of any of said Rules and Regulations.
36. SUBORDINATION AND ATTORNMENT.
36.1 This Lease shall be subject and subordinate to the lien of
any mortgage, deed of trust, or lease in which Landlord is tenant now or
hereafter in force against the Project and Building of which the Premises are a
part, and to all advances made or hereafter to be made upon the security thereof
without the necessity of the execution and delivery of any further instruments
on the part of Tenant to effectuate such subordination, provided that the
lienholder, beneficiary, or mortgagee has previously executed and delivered to
Tenant a non-disturbance, attornment, and subordination agreement in such form
as the lienholder, beneficiary, or mortgagee may request and as the Tenant may
approve, which
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approval will not be unreasonably withheld, setting forth that so long as Tenant
is not in default hereunder, Landlord's and Tenant's rights and obligations
hereunder shall remain in force and Tenant's right to possession shall be
upheld. Furthermore, Landlord shall provide to Tenant, within forty-five (45)
days after execution of this Lease by both parties, such a nondisturbance
agreement from the beneficiary of any mortgage presently encumbering the
Project. Landlord represents, covenants and warrants to Tenant that there are no
liens or encumbrances against the Building or Project except for a deed of trust
securing a loan from AMREIT I, Inc., and that Landlord will obtain a
Nondisturbance Agreement from AMREIT I, Inc.
36.2 Notwithstanding the foregoing, Tenant shall execute and
deliver upon demand such further instrument or instruments evidencing such
subordination of this Lease to the lien of any such mortgage or mortgages or
deeds of trust as may be required by Landlord; provided Landlord shall obtain a
Nondisturbance Agreement from any holder of a monetary encumbrance prior to this
Lease. However, if any such mortgagee or beneficiary so elects, this Lease shall
be deemed prior in time to any such mortgage or deed of trust upon or including
the Premises regardless of date and Tenant will execute a statement in writing
to such effect at Landlord's request.
36.3 In the event any proceedings are brought for foreclosure,
or in the event of the exercise of the power of sale under any mortgage or deed
of trust made by the Landlord covering the Premises, the Tenant shall at the
election of the purchaser at such foreclosure or sale attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Landlord
under this Lease, provided any such purchaser enters into a Nondisturbance
Agreement substantially in the form of Exhibit "B" attached hereto.
37. SURRENDER.
37.1 No surrender of possession of any part of the Premises
shall release Tenant from any of its obligations hereunder unless accepted by
Landlord.
37.2 The voluntary or other surrender of this Lease by Tenant
shall not work a merger, unless Landlord consents and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies.
37.3 The voluntary or other surrender of any ground or
underlying lease that now exists or may hereafter be executed affecting the
Building or Project, or a mutual cancellation, thereof, or of Landlord's
interest therein, shall not work a merger and shall, at the option of the
successor of Landlord's interest in the Building or Project, operate as an
assignment of this Lease.
38. WAIVER AND MODIFICATION.
38.1 No provision of this Lease may be modified, amended or
added to except by an agreement in writing. The waiver by Landlord of any breach
of any term, covenant or condition herein contained shall not be deemed to be a
waiver of any subsequent breach of the same or any other term,
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covenant or condition herein contained.
39. WAIVER OF JURY TRIAL AND COUNTERCLAIMS.
39.1 The parties hereto shall and they hereby do waive trial by
jury in any action, proceeding or counterclaim brought by either of the parties
hereto against the other on any matters whatsoever arising out of or in way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Premises, and or any claim of injury or damage. In the event
Landlord commences any proceedings for nonpayment or rent, or any other sums or
amounts due hereunder, Tenant will not interpose any counterclaim or whatever
nature or description in any such proceedings; provided, however, that nothing
contained herein shall be deemed or construed as a waiver of the Tenant's right
to assert such claims in any separate action or actions brought by Tenant.
40. HAZARDOUS MATERIALS.
40.1 Tenant, at its sole cost, shall comply with all federal,
state and local laws, statutes, ordinances, codes, regulations and orders
relating to the receiving, handling, use, storage, accumulation, transportation,
generation, spillage, migration, discharge, release and disposal of Hazardous
Material (as hereinafter defined in Section 40.12 hereof) in or about the
Premises which result from the operations of Tenant or Tenant's assignees,
subtenants, employees, agents, contractor, licensees or invitees. Tenant shall
not cause or permit any Hazardous Material to be brought upon, kept or used in
or about the Premises by Tenant, its agents, employees, contractors, invitees or
subtenants, in a manner or for a purpose prohibited by any federal, state or
local agency or authority. The accumulation of Hazardous Material shall be in
approved containers and removed from the Premises by duly licensed carriers.
40.2 Tenant shall immediately provide Landlord with telephonic
notice, which shall promptly be confirmed by written notice, of any and all
spillage, discharge, release and disposal of Hazardous Material onto or within
the Premises, including the soils and subsurface waters thereof, which by law
must be reported to any federal, state or local agency, and any injuries or
damages resulting directly or indirectly therefrom. Further, Tenant shall
deliver to Landlord each and every notice or order, when said order or notice
identifies a violation which may have the potential to adversely impact the
Premises, received from any federal, state or local agency concerning Hazardous
Material and the possession, use and/or accumulation thereof promptly upon
receipt of each such notice or order by Tenant. Landlord shall have the right,
upon reasonable notice, to inspect and copy each and every notice or order
received from any federal, state or local agency concerning Hazardous Material
and the possession, use and/or accumulation thereof.
40.3 Tenant shall be responsible for and shall indemnify,
protect, defend and hold harmless Landlord and Landlord's Agents from any and
all liability, damages, injuries, causes of action, claims, judgments, costs,
penalties, fines, losses, and expenses which arise during or after the term of
this Lease and which result from Tenant's (or from Tenant's Agents, assignees,
subtenants, employees, agents, contractors, licensees, or invitees) receiving,
handling, use, storage, accumulation, transportation, generation, spillage,
migration, discharge, release or disposal of Hazardous Material in,
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upon or about the Premises, including without limitation (i) diminution in value
of the Premises resulting from to spillage, migration, discharge, release or
improper disposal, (ii) damages for the loss or restriction on use of any
portion or amenity of the Premises, (iii) damages arising from any adverse
impact on marketing of space in the Building due to spillage, migration,
discharge, release, improper disposal or improper use, handling, or storage,
(iv) damages and the costs of remedial work to other property in the vicinity of
the Premises owned by Landlord or an affiliate of Landlord, and (v) consultant
fees, expert fees, and attorneys' fees. Landlord shall be responsible for and
shall indemnify, protect, defend and hold harmless Tenant on the same basis as
above for any claims which result from receipt, handling, use, storage,
accumulation, transportation, generation, spillage, migration, discharge,
release or disposal of Hazardous Material in, upon or about the Premises
resulting from operations of Landlord or Landlord's Agents, assignees,
employees, agents, contractors, licensees or invitees.
40.4 The indemnification pursuant to the preceding Section 40.3
includes, without limiting the generality of Section 40.3, reasonable costs
incurred in connection with any investigation of site conditions, cleanup,
remedial, removal or restoration work required by any federal, state or local
governmental agency or political subdivision because of Hazardous Material
present in the soil, subsoil, ground water, or elsewhere on, under or about the
Premises, or on, under or about any other property in the vicinity of the
Premises owned by Landlord or an affiliate of Landlord. Without limiting the
foregoing, if the presence of any Hazardous Material on the Premises caused or
permitted by Tenant results in any contamination of the Premises, or underlying
soil or groundwater, Tenant shall promptly take all actions at its sole expense
as are necessary to return the Premises to the condition existing prior to the
introduction of any such Hazardous Material, provided that Landlord's approval
of such action shall first be obtained, which approval shall not be unreasonably
withheld so long as such actions would not potentially have any material adverse
long-term or short-term effect on the Premises, except that Tenant shall not be
required to obtain Landlord's prior approval of any action of an emergency
nature reasonably required or any action mandated by a governmental authority,
but Tenant shall give Landlord prompt notice thereof.
40.5 Landlord acknowledges that it is not the intent of this
Article 40 to prohibit Tenant from operating its business as described in
Article 10 or to unreasonably interfere with the operation of Tenant's business.
Tenant may operate its business according to the custom of the industry so long
as the use or presence of Hazardous Material is strictly and properly monitored
according to all applicable governmental requirements. As a material inducement
to Landlord to allow Tenant to use Hazardous Material in connection with its
business, Tenant agrees to deliver to Landlord prior to the Term Commencement
Date a list identifying each type of Hazardous Material to be present in or upon
the Premises and setting forth any and all governmental approvals or permits
required in connection with the presence of Hazardous Material on the Premises
("Hazardous Material Summary") and a copy of the Hazardous Material business
plan prepared pursuant to Health and Safety Code Section 25500 et seq. At
Landlord's request, and at reasonable times, Tenant shall make available to
Landlord the latest available Hazardous Materials Summary and true and correct
copies of the following documents (hereinafter referred to as the "Hazardous
Material Documents") relating to the handling, storage, disposal and emission of
Hazardous Material: permits; approvals; reports and correspondence; storage and
management plans; notice of violations of any laws; plans relating to the
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installation of any storage tanks to be installed in or under the Premises
(provided said installation of tanks shall be permitted only after Landlord has
given Tenant its written consent to do so, which consent may not be unreasonably
withheld); and all closure plans or any other documents required by any and all
federal, state and local governmental agencies and authorities for any storage
tanks installed in, on or about the Premises for the closure of any such tanks.
Tenant shall not be required, however, to provide Landlord with that portion of
any document which contains information of a proprietary nature and which, in
and of itself, does not contain a reference to any Hazardous Material which are
not otherwise identified to Landlord in such documentation, unless any such
Hazardous Material Document names Landlord as an "owner" or "operator" of the
facility in which Tenant is conducting its business. It is not the intent of
this subsection to provide Landlord with information which could be detrimental
to Tenant's business should such information become possessed by Tenant's
competitors. Landlord shall treat all information furnished by Tenant to
Landlord pursuant to this Section 40.5 as confidential and shall not disclose
such information to any person or entity without Tenant's prior written consent,
which consent shall not be unreasonably withheld or delayed, except as required
by law.
40.6 Notwithstanding other provisions of this Article 40, it
shall be a default under this Lease, and Landlord shall have the right to
terminate the Lease and/or pursue its other remedies under Article 24, in the
event that (i) Tenant's use of the Premises for the generation, storage, use,
treatment or disposal of Hazardous Material is in a manner or for a purpose
prohibited by applicable law unless Tenant is diligently pursuing compliance
with such law, (ii) Tenant has been required by any governmental authority to
take remedial action in connection with Hazardous Material contaminating the
Premises if the contamination resulted from Tenant's action or use of the
Premises, unless Tenant is diligently pursuing compliance with such requirement,
or (iii) Tenant is subject to an enforcement order issued by any governmental
authority in connection with the use, disposal or storage of a Hazardous
Material on the Premises, unless Tenant is diligently seeking compliance with
such enforcement order.
40.7 Notwithstanding the provisions of Article 25, if (i) any
anticipated use of the Premises by a proposed assignee or subtenant involves the
generation or storage, use, treatment or disposal of Hazardous Material in any
manner or for a purpose prohibited by any applicable law, (ii) the proposed
assignee or sublessee has been required by any governmental authority to take
remedial action in connection with Hazardous Material contaminating a property
if the contamination resulted from such party's action or use of the property in
question and has failed to take such action, or (iii) the proposed assignee or
sublessee is subject to an enforcement order issued by any governmental
authority in connection with the use, disposal or storage of Hazardous Material
of a type such proposed assignee or sublessee intends to use in the Premises, it
shall not be unreasonable for Landlord to withhold its consent to an assignment
or subletting to such proposed assignee or sublessee.
40.8 The "Phase I Environmental Site Assessment" dated June 1998
prepared by Geocon, shall hereinafter be referred to as the "Base Line Report."
The Base Line Report shall be deemed conclusive as to the condition of the
Premises as of June 1998, at which time Tenant was already in occupancy of the
Demised Premises.
40.9 At any time prior to the expiration or earlier termination
of the term of the
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<PAGE> 33
Lease, Landlord shall have the right to enter upon the Premises at all
reasonable times and at reasonable intervals (with reasonable notice) in order
to conduct appropriate tests regarding the presence, use and storage of
Hazardous Material, and to inspect Tenant's records with regard thereto. Tenant
will pay the reasonable costs of any such test which demonstrates that
contamination in excess of permissible levels has occurred and such
contamination was caused by use of the Premises during the term of the Lease.
Tenant shall correct any deficiencies identified in any such tests in accordance
with its obligations under this Article 40.
40.10 Tenant shall at its own expense cause a Phase I
environmental site assessment of the Premises to be conducted and a report
thereof delivered to Landlord upon the expiration or earlier termination of the
Lease, with such report to be as complete and broad in scope as necessary to
identify any impact on the Premises Tenant's operations might have had
(hereinafter referred to as the "Exit Report"). Tenant shall correct any
deficiencies identified in such report between the Baseline Report and Exit
Report in accordance with its obligations under this Article 40 prior to the
expiration or earlier termination of this Lease. This Article 40 is the
exclusive provision in this Lease regarding clean-up, repairs or maintenance
arising from receiving, handling, use, storage, accumulation, transportation,
generation, spillage, migration, discharge, release or disposal of Hazardous
Material in, upon or about the Premises, and the provisions of Article 18
(Repairs and Maintenance) shall not apply thereto.
40.11 Tenant's obligations under this Article 40 shall survive
the termination of the Lease. Should Tenant employ any period of time after the
expiration or earlier termination of this Lease, notwithstanding the
requirements of Section 40.10 above, to complete the removal from the Premises
of any such Hazardous Material, Tenant shall be a tenant at sufferance subject
to the provisions of Section 12.2 hereof, except that monthly rental shall not
be increased to one hundred twenty five percent (125%) of the Basic Annual Rent
in effect during the last twelve (12) months of the Lease term until ninety (90)
days after the expiration of the term.
40.12 As used herein, the term "Hazardous Material" means any
hazardous or toxic substance, material or waste which is or becomes regulated by
any local governmental authority, the State of California or the United States
Government. The term "Hazardous Material" includes, without limitation, any
material or substance which is (i) defined as a "hazardous waste," "extremely
hazardous waste" or "restricted hazardous waste" under Sections 25515, 25117 or
25122.7, or listed pursuant to Section 25140, of the California Health and
Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii)
defined as a "hazardous substance" under Section 25316 of the California Health
and Safety Code, Division 2, Chapter 6.8 (Carpenter-Presly-Tanner Hazardous
Substance Account Act), (iii) defined as a "hazardous material," hazardous
substance" or "hazardous waste" under Section 25501 of the California Health and
Safety Code, Division 20, Chapter 6.95 (Hazardous Substances), (v) petroleum,
(vi) asbestos, (vii) listed under Article 9 and defined as hazardous or
extremely hazardous pursuant to Article 11 of Title 22 of the California
Administrative Code, Division 4, Chapter 20, (viii) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317), (ix) defined as a "hazardous waste" pursuant to
Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et. seq. (42 U.S.C. Section 6903), or (x) defined as a "hazardous
substance" pursuant to Section
-32-
<PAGE> 34
101 of the Comprehensive Environmental Response Compensation and Liability Act,
42 U.S.C. Section 9601 et. seq. (42 U.S.C. Section 9601).
41. [INTENTIONALLY LEFT BLANK].
42. [INTENTIONALLY LEFT BLANK].
43. MISCELLANEOUS.
43.1 Terms and Headings. Where applicable in this Lease, the
singular includes the plural and the masculine or neuter includes the masculine,
feminine and neuter. The section headings of this Lease are not a part of this
Lease and shall have no effect upon the construction or interpretation of any
part hereof.
43.2 Examination of Lease. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution by and delivery to both Landlord and Tenant.
43.3 Time. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor.
43.4 Covenants and Conditions. Each provision of this Lease
performable by Tenant shall be deemed both a covenant and a condition.
43.5 Consents. Whenever consent or approval of either party is
required, that party shall not unreasonably withhold such consent or approval,
except as may be expressly set forth to the contrary.
43.6 Entire Agreement. The terms of this Lease are intended by
the parties as a final expression of their agreement with respect to the terms
as are included herein, and may not be contradicted by evidence of any prior or
contemporaneous agreement. The Basic Lease Provisions, General Provisions,
Addendum, and Exhibits all constitute a single document and are incorporated
herein.
43.7 Severability. Any provision of this Lease which shall prove
to be invalid, void, or illegal in no way affects, impairs or invalidates any
other provision hereof, and such other provisions shall remain in full force and
effect.
43.8 Recording. Neither Landlord nor Tenant shall record this
Lease or a short form memorandum hereof without the consent of the other.
43.9 Impartial Construction. The language in all parts of this
Lease shall be in all cases construed as a whole according to its fair meaning
and not strictly for or against either Landlord or Tenant.
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<PAGE> 35
43.10 Inurement. Each of the covenants, conditions, and
agreements herein contained shall inure to the benefit of and shall apply to and
be binding upon the parties hereto and their respective heirs, legatees,
devisees, executors, administrators, successors, assigns, sublessees, or any
person who may come into possession of said Premises or any part thereof in any
manner whatsoever. Nothing in this Section 43.10 contained shall in any way
alter the provisions against assignment or subletting in this Lease provided.
43.11 Notices. Any notice, consent, demand, bill, statement, or
other communication required or permitted to be given hereunder must be in
writing and may be given by personal delivery or by mail, and if given by mail
shall be deemed sufficiently given three (3) days after time when deposited in
United States Mail is sent by registered or certified mail, addressed to Tenant
at the Premises, or to Tenant or Landlord at the addresses shown in Section
2.1.11 of the Basic Lease Provisions. Either party may, by notice to the other
given pursuant to this Section, specify additional or different addresses for
notice purposes.
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first above written.
LANDLORD:
NEXUS SORRENTO GLEN LLC
By: /S/ MICHAEL J. REIDY
------------------------------
Michael J. Reidy
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<PAGE> 36
TENANT:
GENETRONICS, INC.
a California Corporation
By: MARTIN NASH
------------------------------
Its: CEO
------------------------
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<PAGE> 37
EXHIBIT "A"
FLOORPLAN OF PREMISES
<PAGE> 38
EXHIBIT "B"
NON-DISTURBANCE AND ATTORNMENT
AGREEMENT (DEED OF TRUST)
<PAGE> 39
EXHIBIT "C"
RULES AND REGULATIONS
1. Except as specifically provided in the Lease to which these Rules and
Regulations are attached, no sign, placard, picture, advertisement, name or
notice shall be installed or displayed on any part of the outside or inside of
the Premises without the prior written consent of Landlord. Landlord shall have
the right to remove, at Tenant's expense and without notice, any sign installed
or displayed in violation of this rule. All approved signs or lettering on doors
and walls shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person approved of by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades,
screens or hanging plants or other similar objects attached to or used in
connection with any window or door of the Premises, or placed on any window sill
which violates Article 10 of the Lease Tenant shall remove said object.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators, or stairways of the Premises or the Building.
The halls, passages, exits, entrances, elevators, escalators and stairways are
not open to the general public, but are open, subject to reasonable regulation,
to Tenant's business invitees. Landlord shall in all cases retain the right to
control and prevent access thereto of all persons whose presence in the
reasonable judgment of Landlord would be prejudicial to the safety, character,
reputation and interest of the Premises or of the Building and its tenants;
provided that nothing herein contained shall be construed to prevent such access
to persons with whom any tenant normally deals in the ordinary course of its
business, unless such persons are engaged in illegal or unlawful activities.
4. Except as provided in the Lease and except as prohibited by Tenant's
security regulations, Landlord will furnish Tenant, free of charge, with two
keys to each door and lock in the Premises. Landlord may make a reasonable
charge for any additional keys.
5. If Tenant requires telegraphic, burglar alarm or similar services, it
shall first obtain, and comply with, Landlord's instruction in their
installation.
6. No deliveries shall be made which impede or interfere with other
tenants or the operation of the Complex. Notwithstanding the foregoing, Tenant
may receive deliveries on a 24-hour basis.
7. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designated to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Premises. Heavy objects shall, if considered necessary by
Landlord, stand on such platforms as determined by Landlord to be necessary to
properly distribute the weight, which platforms shall be provided at Tenant's
expense. Business machines and mechanical equipment belonging to Tenant, which
cause noise or vibration that may be transmitted to the structure of the
<PAGE> 40
Premises to such a degree as to be objectionable to Landlord or to any tenants
in the Building shall be placed and maintained by Tenant, at Tenant's expense,
on vibration eliminators or other devices sufficient to eliminate noise or
vibration. The persons employed to move such equipment in or out of the Building
must be acceptable to Landlord. Landlord will not be responsible for loss of, or
damage to, any such equipment or other property from any cause, and all damage
done to the Building by maintaining or moving such equipment to other property
shall be repaired at the expense of Tenant.
8. Except with the prior written consent of Landlord, Tenant shall not
use any method of heating or air-conditioning other than that supplied by
Landlord.
9. Landlord reserves the right, upon thirty (30) days prior written
notice, without liability to Tenant, to change the name and street address of
the Premises and/or the Building, provided that Landlord shall reimburse Tenant
for the cost of replacing stationery in Tenant's possession or irrevocably
ordered as part of the date of the notice.
10. Tenant shall close and lock the doors of its Premises and entirely
shut off all water faucets or other water apparatus before Tenant and its
employees leave the Premises. Tenant shall be responsible for any damage or
injuries sustained by other tenants or occupants of the Building or by Landlord
for noncompliance with this rule.
11. Tenant shall not obtain for use on the Premises food (other than
vending machines), beverage (other than vending machines), towel (subject to
paragraph 25 of these Rules and Regulations) or other similar services or accept
barbering or bootblacking services upon the Premises, except as may be fixed by
Landlord.
12. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose employees or
invitees, shall have caused it.
13. Tenant shall not sell, or permit the sale at retail of newspapers,
magazines, periodicals, theater tickets of any other goods or merchandise to the
general public in or on the Premises. Tenant shall not make any room-to-room
solicitation of business from other tenants in the Building or Project. Tenant
shall not use the Premises for any business or activity other than that
specifically provided for in Tenant's Lease.
14. Except as part of the approved plans or as provided in the Lease, or
with the consent of Landlord, which shall not be unreasonably withheld or
delayed, Tenant shall not install any radio or television antenna, loudspeaker
or other devices on the roof or exterior walls of the Premises. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Premises or elsewhere.
15. Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises or any part
thereof, except in accordance with the provisions
<PAGE> 41
of the Lease pertaining to alterations. Landlord reserves the right to direct
electricians as to where and how telephone and telegraph wires are to be
introduced to the Premises. Tenant shall not affix any floor covering to the
floor of the Premises in any manner except s approved by Landlord. Tenant shall
repair any damage resulting from noncompliance with this rule.
16. Canvassing, soliciting and distribution of handbills or any other
written material, and peddling in the Premises or the Building are prohibited,
and Tenant shall cooperate to prevent such activities.
17. Landlord reserves the right to exclude or expel from the Premises or
the Building any person who, in Landlord's judgment, is intoxicated or under the
influence of liquor or drugs or who is in violation of any of the Rules and
Regulations of the Building.
18. Except as part of the approved space plans or as provided in the
Lease, or with the consent of Landlord, Tenant shall store all its trash and
garbage within its Premises or in other facilities provided by Landlord. Tenant
shall not place in any trash box or receptacle any material which cannot be
disposed of in the ordinary and customary manner of trash and garbage disposal.
All garbage and refuse disposal shall be made in accordance with directions
issued from time to time by Landlord.
19. The Premises shall not be used for the storage of merchandise held
for sale to the general public, or for lodging or for manufacturing except for
manufacturing pilot plants for clinical trial pre-production lots of any kind,
nor shall the Premises be used for any improper, immoral or objectionable
purpose. No cooking shall be done or permitted on the Premises without
Landlord's consent, except that use by Tenant of Underwriters' Laboratory
approved equipment for brewing coffee, tea, hot chocolate and similar beverages
of use of microwave ovens for employees' use shall be permitted, provided that
such equipment and use is in accordance with all applicable federal, state,
county and city laws, codes, ordinances, rules and regulations.
20. Tenant shall not use in any space or in the public halls of the
Premises any hand truck except those equipped with rubber tires and side guards
or such other material handling equipment as Landlord may approve. Tenant shall
not bring any other vehicles of any kind into the Premises.
21. Without the written consent of the Landlord, Tenant shall not use
the name of the Premises or the Building in connection with or in promoting or
advertising the business of Tenant except as Tenant's address.
22. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
23. Employees of Landlord shall not perform any work or do anything
outside of their regular duties unless under special instructions from Landlord,
and no employee of Landlord will admit any person (Tenant or otherwise) to any
office without specific instructions from Landlord.
24. Landlord may waive any one or more of these Rules and Regulations
for the benefit of Tenant or any other tenant, provided such waiver shall not
materially interfere with Tenant's rights
<PAGE> 42
under the Lease, but no such waiver by Landlord shall be construed as a waiver
of such Rules and Regulations in favor of Tenant or any other tenant, nor
prevent Landlord from thereafter enforcing any such Rules and Regulations
against any or all of the tenants of the Building.
25. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of Tenant's lease of its Premises.
26. Landlord reserves the right to make such other and reasonable Rules
and Regulations as, in its judgment, may from time to time be needed for safety
and security, for care and cleanliness of the Building and for the preservation
of good order therein. Tenant agrees to abide by all such non-discriminatory
Rules and Regulations hereinabove stated and any additional rules and
regulations are adopted.
27. Tenant shall be responsible for the observance of all of the
foregoing rules by Tenant's employees, agents, clients, customers, invitees and
guests.
<PAGE> 43
EXHIBIT "D"
FORM OF ESTOPPEL LETTER
<PAGE> 1
EXHIBIT 10.17
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.406
LICENSE AND DEVELOPMENT AGREEMENT
THIS LICENSE AND DEVELOPMENT AGREEMENT (the "Agreement") is made as of
October 6, 1998 (the "Effective Date") by and among GENETRONICS BIOMEDICAL,
LTD., a corporation organized under the laws of British Columbia, a province of
Canada, and GENETRONICS, Inc., a wholly-owned subsidiary of Genetronics
Biomedical, Ltd. and a corporation organized under the laws of California (both
jointly and severally hereinafter referred to as "Genetronics"), and ETHICON,
INC., a wholly-owned subsidiary of Johnson & Johnson and a corporation organized
under the laws of New Jersey (hereinafter referred to as "Ethicon").
RECITALS
WHEREAS, Genetronics wishes to grant to Ethicon, and Ethicon wishes to
obtain from Genetronics, an exclusive license under Genetronics' proprietary
drug delivery technology to make, use and sell products for the prevention,
detection or treatment of pre-cancer and cancer on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties hereto, intending
to be legally bound, do hereby agree as follows:
AGREEMENT
DEFINITIONS
1.1 "ADVISORY COMMITTEE" means the committee established pursuant to
Section 3.1.
1.2 "AFFILIATE" shall mean, in relation to either party hereto, (a) any
entity in which the relevant party directly or indirectly holds more than 50% of
the voting stock or power, (b) any entity ("Holding Entity") which holds
directly or indirectly more than 50% of the voting stock or power of the
relevant party, (c) any other entity in which more than 50% of the voting stock
or power is directly or indirectly held by any Holding Entity of the relevant
party or (d) any entity in which the relevant party directly or indirectly holds
less than 50% of the voting stock or power but has management control of such
entity in that it has the ability to appoint and remove the majority of the
Board of Directors (or other governing body) of such party.
1.3 "APPLICATOR" means that component of the Drug Delivery System which
uses an electrode needle array, whether or not integrated, to deliver the pulsed
electrical field from the Generator to the patient during Electroporation.
1.4 "BANKRUPTCY EVENT" shall mean the entity in question becomes
insolvent, or voluntary or involuntary proceedings by or against such entity are
instituted in bankruptcy or under any insolvency law, or a receiver or custodian
is appointed for such entity, or proceedings are instituted by or against such
entity for corporate
1
<PAGE> 2
reorganization or the dissolution of such entity, which proceedings, if
involuntary, shall not have been dismissed within sixty (60) days after the date
of filing, or such person or entity makes an assignment for the benefit of its
creditors, or substantially all of the assets of such entity are seized or
attached and not released within sixty (60) days thereafter.
1.5 "CHANGE IN CONTROL" shall mean in respect of a party hereto (i) the
liquidation or dissolution of such party or the sale or other transfer by such
party (excluding transfers to subsidiaries) of all or substantially all of its
assets; or (ii) the occurrence of a tender offer, stock purchase, other stock
acquisition, merger, consolidation, recapitalization, reverse split, sale or
transfer of assets or other transaction, as a result of which any person, entity
or group (a) becomes the beneficial owner, directly or indirectly, of securities
of such party representing more than 50% of the ordinary shares of such party or
representing more than 50% of the combined voting power with respect to the
election of directors (or members of any other governing body) of such party's
then outstanding securities, (b) obtains the ability to appoint a majority of
the Board of Directors (or other governing body) of such party, or obtains the
ability to direct the operations or management of such party or any successor to
such party's business; provided, however, that Change in Control shall not
include the issuance by a party of equity to the public through a public
offering or offerings.
1.6 "CONTROL" means possession of the ability to grant a license or
sublicense as provided for herein without violating the terms of any agreement
or other arrangement with any Third Party.
1.7 "DEEP SEATED PROBE" means a proposed device to be developed by the
parties based on the Genetronics Technology, as more particularly described in
Exhibit F hereto.
1.8 "DRUG DELIVERY SYSTEM" means any system for the delivery of drugs by
means of Electroporation, or any mechanical, electrical or software component of
the delivery system (including the Generator and the Applicator), the
manufacture, use or sale of which is covered by the Genetronics Technology.
1.9 "ELECTROPORATION" means the application of high-voltage electrical
impulses to living cells to enhance the delivery of molecules into such cells by
increasing the permeability of the membrane of such cells.
1.10 "ETHICON IMPROVEMENTS" means any improvement, Know-How, discovery
or development based on the Genetronics Technology, which is created, conceived
of, developed or first reduced to practice by Ethicon and/or its sublicensees
during the Term.
1.11 "FDA" means the United States Food and Drug Administration.
1.12 "FIELD" means the use of Electroporation for the detection,
prevention and treatment of pre-cancer and cancer, except (a) applications
involving the detection,
2
<PAGE> 3
prevention or treatment of basal cell skin and squamous cell skin pre-cancer and
cancer, and (b) Gene Therapy applications.
1.13 "FIRST COMMERCIAL SALE" means the date of the first sale of the
Drug Delivery System to an end user of such system but not with respect to
clinical trials and market development activities. Sale to an Affiliate shall
not constitute a First Commercial Sale unless the Affiliate is the end user of
the Drug Delivery System.
1.14 "GENE THERAPY" means applications involving the introduction of a
nucleic acid sequence such that therapeutic RNA or a protein product is produced
based on the coding sequence so introduced.
1.15 "GENERATOR" means that component of the Drug Delivery System, which
creates a pulsed electrical field for use during Electroporation.
1.16 "GENETRONICS KNOW-HOW" means all Know-How related to the Drug
Delivery System or any component thereof, which is not covered by the
Genetronics Patent Rights, but is necessary or appropriate to develop,
manufacture and commercialize the Drug Delivery System in the Field, and which
is under the Control of Genetronics as of the Effective Date or acquired by or
developed by or for Genetronics during the Term.
1.17 "GENETRONICS PATENT RIGHTS" means all Patent Rights claiming the
Drug Delivery System or any component thereof, which are necessary or
appropriate to use (in various procedures with various therapeutic agents),
develop, manufacture and commercialize the Drug Delivery System in the Field,
and which are under the Control of Genetronics as of the Effective Date or
acquired by, developed by or for Genetronics during the Term, also including the
Joint Patent Rights. The Genetronics Patent Rights as of the Effective Date are
set forth on Exhibit A.
1.18 "GENETRONICS TECHNOLOGY" means the Genetronics Patent Rights and
the Genetronics Know-How.
1.19 "JOINT PATENT RIGHTS" means all Patent Rights covering all
inventions conceived of and reduced to practice during the Term jointly by
employees or agents of Ethicon and employees or agents of Genetronics.
1.20 "KNOW-HOW" means all know-how, trade secrets, inventions, data,
processes, techniques, procedures, compositions, devices, methods, formulas,
protocols and information, whether or not patentable, which are confidential,
including, without limitation, all chemical, biochemical, toxicological and
scientific research information.
1.21 "MARKET REQUIREMENTS" shall have the meaning given in the Supply
Agreement.
1.22 "NET SALES"
3
<PAGE> 4
(a) Net Sales means the [...***...].
(b) In the event that [...***...] will be calculated by
[...***...].
(c) If on a [...***...] shall be calculated by [...***...]. If
on a [...***...] shall be calculated [...***...] For purposes of the foregoing
calculations, [...***...].
(d) Notwithstanding the foregoing, in the event that the
[...***...] shall equal [...***...].
1.23 "PATENT RIGHTS" means all rights under patents and patent
applications, and any and all patents issuing therefrom (including utility,
model and design patents and certificates of invention), together with any and
all substitutions, extensions (including supplemental protection certificates),
registrations, confirmations, reissues, divisionals, continuations,
continuations-in-part, re-examinations, renewals and foreign counterparts of the
foregoing.
*CONFIDENTIAL TREATMENT REQUESTED
4
<PAGE> 5
1.24 "REGULATORY AGENCY" shall mean the regulatory agency in a country
which perform the same or equivalent function as the FDA in the United States,
and any reference to a rule or requirement of the FDA herein shall if the
circumstances make it applicable refer to the equivalent rule or requirement of
any Regulatory Agency.
1.25 "SOFTWARE" means the software in executable code included in or
with the Drug Delivery System.
1.26 "SUPPLY AGREEMENT" means the supply agreement to be executed by the
parties contemporaneously with this Agreement, substantially in the form
attached hereto as Exhibit B.
1.27 "STOCK PURCHASE AGREEMENT" means that certain Stock Purchase
Agreement to be executed by and among the parties hereto, and dated as of the
same date as this Agreement, substantially in the form attached hereto as
Exhibit C.
1.28 "TERRITORY" means all countries of the world, except Canada.
1.29 "TERM" has the meaning set forth in Section 13.1.
1.30 "THIRD PARTY" means any entity other than Genetronics or Ethicon or
an Affiliate of Genetronics or Ethicon.
1.31 "TIER 1 EUROPEAN COUNTRIES" means France, the United Kingdom,
Germany and Italy.
1.32 "TRADEMARKS" means the trademarks included in or with the Drug
Delivery System.
1.33 "VALID CLAIM" means a claim of an issued patent included within the
Genetronics Patent Rights, which claim has not lapsed, been canceled or become
abandoned and has not been declared invalid or unenforceable by an unreversed
and unappealable decision or judgment of a court or other appropriate body of
competent jurisdiction, and which has not been admitted to be invalid or
unenforceable through reissue, disclaimer or otherwise.
ARTICLE 2
SCOPE OF DEVELOPMENT
2.1 OBJECTIVES. During the Term, Genetronics will have primary
responsibility for the activities described in Section 4.1, and Ethicon will
have primary responsibility for the activities described in Section 4.2.
2.2 LIMITATIONS ON DEVELOPMENT. Except as specifically provided herein,
all activities of the parties outside of this Agreement are outside of the scope
of this Agreement, and nothing herein is intended to limit Genetronics or its
Affiliates from using the Genetronics Technology and any Joint Patent Rights or
Ethicon or its Affiliates from using any Joint Patent Rights for other purposes.
5
<PAGE> 6
2.3 DRUG DELIVERY SYSTEM.
(a) Except as permitted by Section 4.1(d), Genetronics agrees
that it shall not develop or commercially exploit the Drug Delivery System being
developed for or commercially exploited by Ethicon (an "Ethicon System").
Genetronics shall use commercially reasonable and diligent efforts to ensure
that Ethicon System will include means designed to render the Generator
non-functioning without the Applicator designed for the Ethicon System and vice
versa.
(b) Genetronics shall use commercially reasonable and diligent
efforts to ensure that other Drug Delivery Systems developed by it are not able
to be used for the detection, prevention and treatment of pre-cancer (except for
skin) or cancer; provided, however, that Genetronics may develop and
commercially exploit a Drug Delivery System for the detection, prevention and
treatment of basal cell skin pre-cancer and cancer, and squamous cell skin
pre-cancer and cancer if it (i) is substantially different in design and
operation from any Ethicon System, and (ii) provides less than acceptable
efficacy for the detection, prevention and treatment of other forms of
pre-cancer and cancer.
(c) Genetronics agrees if it enters into an agreement with an
Affiliate or Third Party concerning the subject matter of this Section 2.3, it
will require such Affiliate or Third Party to be made subject to the above
provision.
2.4 COMMERCIAL EXPLOITATION IS AT ETHICON'S DISCRETION. Except as
expressly provided hereunder, the marketing, sale or other commercial
exploitation (collectively, the "Commercial Exploitation") of the Drug Delivery
System in the Territory for use in the Field shall be exercised by Ethicon in
accordance with its own business judgment and in its sole and absolute
discretion. Accordingly, Genetronics acknowledges, understands and agrees
subject to the obligations of Ethicon in Article 6 hereof, as follows:
(a) Ethicon shall have complete control and sole discretion with
respect to the Commercial Exploitation of the Drug Delivery System in the
Territory for use in the Field and that this will have a material effect upon
the amount of any royalty payments that may be payable hereunder; and such
control and discretion over sales by Ethicon could negatively impact Genetronics
receipt of royalty payments;
(b) Ethicon has no duty to commercially exploit the Drug
Delivery System, to exert any level of efforts in commercially exploiting the
Drug Delivery System or to generate royalty payments;
(c) that whether or not Ethicon or any of its Affiliates
commercially exploit the Drug Delivery System, neither Ethicon nor any of its
Affiliates is prohibited from manufacturing, marketing or selling other products
that may compete with or reduce the Net Sales of Drug Delivery System hereunder;
(d) that personnel of Ethicon are only required to take actions
in connection with the Commercial Exploitation of the Drug Delivery System in
the
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Territory for use in the Field that such personnel believe to be in the best
interests of Ethicon and that they are not required to take into account the
interests of Genetronics at all; and
(e) not to challenge in any subsequent claim or action any
decision regarding the Commercial Exploitation of the Drug Delivery System in
the Territory for use in the Field made by any director, officer, employee or
individuals acting as agents of Ethicon or its Affiliates in what such
individual subjectively believes to be the best interests of Ethicon (or such
Affiliate), unless such action constitutes a material breach by Ethicon of any
of its obligations under this Agreement.
2.5 NO NAMING INDIVIDUALS. The parties agree that as between themselves,
the directors, officers, employees and individuals acting as agents of or for
any party to this Agreement shall not be named as parties to any suit or
arbitration proceeding brought in connection with the transactions contemplated
by this Agreement solely as a result of performing actions in their capacity as
an agent of or for a party to this Agreement.
ARTICLE 3
ADVISORY COMMITTEE
3.1 FORMATION. The activities of the parties under this Agreement shall
be managed by the Advisory Committee, which shall be comprised of three
representatives appointed by Genetronics and three representatives appointed by
Ethicon. Such representatives shall be senior members of management or
consultants from each of the parties. Either party may appoint substitute or
replacement members of the Advisory Committee to serve as their representatives
upon notice to the other party. The Advisory Committee shall have the
responsibility and authority to (a) coordinate and monitor the progress of this
Agreement, (b) encourage and facilitate communication and cooperation between
the parties in the performance of this Agreement, and (c) undertake such other
tasks and responsibilities as are set forth in this Agreement.
3.2 MEETINGS. The Advisory Committee shall meet at least once per
quarter or as it deems necessary at its discretion at locations and times to be
determined by the Advisory Committee, with the intent of meeting at alternating
locations in Somerville, New Jersey and San Diego, California, with each party
to bear all travel and related costs for its representatives. Each meeting shall
be chaired by a Advisory Committee member from the host party.
3.3 DECISION-MAKING PROCESS. Each member of the Advisory Committee shall
have one vote, and decisions by the Advisory Committee shall be made by a
majority vote. Any disagreement among members of the Advisory Committee shall be
resolved within the Advisory Committee based on the efficient achievement of the
objectives of this Agreement. Any disagreement which cannot be resolved by a
majority vote of the Advisory Committee shall be referred to the President of
each of Genetronics and Ethicon for resolution. It is the intent of the parties
to resolve issues through the Advisory Committee whenever possible and to refer
issues to the President
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<PAGE> 8
of each of Genetronics and Ethicon only when resolution through the Advisory
Committee cannot be achieved. Any disagreement which cannot be resolved by the
President of each of Genetronics and Ethicon shall be resolved (a) by the
President of Ethicon if the disagreement involves issues within the Territory,
(b) by the President of Genetronics if the disagreement involves issues outside
the Territory (i.e., within Canada).
3.4 DEVELOPMENT PROGRAM. The Advisory Committee shall have executive
authority with respect to decisions on the "Development Program". The
Development Program shall be the program under which the parties manage the
development of the Drug Delivery System under this Agreement. The Advisory
Committee's role shall include supervising and managing the expenditure of funds
for research and development in accordance with Section 4.1, evaluating and
determining which products to develop. In addition, by unanimous consent only,
the Advisory Committee is responsible for reviewing (and if necessary revising)
the milestones in Section 6.2 and approving any new milestones as part of the
Development Program. The tie-breaker provisions of Section 3.3 shall not apply
to any revision of the existing milestones or to the addition of new milestones.
Genetronics shall develop and propose to the Advisory Committee annual budgets
for the Development Program for its review and consent.
3.5 PATENT STRATEGY. The Advisory Committee shall be responsible for
managing and reviewing the patent strategy in the Territory for use of the Drug
Delivery System in the Field (the "Patent Strategy"). The Patent Strategy shall
include, but not be limited to, deciding on the question of inventorship of any
inventions arising under this Agreement, agreeing on the desired scope of patent
protection to be secured by Genetronics, agreeing on the desired scope of patent
protection to be secured for Joint Inventions, and recording and advising the
parties on all patents secured in furtherance of hereunder. Genetronics shall
develop and propose to the Advisory Committee annual budgets for the Patent
Strategy for its review and consent.
3.6 CLINICAL/REGULATORY PROGRAM. The initial program will be proposed by
Genetronics. The Advisory Committee shall be responsible for managing and
reviewing the clinical and regulatory program in the Territory for use of the
Drug Delivery System in the Field (the "Clinical/Regulatory Program"). The
Clinical/Regulatory Program shall be the regulatory strategy which is adopted as
the Clinical/Regulatory Program by the Advisory Committee, subject to approval
by Ethicon. Such program is to be in writing and to be continually reviewed and
revised as necessary by the Advisory Committee, subject to approval by Ethicon.
Within 90 days of the Effective Date, the Advisory Committee shall prepare and
submit to Ethicon for its approval a strategy for the initial
Clinical/Regulatory Program for a period (to be designated by the Advisory
Committee) following the Effective Date, including a budget of clinical costs
for such period. With respect to the Clinical/Regulatory Program, Ethicon shall
have review and approval rights for all significant correspondence and filings
received from or made to any governmental entity.
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ARTICLE 4
DEVELOPMENT AND COMMERCIALIZATION ACTIVITIES
4.1 GENETRONICS CONTRIBUTIONS.
(a) SALES AND MARKETING. For the purposes of clarification only,
the parties acknowledge that Genetronics will sell, contract, distribute, enter
orders, invoice, collect, and market the Drug Delivery System (being sold by
Ethicon in the Territory for use in the Field) in Canada for use in the Field.
In Canada, Genetronics will be responsible for warranties and returns of the
Drug Delivery System and will provide the necessary staffing and inventory to
ensure a reasonable turnaround time for any defective part or all of the Drug
Delivery System
(b) CLINICAL TRIALS. Subject to Section 4.1(c) below and the
Clinical/Regulatory Program, the parties agree that Genetronics will conduct and
own the regulatory filings, at its sole cost, of all clinical trials (i) of the
Drug Delivery System in Canada, (ii) for the Head and Neck indication in the
United States, and (iii) any clinical trial commenced by Genetronics prior to
the Effective Date. Except as set forth above and subject to Section 4.1(c)
below and the Clinical/Regulatory Program, the parties agree that Genetronics
will conduct (but Ethicon will own the regulatory filings of) all clinical
trials of the Drug Delivery System in the Territory for those indications in the
Field selected by the Advisory Committee.
(c) REGULATORY.
(i) Genetronics presently has an application to obtain
the CE mark for the Drug Delivery System in the European Union. Genetronics
shall continue to maintain at its sole cost the CE mark to the extent Ethicon
wishes it reasonably to do so; provided, however, at any time after the
Effective Date, upon the written request of Ethicon, Genetronics shall promptly
assign and deliver the CE mark, along with any and all supporting documentation
and other related information to Ethicon. Upon receipt of the filings from
Genetronics, Ethicon shall assume all ongoing costs associated therewith.
(ii) Genetronics presently has an approved
investigational new drug application ("IND") with the FDA. Any additional
indications filed with the FDA by Genetronics, shall be filed in Ethicon's name
and shall be at Ethicon's sole cost if filed pursuant to the Clinical/Regulatory
Program. Genetronics shall continue to maintain at its sole cost the current
filings before the FDA and Regulatory Agencies to the extent Ethicon wishes it
reasonably to do so; provided, however, that at any time after the Effective
Date, upon the written request of Ethicon, Genetronics shall within 120 days
after receipt of such request, assign and deliver the IND, NDA and all filings,
along with any and all supporting documentation and other related information to
Ethicon. Upon receipt of the filings from Genetronics, Ethicon shall assume all
ongoing regulatory costs associated therewith. Genetronics shall provide Ethicon
for its use in obtaining regulatory approvals with copies of all data, results
and related information from clinical trials and all regulatory filings and
related information in the territory (including the right
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<PAGE> 10
to reference Genetronics IND or NDA in regulatory filings), all of the
information shall be considered Confidential Information of Genetronics.
(iii) Genetronics shall provide Ethicon for its use in
obtaining regulatory approvals with copies of all data, results and related
information from clinical trials and all regulatory filings and related
information (including the right to reference Genetronics regulatory filings),
all of the information shall be considered Confidential Information of
Genetronics (as defined in Article 15).
(d) CANADA. For purposes of clarification only, the parties
acknowledge that Genetronics will conduct all clinical trials of the Drug
Delivery System in Canada for those indications in the Field selected by
Genetronics, in its sole discretion and at its own expense. Genetronics will
consult with Ethicon on all clinical trials of the Drug Delivery System in
Canada for use in the Field and will provide Ethicon for its use with copies of
all data, results and related information from such clinical trials; provided,
however, that Genetronics and Ethicon will consult on all such clinical trials
related to Bleomycin and other generic drugs. Genetronics will be responsible
for regulatory filings and approvals in Canada for use of the Drug Delivery
System in the Field. Genetronics shall secure, at its own expense, any and all
licenses, permits approvals and other authorizations (collectively, "Regulatory
Approvals") required to commercialize the Drug Delivery System in Canada for use
in the Field. Genetronics shall own and maintain all such Regulatory Approvals
and related information and shall disclose such information to Ethicon for its
use in accordance with this Agreement and the license granted hereunder and in
the Supply Agreement, and to the extent necessary for Ethicon to perform its
obligations under this Agreement. Such Regulatory Approvals and related
information (including, without limitation, any and all reference rights related
thereto) shall be considered Confidential Information of Genetronics (as defined
in Article 15).
(e) CROSS-BORDER SALES. The parties agree not to resell the Drug
Delivery System into each other's territory. The parties agree with respect to
any distributor (or equivalent) of the Drug Delivery System it may engage, that
in the event a party receives written evidence from any source that the Drug
Delivery System (or any component thereof) previously transferred to such
distributor was resold by such distributor into the territory of the other party
on at least three occasions, then the party receiving the evidence shall take
appropriate steps to ensure such reselling does not occur in the future. The
party who has engaged such distributor shall promptly discuss the steps that are
being taken with the other party to ensure that such reselling will not reoccur.
Genetronics further agrees to include a provision in any distribution or similar
agreement it enters into during the Term to enable it to take such action.
(f) RESEARCH AND DEVELOPMENT. Genetronics shall dedicate
[...***...] of its gross revenues per year, if any, with respect to sales of the
Drug Delivery System for use in the Field, but in no event less than [...***...]
per year (hereinafter, "Research Funds"), to fund research and development
activities related to the Drug Delivery System in the Field as decided by the
Advisor Committee under Article 3 (provided that, the Advisory Committee may
agree to spend less than the total amount of Research
*CONFIDENTIAL TREATMENT REQUESTED
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Funds available in any year); the Research Funds also may be used for research
and development outside the Field if agreed to by unanimous consent of the
Advisory Committee.
(g) MANUFACTURING; TOOLING. Genetronics will have the exclusive
right to manufacture the Drug Delivery System for Ethicon pursuant to the Supply
Agreement (until there is a Failure to Supply as provided in Article 7 of the
Supply Agreement); provided, however, that Ethicon shall have approval rights
with respect to the Market Requirements (as defined in the Supply Agreement),
any Third Party manufacturer and the material suppliers with respect to the Drug
Delivery System. Genetronics shall own all tooling; provided, however, that in
the event of a Failure to Supply as defined in the Supply Agreement, Genetronics
shall be required to transfer ownership of all tooling to Ethicon. The parties
shall share equally all Tooling Costs for the Applicator up to [...***...] in
the first year and up to [...***...] in each year thereafter. Ethicon shall pay
for all tooling costs for the Applicator in excess OF [...***...] in the first
year and [...***...] in each year thereafter. Tooling Costs means the direct
costs for dies and molds.
4.2 ETHICON CONTRIBUTIONS. Subject to Section 2.4:
(a) SALES AND MARKETING. Ethicon will sell, contract,
distribute, enter orders, invoice, collect, and market the Drug Delivery System
in the Territory for use in the Field.
(b) CLINICAL TRIALS. As of the Effective Date, but subject to
its approval of the Clinical/Regulatory Program (including the proposed budget
for clinical trials), Ethicon shall assume all clinical costs associated with
the Clinical/Regulatory Program other than those costs with respect to the head
and neck indication. Ethicon will consult with Genetronics in an effort to
assist Genetronics with the clinical trials of the Drug Delivery System
conducted pursuant to this Agreement.
(c) REGULATORY. The parties agree that Ethicon will be
responsible for filing for regulatory approval and funding clinical studies in
the Territory except for head and neck indications in the United States and the
application for CE mark in Europe as described in Section 4.1. Ethicon shall
provide Genetronics for its use under Section 4.1(d) in obtaining regulatory
approvals with copies of all data, results and related information from clinical
trials in the Territory and all regulatory filings and related information in
the territory, all of the information shall be considered Confidential
Information of Ethicon (as defined in Article 15).
4.3 COMMERCIALLY REASONABLE AND DILIGENT EFFORTS. Each party shall use
commercially reasonable and diligent efforts to perform its responsibilities
under this Agreement. As used herein, the term "commercially reasonable and
diligent efforts" means, unless the parties agree otherwise, those efforts
consistent with the exercise of prudent scientific and business judgment, as
applied to other products of similar scientific and commercial potential within
the relevant product lines of the parties.
*CONFIDENTIAL TREATMENT REQUESTED
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4.4 AVAILABILITY OF RESOURCES. Each party shall maintain laboratories,
offices and all other facilities reasonably necessary to carry out the
activities to be performed by such party under this Agreement.
4.5 DISCLOSURE; REPORTS. Genetronics shall make available and disclose
to Ethicon promptly after the Effective Date all Genetronics Know-How to the
extent necessary for Ethicon to perform its obligations under this Agreement.
The parties shall exchange, at a minimum, quarterly written reports (with copies
to the Advisory Committee) presenting a meaningful summary of the activities
performed by such party under this Agreement. In addition, on reasonable request
by a party, the other party shall make presentations of its activities under
this Agreement.
ARTICLE 5
GRANT OF LICENSES
5.1 LICENSE TO DRUG DELIVERY SYSTEM. Subject to the terms and conditions
of this Agreement and during the Term, Genetronics hereby grants to Ethicon an
exclusive license, including the right to grant sublicenses pursuant to Section
5.2, under the Genetronics Technology to use, offer for sale, sell and import
the Drug Delivery System in the Territory for use in the Field, and an exclusive
license to use and distribute the Software and Trademarks in the Territory for
use in the Field.
5.2 SUBLICENSES. Except as expressly provided hereunder or in the Supply
Agreement, Ethicon may sublicense any rights or obligations hereunder without
the prior written consent of Genetronics; provided, however, that Ethicon may
not sublicense its rights and obligations hereunder to a sublicensee who is a
direct competitor of Genetronics in the field of Electroporation without
Genetronics' prior written consent. Ethicon shall notify any sublicensee
hereunder of all rights and obligations of Ethicon under this Agreement which
are sublicensed to such sublicensee. Ethicon shall remain primarily liable under
this Agreement irrespective of any sublicense granted hereunder.
5.3 RIGHT OF FIRST NEGOTIATION. Genetronics shall provide Ethicon (a)
written notice of its intention to license a Drug Delivery System for either
dermatological and/or cardiovascular applications (except Gene Therapy
applications), and (b) a functional prototype of such Drug Delivery System which
demonstrates relevant pre-clinical efficacy. During the 120-day period following
receipt of such written notice and prototype Drug Delivery System from
Genetronics, Ethicon shall have the first right to negotiate a license to the
Drug Delivery System for either dermatological and/or cardiovascular
applications, as applicable, upon commercially reasonable terms mutually
acceptable to the parties. In the event the parties are unable to reach
agreement on the terms of such a license within such 120-day period, Genetronics
shall have no further obligation to Ethicon under this Section 5.3.
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5.4 RIGHT OF FIRST REVIEW. Except in respect of relationships in
existence as of the Effective Date, Genetronics shall provide Ethicon (a)
written notice of its intention to license a Drug Delivery System for Gene
Therapy applications, and (b) a functional prototype of such Drug Delivery
System which demonstrates relevant pre-clinical efficacy, prior to approaching a
Third Party to license such Drug Delivery System for Gene Therapy applications.
Genetronics shall discuss with Ethicon a possible development and license
agreement to use such Drug Delivery System for Gene Therapy applications, but is
under no obligation to enter into any such agreement with Ethicon. After
providing such written notice and prototype Drug Delivery System to Ethicon,
Genetronics shall have no further obligation to Ethicon under this Section 5.4.
5.5 IMPROVEMENTS. During the Term, Ethicon hereby grants Genetronics an
non-exclusive, royalty-free license to use and practice any Ethicon Improvements
within the Field solely in Canada that are incorporated into the Drug Delivery
System being sold by Ethicon. Ethicon shall notify Genetronics within a
reasonable period of time of any such Ethicon Improvements.
ARTICLE 6
PAYMENT OBLIGATIONS
6.1 LICENSE FEE. In partial consideration of the license granted to
Ethicon by Genetronics under Section 5.1, Ethicon shall pay to Genetronics a
one-time, non-refundable fee of $4,000,000 within seven (7) days of the
Effective Date.
6.2 MILESTONES. The party that first becomes aware of the achievement of
any milestone hereunder shall provide the other party written notice of any
milestone achieved hereunder within 10 days of achievement of such milestone.
Within 30 days after achievement of each of the following milestones, Ethicon
shall pay to Genetronics the non-refundable milestone payment set forth below:
(a) RESEARCH AND DEVELOPMENT.
(i) [...***...];
(ii) [...***...];
(iii) [...***...]; and
*CONFIDENTIAL TREATMENT REQUESTED
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(iv) [...***...].
(b) DEVELOPMENT OF DEEP SEATED PROBE.
(i) [...***...];
(ii) [...***...];
(iii) [...***...];
(iv) [...***...]; and
(v) [...***...].
(c) SALES AND MARKETING.
(i) [...***...];
(ii) [...***...];
(iii) [...***...]; and
(iv) [...***...].
(d) HEAD AND NECK CANCER.
(i) [...***...]; and
*CONFIDENTIAL TREATMENT REQUESTED
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(ii) [...***...].
(iii) [...***...]
(1) [...***...]:
(a) [...***...]; and
(b) [...***...];
(2) [...***...], and
(3) [...***...]:
(a) [...***...];
(b) [...***...]; and
(c) [...***...].
(e) QUALITY OF LIFE
(i) [...***...].
*CONFIDENTIAL TREATMENT REQUESTED
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(ii) [...***...].
(iii) [...***...].
6.3 PAYMENTS OBLIGATIONS.
(a) During the Term, Ethicon shall pay to Genetronics
[...***...] of Net Sales.
(b) No multiple or stacked royalties shall be due on the Drug
Delivery System if the Drug Delivery System is within the scope of more than one
Valid Claim or more than one patent licensed under this Agreement.
6.4 ETHICON OBLIGATIONS.
(a) Ethicon will launch the Drug Delivery System in one or more
of the Tier 1 European Countries for use in the Field within [...***...]
following the satisfaction by Genetronics at its sole cost and expense of the
following: (i) CE Certification of the Drug Delivery System, (ii) be capable of
supplying commercial quantities of the Drug Delivery System reasonably
acceptable to Ethicon in accordance with the Supply Agreement, (iii) completion
of the current French clinical trials EPT-04, EPT-06, and EPT-07, and (iv)
provided that the Drug Delivery System complies with the mutually agreed upon
Specifications set forth in the Supply Agreement. In the event Ethicon fails to
launch the Drug Delivery System in the Tier 1 European Countries within such
[...***...] period, Ethicon shall pay to Genetronics (1) for the first
[...***...] delay, on a month by month basis, a payment equal to a [...***...]
of Net Sales assuming the most current agreed upon production forecast for the
Drug Delivery System for the next month was sold in the Tier 1 European
Countries, thereafter (2) for the next [...***...]
*CONFIDENTIAL TREATMENT REQUESTED
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[...***...] of delay, on a month by month basis, a payment equal to [...***...]
of Net Sales assuming the most current agreed upon production forecast for the
Drug Delivery System for the next month was sold in the Tier 1 European
Countries; thereafter, the license granted hereunder shall be converted to a
non-exclusive license and Ethicon shall pay based on actual sales as provided in
paragraph 6.3. Notwithstanding the foregoing, [...***...].
(b) Ethicon will launch the Drug Delivery System in the United
States for use in the Field within [...***...] following the satisfaction by
Genetronics at its sole cost and expense of the following for the U.S.: (i) FDA
approval to use the Drug Delivery System for such indication and, (ii) be
capable of supplying commercial quantities of the Generator reasonably
acceptable to Ethicon in accordance with the Supply Agreement; and (iii)
provided that the Drug Delivery System complies with the mutually agreed upon
Specifications set forth in the Supply Agreement. In the event Ethicon fails to
launch the Drug Delivery System in the United States within such [...***...],
Ethicon shall pay to Genetronics (1) for the first [...***...] delay, on a month
by month basis, a payment equal to [...***...] of Net Sales assuming the most
current agreed upon production forecast for the Drug Delivery System for the
next month was sold in the United States; thereafter, (2) for the next
[...***...] of delay, on a month by month basis, a payment equal to [...***...]
of Net Sales assuming the most current agreed upon production forecast for the
Drug Delivery System for the next month was sold in the United States thereafter
the license granted hereunder shall be converted to a non-exclusive license and
Ethicon shall pay based on actual sales as provided in paragraph 6.3.
Notwithstanding the foregoing, [...***...]
6.5 CNRS AND IGR LICENSE. The parties agree that if Ethicon (which for
the purpose of this paragraph shall also include its affiliate Ethnor) should
decide in its sole discretion to exercise its option with the LeCentre National
De La Recherche Scientifique ("CNRS") and L'Institut Gustave Roussy ("IGR") to
license French Patent No. 93 03688 and its corresponding counterparts (the
"French Patent"), then Ethicon will notify Genetronics in writing promptly
following the exercise of the option. Ethicon shall be responsible for paying
the sums required to exercise the option in the expanded territory [...***...]
and the yearly lump sum required until the first commercial sale in the expanded
territory [...***...] and one half of the sum due upon the launch of a product
in the expanded territory [...***...]. Genetronics agrees to pay half the sum
due upon the launch of a product in the expanded territory [...***...]. In the
event of and for so long as Ethicon is obligated under the agreement with the
CNRS and IGR to pay fees for the license of the French Patent, Genetronics
agrees to permit Ethicon to deduct from the amounts due Genetronics under the
Supply Agreement, on a country by country basis:
*CONFIDENTIAL TREATMENT REQUESTED
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(a) [...***...] of the Purchase Price (as defined in the Supply
Agreement) in countries where the French Patent has been filed and remains in
full force and effect, or
(b) [...***...] of the Purchase Price (as defined in the Supply
Agreement) in countries where no patent has been filed or in which the French
Patent has expired or been forfeited;
provided, however, that in no event will Ethicon be allowed to deduct from any
amount due Genetronics under the Supply Agreement more than the royalty due to
the CNRS and IGR. Since the minimum royalty due under the agreement with the
CNRS and IGR has not been negotiated, Ethicon and Genetronics agree to meet and
negotiate in good faith to determine what, if any, minimum royalty to offer to
the CNRS and IGR. Ethicon shall initiate discussions with the CNRS and IGR or
their representatives to reach agreement on such minimum royalty. Genetronics at
its sole discretion may attend and participate in such discussions. Ethicon
shall use reasonable commercial efforts to convince the CNRS and IGR or their
representative that the minimum royalty determined to be reasonable by Ethicon
and Genetronics is appropriate. If Ethicon is unable to convince the CNRS and
IGR that such minimum royalty is reasonable, Ethicon and Genetronics shall
negotiate in good faith to determine an appropriate course of action.
ARTICLE 7
PAYMENTS; RECORDS; AUDITS
7.1 PAYMENT; REPORTS. Royalty payments shall be calculated and reported
for each fiscal quarter of Ethicon. All royalty payments due to Genetronics
under this Agreement shall be paid within 45 days of the end of each fiscal
quarter, unless otherwise specifically provided herein. Each payment of
royalties shall be accompanied by a report in sufficient detail to permit
confirmation of the accuracy of the royalty payment made, including, without
limitation, Net Sales, the royalties payable in United States dollars, the
method used to calculate the royalty and the exchange rates used.
7.2 EXCHANGE RATE; MANNER AND PLACE OF PAYMENT. All payments hereunder
shall be payable in United States dollars. With respect to each quarter, for
countries other than the United States, whenever conversion of payments from any
foreign currency shall be required, such conversion shall be made at the rate of
exchange reported in The Wall Street Journal on the last business day of the
applicable reporting period. All payments owed under this Agreement shall be
made by wire transfer to a bank account designated by Genetronics, unless
otherwise specified in writing by Genetronics.
7.3 LATE PAYMENTS. In the event that any payment, including royalty
payments, due hereunder is not made when due, the payment shall accrue interest
from that date due at the rate of 1.5% per month; provided however, that in no
event shall such rate exceed the maximum legal annual interest rate. The payment
of such interest shall not limit Genetronics from exercising any other rights it
may have as a consequence of the lateness of any payment.
*CONFIDENTIAL TREATMENT REQUESTED
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7.4 RECORDS AND AUDITS. During the Term, and for a period of one year
thereafter, Ethicon shall keep complete and accurate records in sufficient
detail to permit Genetronics to confirm the accuracy of all payments due
hereunder. Genetronics shall have the right to cause an independent, certified
public accountant reasonably acceptable to Ethicon to audit such records to
confirm royalty payments for the preceding year. Such audits may be exercised
during normal business hours no more than once in any 12-month period upon at
least 30 days' prior written notice to Ethicon. Genetronics shall bear the full
cost of such audit unless such audit discloses an underpayment by more than 5%
of the amount due under this Agreement. In such case, Ethicon shall bear the
full cost of such audit. In all events, Ethicon shall pay any underpayment with
interest in accordance with Section 7.3. Any dispute regarding any payments due
hereunder shall be subject to the dispute resolution procedures set forth in
Article 15.
7.5 TAXES. All taxes levied on account of the royalties and other
payments accruing to Genetronics under this Agreement shall be paid by
Genetronics for its own account, including taxes levied thereon as income to
Genetronics. If provision is made in law or regulation for withholding, such tax
shall be deducted from the royalty or other payment made by Ethicon to the
proper taxing authority and a receipt of payment of the tax secured and promptly
delivered to Genetronics. Each party agrees to assist the other party in
claiming exemption from such deductions or withholdings under any double
taxation or similar agreement or treaty from time to time in force.
7.6 PROHIBITED PAYMENTS. Notwithstanding any other provision of this
Agreement, if Ethicon is prevented from paying any such royalty by virtue of the
statutes, laws, codes or governmental regulations of the country from which the
payment is to be made, then such royalty may be paid by depositing funds in the
currency in which accrued to Genetronics' account in a bank acceptable to
Genetronics in the country whose currency is involved.
ARTICLE 8
TRADEMARKS
All uses by Ethicon of Genetronics' name, or any trademark, service mark
or tradename (or any mark or name closely resembling the same), now or hereafter
owned or licensed by Genetronics or any of its Affiliates shall be subject to
the prior written consent of Genetronics. Ethicon is not authorized to use
Genetronics' name or any such trademark, service mark or tradename in connection
with any aspect of its business, other than in connection with the sales,
marketing, promotion and distribution of the Drug Delivery System in accordance
with the terms of this Agreement and the Supply Agreement. Ethicon (a) shall not
use any trademark, service mark or trade name of Genetronics as part of its
name, and (b) shall not do or permit any act to be done at any time which may in
any way impair the rights of Genetronics in any such trademark, service mark or
trade name. All uses of any trademark, service mark or trade name of Genetronics
shall inure to the benefit of Genetronics. Ethicon shall not
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adopt, use or attempt to register any trademark, service mark or trade name
which is confusingly similar to any trademark, service mark or trade name of
Genetronics.
ARTICLE 9
INDEMNIFICATION
In order to distribute among themselves the responsibility for claims
arising out of this Agreement, and except as otherwise specifically provided for
herein, the parties agree as follows:
(a) Genetronics agrees to defend and indemnify and hold Ethicon harmless
against any and all claims, suits, proceedings, expenses, recoveries and damages
(including, but not limited to, any expenses incurred in connection with any
recall of the Drug Delivery System), including court costs and reasonable
attorneys fees and expenses, arising out of, based on, or caused by (i) any
product liability claim related to alleged defects in materials, design,
construction or workmanship of the Drug Delivery System in the form supplied to
Ethicon by Genetronics hereunder, (ii) in connection with the Drug Delivery
System manufactured by Ethicon, product liability claims related to alleged
defects in design of the Drug Delivery System to the extent designed by
Genetronics, (iii) the breach by Genetronics of any representation or warranty
contained in this Agreement, or (iv) clinical trials performed by Genetronics in
each case except to the extent that such claims, suits, proceedings, expenses,
recoveries or damages arise from or are aggravated by acts of or failure to act
by Ethicon. Ethicon will promptly notify Genetronics of any such claim or demand
which comes to its attention.
(b) Ethicon agrees to defend and indemnify and hold Genetronics harmless
against any and all claims, suits, proceedings, expenses, recoveries, and
damages including court costs and reasonable attorneys fees and expenses, in
connection with the Drug Delivery System sold by Ethicon or its Affiliates
arising out of, based on, or caused by (i) statements, whether written or oral,
made or alleged to be made by Ethicon or its Affiliates on the packaging or
labeling of the Drug Delivery System, or in the advertising, publicity,
promotion, or sale of the Drug Delivery System, (ii) the storage, sale,
shipment, promotion or distribution of the Drug Delivery System by Ethicon or
its Affiliates, (iii) the breach by Ethicon of any representation or warranty
contained in this Agreement, or (iv) any product liability claim related to
alleged defects in materials, design (unless designed by Genetronics),
construction or workmanship of the Drug Delivery System manufactured by or for
Ethicon hereunder by a party other than Genetronics or its Affiliates, in each
case except to the extent that such claims, suits, proceedings, expenses,
recoveries or damages arise from or are aggravated by acts of or failure to act
by Genetronics. Genetronics will promptly notify Ethicon of any such claim or
demand which comes to its attention.
ARTICLE 10
PATENT RIGHTS AND INFRINGEMENT
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10.1 OWNERSHIP OF PATENT RIGHTS. Ownership of inventions conceived of or
reduced to practice in the course of the Collaboration shall be determined in
accordance with the rules of inventorship under United States patent law.
Ethicon shall own all inventions conceived of and reduced to practice solely by
its employees and agents, and all patent applications and patents claiming such
inventions. Genetronics shall own all Genetronics Technology and all inventions
conceived of and reduced to practice solely by its employees and agents, and all
patent applications and patents claiming such inventions. All inventions
conceived of and reduced to practice jointly by employees or agents of
Genetronics and employees or agents of Ethicon, and all Joint Patent Rights
shall be owned jointly by Genetronics and Ethicon.
10.2 PROSECUTION AND MAINTENANCE OF PATENT RIGHTS.
(a) Subject to commercially appropriate and reasonable efforts
(subject to oversight by the Advisory Committee), Genetronics shall at its own
expense and by counsel of its own choice, file, prosecute and maintain all
patent applications and patents within the Genetronics Patent Rights and any
inventions conceived of and reduced to practice solely by its employees and
agents hereunder. Genetronics shall do everything commercially appropriate and
reasonable (subject to oversight by the Advisory Committee), including without
limitation filing all documents and paying all fees to the appropriate patent
offices to maintain the patents and pending patent applications in effect.
Genetronics agrees to promptly provide Ethicon with copies of all correspondence
to and from the patent offices related to the pending patent applications within
the Genetronics Patent Rights. Ethicon shall have the right to provide comments
to Genetronics regarding the content of such correspondence, and to comment
thereon. Genetronics shall consider all such comments offered by Ethicon;
provided, that all final decisions with respect to such prosecution shall rest
solely in the discretion of Genetronics. In the event that Genetronics desires
to abandon any such patent application or patent within the Genetronics Patent
Rights, or if Genetronics later declines to prosecute or maintain any such
patent application or patent, Genetronics shall provide reasonable prior written
notice to Ethicon of such intention and Ethicon shall have the right, but not
the obligation at its own expense, to file, prosecute, and maintain such patent
application or patent, which Genetronics shall assign to Ethicon and shall no
longer be subject to the terms of this Agreement.
(b) The Advisory Committee shall determine which party shall be
responsible for the filing, prosecution and maintenance of patent applications
and patents within the Joint Patent Rights on a case by case basis, with the
understanding that it is the parties' intent that Genetronics shall be initially
responsible for the filing, prosecution and maintenance of patent applications
and patents within the Joint Patent Rights related to the Drug Delivery System.
In the event that a party responsible for the filing, prosecution and
maintenance of any patent application or patent within the Joint Patent Rights
desires to abandon such patent application or patent, or if such party later
declines responsibility for such patent application or patent, such party shall
provide reasonable prior written notice to the other party of its intention to
abandon or decline responsibility, and the other party shall have the right, but
not the obligation, to prepare, file, prosecute, and maintain any such patent
application or patent within the Joint
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Patent Rights. The parties shall share equally the costs of filing, prosecuting
and maintaining patents or patent applications within the Joint Patent Rights.
10.3 COOPERATION OF THE PARTIES. Each party agrees to cooperate fully in
the preparation, filing, and prosecution of any Joint Patent Rights under this
Agreement. Such cooperation includes, but is not limited to:
(a) executing all papers and instruments, or requiring its
employees or agents, to execute such papers and instruments, so as to effectuate
the ownership of Joint Patent Rights set forth in Section 10.1 and to enable the
other party to apply for and to prosecute joint patent applications in any
country; and
(b) promptly informing the other party of any matters coming to
such party's attention that may affect the preparation, filing, or prosecution
of any such joint patent applications.
10.4 INFRINGEMENT OF THIRD PARTY RIGHTS. Genetronics and Ethicon shall
promptly notify the other in writing of any allegation by a Third Party that the
activity of either of the parties in connection with this Agreement infringes or
may infringe the intellectual property rights of such Third Party. Genetronics
shall have the right to control the defense of any claims with respect to the
Genetronics Technology, at its own expense and by counsel of its own choice, and
Ethicon shall have the right to be represented in any such action, at its own
expense and by counsel of its own choice. In the event that such matter includes
claims with respect to the Joint Patent Rights, the party responsible for
prosecution and maintenance of the applicable Joint Patent Rights under Section
10.2(b) shall have the right to control the defense of such claims by counsel of
its own choice and the parties shall share equally the costs with respect
thereto. If Genetronics fails to proceed in a timely fashion with regard to the
defense of any claims with respect to the Genetronics Technology, Ethicon shall
have the right to control any such defense of such claim at its own expense and
by counsel of its own choice, and Genetronics shall have the right to be
represented in any such action, at its own expense and by counsel of its own
choice. Neither party shall have the right to settle any patent infringement
litigation under this Section 10.4 in a manner that diminishes the rights or
interests of the other party or obligates the other party to make any payment or
take any action without the consent of such other party.
If as a result of the manufacture, use or sale of the Drug Delivery
System in any country of the Territory, Genetronics or Ethicon or any Affiliate
of either of them is sued for patent infringement or threatened with such a
lawsuit or other actions by a Third Party, Genetronics and Ethicon shall meet to
analyze the infringement claim and avoidance of same. If it is necessary to
obtain a license from such Third Party, Genetronics and Ethicon in negotiating
such a license shall make every effort to minimize the license fees and/or
royalty payable to such Third Party. If Ethicon shall be obligated to pay a
license fee, royalty or both, then Genetronics shall elect within ten (10) days
of the execution of the license with such Third Party to (i) pay all fees,
royalties and expenses associated with obtaining and maintaining the license, or
(ii) to having the royalties payable to it pursuant to Section 6.3 hereof or the
Purchase Price
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(as defined in the Supply Agreement) reduced by the amount of any payment to
such Third Party to [...***...].
10.5 INFRINGEMENT BY THIRD PARTIES. Genetronics and Ethicon shall
promptly notify the other in writing of any alleged or threatened infringement
of any patent included in the Genetronics Patent Rights or the Joint Patent
Rights of which they become aware. Both parties shall cooperate with each other
to terminate such infringement without litigation. Genetronics shall have the
right to bring and control any action or proceeding with respect to infringement
of any patent included in the Genetronics Patent Rights, at its own expense and
by counsel of its own choice, and Ethicon shall have the right to be represented
in any such action, at its own expense and by counsel of its own choice. In the
event any patent included in the Joint Patent Rights is infringed by a Third
Party, the party responsible for prosecution and maintenance of the applicable
Joint Patent Rights under Section 10.2(b) shall have the right to bring and
control any action or proceeding with respect to such patent, and the other
party shall have the right to be represented in any such action by counsel of
its own choice, and the parties shall share equally in the expenses thereof.
With respect to infringement of any patent included in the Genetronics Patent
Rights, if Genetronics fails to bring an action or proceeding within (a) 90 days
following the notice of alleged infringement or (b) 10 days before the time
limit, if any, set forth in the appropriate laws and regulations for the filing
of such actions, whichever comes first, Ethicon shall have the right to bring
and control any such action, at its own expense and by counsel of its own
choice, and Genetronics shall have the right to be represented in any such
action, at its own expense and by counsel of its own choice. In the event a
party brings an infringement action, the other party shall cooperate fully,
including if required to bring such action, the furnishing of a power of
attorney. Neither party shall have the right to settle any patent infringement
litigation under this Section 10.5 in a manner that diminishes the rights or
interests of the other party without the consent of such other party. In the
event Genetronics brings such action, any recovery realized as a result of such
litigation, after reimbursement of any litigation expenses of Genetronics and
Ethicon, shall belong to Genetronics.
10.6 ENFORCEMENT OR DEFENSE BY ETHICON. In the event Ethicon brings any
action to enforce or defend the Genetronics Patent Rights, Ethicon may withhold
up to 50% of the royalties otherwise due to Genetronics hereunder for the
duration of such action and may apply such withheld amounts toward reimbursement
of its litigation expenses, including reasonable attorneys' fees, in connection
with such action. Any recovery realized by Ethicon as a result of such
litigation shall be applied first in satisfaction of any unreimbursed litigation
expenses of Ethicon and any litigation expenses of Genetronics, and next toward
reimbursement of royalties withheld by Ethicon and due to Genetronics, and the
remainder shall belong to Ethicon, subject to payment of royalties as if such
recovery were Net Sales.
ARTICLE 11
THIS ARTICLE HAS BEEN INTENTIONALLY LEFT BLANK
*CONFIDENTIAL TREATMENT REQUESTED
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ARTICLE 12
REPRESENTATIONS AND WARRANTIES
12.1 CORPORATE POWER. Each party hereby represents and warrants that
such party is duly organized and validly existing under the laws of the state of
its incorporation and has full corporate power and authority to enter into this
Agreement and to carry out the provisions hereof.
12.2 DUE AUTHORIZATION. Each party hereby represents and warrants that
such party is duly authorized to execute and deliver this Agreement and to
perform its obligations hereunder.
12.3 BINDING OBLIGATION. Each party hereby represents and warrants that
this Agreement is a legal and valid obligation binding upon it and is
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by such party does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a party
or by which it may be bound, nor violate any law or regulation of any court,
governmental body or administrative or other agency having authority over it.
12.4 INCONSISTENT AGREEMENT. Neither party has entered into, nor will
they enter into any agreements that are inconsistent with the rights conferred
to the other party under this Agreement.
12.5 REPRESENTATIONS AND WARRANTIES OF GENETRONICS. Genetronics hereby
represents and warrants to Ethicon that:
(a) During the Term, Genetronics is the sole and exclusive owner
of or, for licenses executed after the date hereof, licenses with the right to
sublicense, the Genetronics Technology; provided, however, that there are no
such licenses as of the Effective Date.
(b) As of the Effective Date, Genetronics has not received any
notice from any person or entity claiming to have any right, title or interest
in or to the Genetronics Technology and, to the best of its knowledge, has no
reason to expect that any such notice is forth coming.
(c) As of the Effective Date, to the best of its knowledge, that
the patents included in the Genetronics Patents Rights are valid and enforceable
in those countries listed on Exhibit E hereto.
(d) As of the Effective Date, Genetronics has no knowledge of
(i) any existing published patent application or issued patent which the
manufacture, use or sale of the Drug Delivery System would infringe, and (ii)
any infringement of the Genetronics Patent Rights by a Third Party.
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(e) All authorizations, approvals, or permits, if any, of any
governmental authority or regulatory body of the United States or of any country
or state that are required in connection with this Agreement including, but not
limited to, the notification requirements under the Hart Scott Rodino Antitrust
Improvements Act of 1976, if required, shall have been duly obtained and shall
be effective on and as of the Effective Date.
12.6 DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT OR THE SUPPLY AGREEMENT:
(a) NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE
OTHER PARTY OF ANY KIND;
(b) NOTHING HEREIN SHALL BE CONSTRUED AS A REPRESENTATION OR
WARRANTY BY GENETRONICS TO ETHICON THAT THE GENETRONICS TECHNOLOGY IS VALID,
ENFORCEABLE, OR NOT INFRINGED BY ANY THIRD PARTY OR THAT THE PRACTICE OF SUCH
RIGHTS DOES NOT INFRINGE ANY INTELLECTUAL PROPERTY RIGHT OF ANY THIRD PARTY; AND
(c) NEITHER PARTY MAKES ANY WARRANTIES, EXPRESS OR IMPLED,
CONCERNING THE SUCCESS OF THE DEVELOPMENT OR THE COMMERCIAL EXPLOITATION OF THE
DRUG DELIVERY SYSTEM.
ARTICLE 13
TERM AND TERMINATION
13.1 TERM. This Agreement shall commence as of the Effective Date and
shall continue, until the expiration of the last to expire of the Genetronics
Patent Rights covering the Drug Delivery System in any country, unless
terminated earlier as provided herein (the "Term"). Following the expiration of
this Agreement in accordance with this Section 13.1, Ethicon shall have a
fully-paid license on the same terms as set forth in Section 5.1, except that
such license shall be a non-exclusive, worldwide, fully-paid, irrevocable
license with the right to make and have made the Drug Delivery System in the
Territory for use in the Field.
13.2 TERMINATION BY ETHICON. Ethicon may terminate this Agreement
without cause upon 180 days' prior written notice to Genetronics. Upon
termination of this Agreement by Ethicon pursuant to this Section 13.2, (i)
Ethicon shall have no right to practice the Genetronics Patent Rights or use any
of the Genetronics Technology, (ii) all right, title or interest in, or other
incidents of ownership under, the Genetronics Technology shall revert to and
become the sole property of Genetronics, and (iii) any sublicenses granted
hereunder by Ethicon shall remain in effect, but shall be assigned to
Genetronics.
13.3 EVENTS OF DEFAULT. The occurrence of any one or more of the
following acts, events or occurrences shall constitute an "Event of Default"
under this Agreement:
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(a) a failure by Ethicon to pay 60 days after written notice
thereof by Genetronics any amount due in accordance with Article 6 hereof; or
(b) either party becomes the subject of a Bankruptcy Event; or
(c) in the event Ethicon terminates the Supply Agreement upon
breach by Genetronics; or
(d) in the event of a Change in Control of Genetronics, and such
Change in Control involves (i) a Competitor (as defined below); (ii) any entity
which has a documented and consistent history of Good Manufacturing Practice
problems with the FDA or equivalent problems with any Regulatory Agency, or
(iii) a party which does not have the financial, production or other resources
necessary for it to meet all of the obligations of Genetronics under this
Agreement. For purposes of this paragraph, a "Competitor" shall mean any entity
which is involved in the same business as any operating company among the
Johnson & Johnson Family of Companies ("J&J") that: (A) belongs to the
Professional Sector of (J&J), (B) is engaged in the business of commercially
exploiting surgical oncology products.
13.4 TERMINATION RIGHTS UPON AN EVENT OF DEFAULT. Upon the occurrence of
an Event of Default, the non-defaulting party in its sole discretion may
terminate this Agreement upon written notice to the defaulting party. If the
Event of Default is caused by Genetronics (a) Ethicon shall have a fully-paid
license on the same terms as set forth in Section 5.1, except that such license
shall be non-exclusive, worldwide, fully-paid, irrevocable license with the
right to make and have made the Drug Delivery System in the Territory for use in
the Field, and (b) Genetronics shall provide such assistance and other
information as shall be necessary in order for Ethicon to manufacture or have
manufactured the Drug Delivery System. If the Event of Default is caused by
Ethicon all rights granted to Ethicon's by Genetronics under this Agreement
shall terminate immediately upon such Event of Default. Disputes over Events of
Default shall be subject to Article 14.
13.5 FORCE MAJEURE EVENTS.
(a) If either party is prevented from performing any of its
obligations hereunder (other than payment obligations) due to any cause which is
beyond the non-performing party's reasonable control, including, without
limitation, fire, explosion, flood, or other acts of God; acts, regulations, or
laws of any government; war or civil commotion; strike, lock-out or labor
disturbances; or failure of public utilities or common carriers (a "Force
Majeure Event"), such non-performing party shall not be liable for breach of
this Agreement with respect to such non-performance to the extent such
non-performance is due to a Force Majeure Event. Such non-performance will be
excused for three months or as long as such event shall be continuing (whichever
period is shorter), provided that the non-performing party gives immediate
written notice to the other party of the Force Majeure Event. Such
non-performing party shall exercise all reasonable efforts to eliminate the
Force Majeure Event and to resume performance of its affected obligations as
soon as practicable. Should the event of force majeure
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continue unabated for a period of sixty (60) days or more, the parties shall
enter into good faith discussions with a view to alleviating its affects or to
agreeing upon such alternative arrangements as may be fair and reasonable having
regard to the circumstances prevailing at that time.
(b) In the event that such alternative arrangements cannot be
agreed upon within thirty (30) days after the expiration of such initial sixty
(60) day period, and in the event Genetronics is the party which is the subject
of the force majeure event, then Ethicon shall have the right and option, upon
written notice to Genetronics (the "Force Majeure Notice"), to either
manufacture itself the components of the Drug Delivery System which are the
subject of such force majeure event, or to have a Third Party so manufacture
such components. The Force Majeure Notice shall specify the components which are
the subject thereof. Upon delivery of the Force Majeure Notice to Genetronics,
(i) Ethicon shall be entitled to manufacture the Drug Delivery System itself,
and (ii) Genetronics shall provide such assistance and other information as
shall be necessary in order for Ethicon to manufacture or have manufactured the
Drug Delivery System.
13.6 REASONABLENESS. Genetronics expressly acknowledges that the
termination provisions contained in this Article 13 are reasonable considering
the intended nature and scope of this Agreement.
13.7 RIGHTS UPON INSOLVENCY. All rights and licenses granted under or
pursuant to this Agreement or the Supply Agreement by Genetronics to Ethicon are
for all purposes of Section 365(n) of Title 11, U.S. Code (the "Bankruptcy
Code"), licenses of rights to "intellectual property" as defined in the
Bankruptcy Code. The parties agree that Ethicon, as a licensee of such rights
under this Agreement or the Supply Agreement, shall retain and may fully
exercise all of its rights and elections under the Bankruptcy Code. If a case is
commenced by or against Genetronics under the Bankruptcy Code, then, unless and
until this Agreement is rejected as provided in the Bankruptcy Code, Genetronics
(in any capacity, including debtor-in-possession) and its successors and assigns
(including, without limitation, a Bankruptcy Code trustee) shall either perform
or caused to be performed all of the obligations provided in this Agreement to
be performed by Genetronics or provide or cause to be provided to Ethicon all
such intellectual property (including all embodiments thereof) held by
Genetronics and such successors and assigns. If this Agreement is rejected as
provided in the Bankruptcy Code and Ethicon elects to retain its rights
hereunder as provided in the Bankruptcy Code, then Genetronics (in any capacity,
including debtor-in-possession) and its successors and assigns (including,
without limitation, a Bankruptcy Code trustee) shall provide or cause to be
provided to Ethicon all such intellectual property (including all embodiments
thereof) held by Genetronics and such successors and assigns immediately upon
Ethicon's written request therefor. All rights, powers and remedies of Ethicon
provided under this Article are in addition to and not in substitution for any
and all other rights, powers and remedies now or hereafter existing at law or in
equity (including, without limitation, the Bankruptcy Code) in the event of any
such commencement of a bankruptcy proceeding by or against Genetronics. Ethicon,
in addition to the rights, powers and remedies expressly provided herein, shall
be entitled to exercise all other such rights
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and powers and resort to all other such remedies as may now or hereafter exist
at law or in equity (including the Bankruptcy Code) in such event.
ARTICLE 14
DISPUTE RESOLUTION
14.1 DISPUTES. The parties recognize that disputes as to certain matters
may from time to time arise which relates to either party's rights and
obligations hereunder. It is the objective of the parties to establish
procedures to facilitate the resolution of such disputes in an expedient and
cost effective manner by mutual cooperation and without resort to litigation. To
accomplish this objective, the parties agree that any dispute, claim or
controversy arising from or related in any way to this Agreement or the
interpretation, application, breach, termination or validity thereof, including
any claim of inducement of this Agreement by fraud or otherwise (a "Dispute"),
shall be referred to the President of each party, who or whose designee shall
attempt to resolve it in good faith to negotiate a resolution of the Dispute
prior to pursuing other remedies. If within 21 days after referral of the
Dispute to such officers, the parties have not succeeded in negotiation a
resolution of the dispute, such dispute shall be submitted to non-binding
mediation pursuant to Section 14.2. If the parties are unable to resolve the
Dispute within 45 days after initiation of non-binding mediation, such dispute
shall be submitted to arbitration pursuant to Section 14.3.
14.2 MEDIATION.
(a) Any Dispute submitted to non-binding mediation shall be
mediated in accordance with the Model Procedures for the Mediation of Business
Disputes promulgated by the Center for Public Resources ("CPR") then in effect,
except where those rules conflict with these provisions, in which case these
provisions control. The mediation shall be conducted in Trenton, New Jersey and
shall be attended by a senior executive with authority to resolve the dispute
from each of the operating companies that are parties.
(b) The mediator shall be an attorney specializing in business
litigation who has at least 15 years of experience as a lawyer with a law firm
or corporation of over 25 lawyers or was a judge of a court of general
jurisdiction and who shall be appointed from the list of neutrals maintained by
CPR.
(c) The parties shall promptly confer in an effort to select a
mediator by mutual agreement. In the absence of such an agreement, the mediator
shall be selected from a list generated by CPR with each party having the right
to exercise challenges for cause and two peremptory challenges within 72 hours
of receiving the CPR list.
(d) The mediator shall confer with the parties to design
procedures to conclude the mediation within no more than 45 days after
initiation. Under no
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circumstances shall the commencement of arbitration under Section 14.3 below be
delayed more than 45 days by the mediation process specified herein.
(e) Each party agrees to toll all applicable statutes of
limitation during the mediation process and not to use the period or pendancy of
the mediation to disadvantage the other party procedurally or otherwise. No
statements made by either side during the mediation may be used by the other
during any subsequent arbitration.
(f) Each party has the right to pursue provisional relief from
any court, such as attachment, preliminary injunction, replevin, etc., to avoid
irreparable harm, maintain the status quo, or preserve the subject matter of the
arbitration, even though mediation has not been commenced or completed.
14.3 DISPUTE RESOLUTION; ARBITRATION.
(a) Any Dispute will be submitted for resolution to arbitration
pursuant to the commercial arbitration rules then pertaining of the CPR, except
where those rules conflict with these provisions, in which case these provisions
control. The arbitration will be held in Trenton, New Jersey.
(b) The panel shall consist of three arbitrators chosen from the
CPR Panels of Distinguished Neutrals each of whom is a lawyer specializing in
business or patent litigation with at least 15 years experience with a law firm
or corporation of over 25 lawyers or was a judge of a court of general
jurisdiction. In the event the aggregate damages sought by the claimant are
stated to be less than $5 million, and the aggregate damages sought by the
counterclaimant are stated to be less than $5 million, and neither side seeks
equitable relief, then a single arbitrator shall be chosen, having the same
qualifications and experience specified above.
(c) The parties agree to cooperate (1) to obtain selection of
the arbitrator(s) within 30 days of initiation of the arbitration, (2) to meet
with the arbitrator(s) within 30 days of selection and (3) to agree at that
meeting or before upon procedures for discovery and as to the conduct of the
hearing which will result in the hearing being concluded within no more than 9
months after selection of the arbitrator(s) and in the award being rendered
within 60 days of the conclusion of the hearings, or of any post-hearing
briefing, which briefing will be completed by both sides with 20 days after the
conclusion of the hearings. In the event no such agreement is reached, the CPR
will select arbitrator(s), allowing appropriate strikes for reasons of conflict
or other cause and three peremptory challenges for each side. The arbitrator(s)
shall set a date for the hearing, commit to the rendering of the award within 60
days of the conclusion of the evidence at the hearing, or of any post-hearing
briefing (which briefing will be completed by both sides in no more than 20 days
after the conclusion of the hearings), and provide for discovery according to
these time limits, giving recognition to the understanding of the parties hereto
that they contemplate reasonable discovery, including document demands and
depositions, but that such discovery be limited so that the time limits
specified herein may be met without undue difficulty. In no event will the
arbitrator(s) allow either side to obtain more than a total of 40 hours of
deposition testimony from all
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witnesses, including both fact and expert witnesses. In the event multiple
hearing days are required, they will be scheduled consecutively to the greatest
extent possible.
(d) The arbitrator(s) shall render their award following the
substantive law of New Jersey. The arbitrator(s) shall render an opinion setting
forth findings of fact and conclusions of law with the reasons therefor stated.
A transcript of the evidence adduced at the hearing shall be made and shall,
upon request, be made available to either party.
(e) To the extent possible, the arbitration hearings and award
will be maintained in confidence.
(f) The United States District Court for the District of New
Jersey may enter judgment upon any award. In the event the panel's award exceeds
$5 million in monetary damages or includes or consists of equitable relief, then
the court shall vacate, modify or correct any award where the arbitrators'
findings of fact are clearly erroneous, and/or where the arbitrators'
conclusions of law are erroneous; in other words, it will undertake the same
review as if it were a federal appellate court reviewing a district court's
findings of fact and conclusions of law rendered after a bench trial. An award
for less than $5 million in damages and not including equitable relief may be
vacated, modified or corrected only upon the grounds specified in the Federal
Arbitration Act. The parties consent to the jurisdiction of the above-specified
Court for the enforcement of these provisions, the entry of judgment on any
award, and the vacatur, modification and correction of any award as above
specified. In the event such Court lacks jurisdiction, then any court having
jurisdiction of this matter may enter judgment upon any award and provide the
same relief, and undertake the same review, as specified herein.
(g) Each party has the right before or during the arbitration to
seek and obtain from the appropriate court provisional remedies such as
attachment, preliminary injunction, replevin, etc. to avoid irreparable harm,
maintain the status quo, or preserve the subject matter of the arbitration.
(h) EACH PARTY HERETO WAIVES ITS RIGHT TO TRIAL OF ANY ISSUE BY
JURY.
(i) EACH PARTY HERETO WAIVES ANY CLAIM TO PUNITIVE OR EXEMPLARY
DAMAGES FROM THE OTHER.
(j) EACH PARTY HERETO WAIVES ANY CLAIM OF INDIRECT, SPECIAL,
INCIDENTAL AND CONSEQUENTIAL DAMAGES FROM THE OTHER.
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ARTICLE 15
MISCELLANEOUS
15.1 CONFIDENTIALITY; PRESS RELEASES.
(a) Ethicon and Genetronics will be exchanging information
relating to the Drug Delivery System at the inception of and from time to time
during the term of this Agreement. Any such information which is considered by
the disclosing party to be confidential will be identified in writing as
confidential information or, if disclosed orally or in another non-written
manner, shall be confirmed in writing as being confidential promptly after the
disclosure thereof. The party receiving such information will maintain the
information in confidence using the same standard of care it uses to maintain
its own information in confidence during the term of this Agreement and for a
period of five years thereafter. Such obligation of confidentiality shall not
apply to information which (i) is known to the receiving party prior to the
disclosure, (ii) is publicly known as of the date of the disclosure, (iii)
becomes publicly known after the date of disclosure through no fault of the
receiving party, (iv) is received from a Third Party who has no obligation of
confidentiality to the disclosing party, (v) is developed independently by the
receiving party, (vi) is required to be disclosed to comply with a court or
administrative subpoena or order, provided the receiving party first uses
reasonable effort to obtain an order preserving the confidentiality of the
confidential information and provided that the receiving party gives the other
party timely notice off the contemplated disclosure to provide the disclosing
party the opportunity to intervene to preserve the confidentiality of the
information, or (vii) is required to be disclosed under applicable laws, rules
or regulations, including, without limitation, the rules and regulations of the
Toronto Stock Exchange or other governmental bodies.
(b) Notwithstanding paragraph (a) above, Ethicon shall be
permitted to disclose to its wholesalers and other direct customers such
confidential information relating to the Drug Delivery System as Ethicon shall
reasonably determine to be necessary in order to effectively market and
distribute the Drug Delivery System provided that such entities are bound the
same confidentiality obligations that Ethicon has with respect to Genetronics
confidential information.
(c) No party to this Agreement shall originate any publicity,
news release or other public announcement, written or oral, whether relating to
this Agreement or the existence of any arrangement between the parties, without
the prior written consent of any other party named in such publicity, news
release or other public announcement, except where such publicity, news release
or other public announcement is required by law; provided that in such event,
the party issuing same shall still be required to consult with the other party
or parties named in such publicity, news release or public announcement a
reasonable time (being not less than 48 hours) prior to its release to allow the
named party or parties to comment on the use of its name and, after its release,
shall provide the named party or parties with a copy thereof. No prior approval
will be required for a press release substantially in the form attached hereto
as Exhibit G to be issued by Genetronics on or about the Effective Date.
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(d) Neither party shall use the name of the other for
advertising or promotional claims without the prior written consent of the other
party.
15.2 INSURANCE. Genetronics agrees to procure and maintain in full force
and effect during the term of this Agreement and, with respect to the
manufacture and/or design of the Drug Delivery System by Genetronics, for so
long as the Drug Delivery System is manufactured by Genetronics or marketed by
either party, respectively, valid and collectible insurance policies in
connection with this Agreement, which policies shall provide for the type of
insurance and amount of coverage described in Exhibit F of the Supply Agreement.
Upon Ethicon's request, Genetronics shall provide to Ethicon a certificate of
coverage or other written evidence reasonably satisfactory to Ethicon of such
insurance coverage.
15.3 SURVIVAL. Those provisions of this Agreement dealing with rights
and obligations upon and/or after termination of this Agreement shall survive
termination of this Agreement to the extent necessary to give effect to such
provisions.
15.4 PENALTIES. If either party terminates this Agreement in accordance
with the terms herein, the terminating party shall owe no penalty or indemnity
to the terminated party on account of such termination.
15.5 INDEPENDENT CONTRACTOR STATUS. Neither party shall have any
authority to obligate the other in any respect nor hold itself out as having any
such authority. All personnel of Genetronics shall be solely employees of
Genetronics and shall not represent themselves as employees of Ethicon, and all
personnel of Ethicon shall be solely employees of Ethicon and shall not
represent themselves as employees of Genetronics.
15.6 BINDING EFFECT; BENEFITS; ASSIGNMENT.
(a) This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective permitted successors and assigns.
Nothing contained herein shall give to any other person any benefit or any legal
or equitable right, remedy or claim. Anything to the contrary herein
notwithstanding, Genetronics agrees that the right and obligations under this
Agreement of Ethicon may, from time to time, be exercised or performed, as the
case may be, in whole or in part by Affiliates of Ethicon.
(b) Genetronics shall be permitted to assign all or part of this
Agreement to any Affiliate of Genetronics upon written notice to Ethicon, such
assignment shall be subject to the assignee agreeing in writing to assume the
benefits and obligations of this Agreement. Anything contained herein to the
contrary notwithstanding, this Agreement shall not be assignable by Genetronics
without the prior written consent of Ethicon, such consent not to be
unreasonably withheld; provided; however, that if such assignment involves any
entity of the type referred to in Section 13.3(d), then Ethicon's refusal of
consent to such an assignment shall be deemed to have been reasonable.
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<PAGE> 33
(c) Ethicon shall be permitted to assign all or part of this
Agreement to any Affiliate of Ethicon upon written notice to Genetronics, such
assignment shall be subject to the assignee agreeing in writing to assume the
benefits and obligations of this Agreement. Anything contained herein to the
contrary notwithstanding, this Agreement shall not be assignable by Ethicon
without the prior written consent of Genetronics, such consent not to be
unreasonably withheld.
15.7 ENTIRE AGREEMENT; AMENDMENTS. Before signing this Agreement the
parties have had numerous conversation, including without limitation preliminary
discussions, formal negotiations and informal conversations at meals and social
occasions, and have generated correspondence and other writings, in which the
parties discussed the transaction which is the subject of this Agreement and
their aspirations for success. In such conversations and writings, individuals
representing the parties may have expressed their judgments and beliefs
concerning the intentions, capabilities and practices of the parties, and may
have forecasted future events. The parties recognize that such conversations and
writings often involve an effort by both sides to be positive and optimistic
about the prospects for the transactions. However, it is also recognized that
all business transactions contain an element of risk, as does the transaction
contemplated by this Agreement, and that it is normal business practice to limit
the legal obligations of contracting parties to only those promises and
representations which are essential to their transaction so as to provide
certainty as to their future rights and remedies. Accordingly, this Agreement is
intended to define the full extent of the legally enforceable undertakings of
the parties hereto, and no promise or representation, written or oral, which is
not set forth explicitly in this Agreement is intended by either party to be
legally binding. Each of the parties acknowledge that in deciding to enter into
this Agreement and to consummate the transaction contemplated hereby none of
them has relied upon any statements or representations, written or oral, other
than those explicitly set forth herein or therein. No subsequent alteration,
amendment, change or addition to this Agreement shall be binding upon the
parties hereto unless reduced to writing and signed by the respective authorized
officers of the parties.
15.8 SEVERABILITY. In the event that any provision of this Agreement
would be held in any jurisdiction to be invalid, prohibited or unenforceable for
any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
15.9 REMEDIES. Unless otherwise expressly provided, all remedies
hereunder, are cumulative, are in addition to any other remedies provided for by
law and may, to the extent permitted by law, be exercised concurrently or
separately, and the exercise of any one remedy shall not be deemed to be an
election of such remedy or to preclude the exercise of any other remedy.
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<PAGE> 34
15.10 NOTICES. Any notice, request, consent or communication
(collectively, a "Notice") under this Agreement shall be effective if it is in
writing and (i) personally delivered, (ii) sent by certified or registered mail,
postage prepaid, return receipt requested, (iii) sent by an internationally
recognized overnight delivery service, with delivery confirmed, or (iv) telexed
or telecopied, with receipt confirmed, addressed as set forth in this Section or
to such address as shall be furnished by either party hereto to the other party
hereto. A Notice shall be deemed to have been given as of (i) the date when
personally delivered, (ii) seven (7) business days after being deposited with
the United States Postal Service, certified or registered mail, properly
addressed, return receipt requested, postage prepaid, (iii) two business days
after being delivered to said overnight delivery service properly addressed, or
(iv) confirmation of receipt of the telex or telecopy, as the case may be. All
Notices shall specifically state: (i) the provision (or provisions) of this
Agreement with respect to which such Notice is given, and (ii) the relevant time
period, if any, in which the party receiving the Notice must respond.
If to Genetronics:
Genetronics, Inc.
11199 Sorrento Valley Road
San Diego, CA 92121-1334
Attention: Vice President, Corporate Development
Fax: (619) 410-3395
with a copy to:
Cooley Godward LLP:
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Attention: M. Wainwright Fishburn, Esq.
Fax: No. (619) 453-3555;
If to Ethicon:
Ethicon, Inc.
Route 22 West
Somerset, New Jersey 08876
Attention: Vice President, New business Development
Fax: (908) 218-3492
with a copy to:
Office of General Counsel
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Fax: 1-908-524-2788;
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<PAGE> 35
15.11 WAIVERS. The failure of either party to assert a right hereunder
or to insist upon compliance with any term or condition of this Agreement shall
not constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
15.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and execution by each of the parties of any one of such
counterparts will constitute due execution of this Agreement. Each such
counterpart hereof shall be deemed to be an original instrument, and all such
counterparts together shall constitute but one agreement.
15.13 HEADINGS. The article and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
15.14 CONSTRUCTION. The parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in the construction or interpretation of
this Agreement.
15.15 PATENT MARKINGS. To the extent it is commercially reasonable to do
so, Ethicon agrees (a) to mark the Drug Delivery System sold in the United
States with all applicable United States patent numbers and/or trademarks, and
(b) to mark the Drug Delivery System shipped to or sold in other countries in
such a manner as to conform with the patent and trademark laws and practices of
the country of manufacture or sale.
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<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized officers as of the date first
above written.
GENETRONICS BIOMEDICAL, INC.
By: /s/ Lois J. Crandell
---------------------------------------------------
Name: Lois J. Crandell
Title: President and Chief Executive Officer
By: /s/ Martin Nash
---------------------------------------------------
Name: Martin Nash
Title: Senior Vice President
GENETRONICS, INC.
By: /s/ Lois J. Crandell
---------------------------------------------------
Name: Lois J. Crandell
Title: President and Chief Executive Officer
By: /s/ Martin Nash
---------------------------------------------------
Name: Martin Nash
Title: Senior Vice President
ETHICON, INC.
By: /s/ Howard Zauberman
---------------------------------------------------
Name: Howard Zauberman
Title: Vice President, Growth Technologies/
New Business Development
36
<PAGE> 37
EXHIBIT A
GENETRONICS PATENT RIGHTS
[...***...]
*CONFIDENTIAL TREATMENT REQUESTED
37
<PAGE> 38
EXHIBIT B
SUPPLY AGREEMENT
(SEE EXHIBIT 10.17 FILED AS AN EXHIBIT
TO THE REGISTRANT'S S-1 ON OCTOBER 4, 1999)
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<PAGE> 39
EXHIBIT C
STOCK PURCHASE AGREEMENT
(SEE EXHIBIT 10.15 FILED AS AN EXHIBIT
TO THE REGISTRANT'S S-1 ON OCTOBER 4, 1999)
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<PAGE> 40
EXHIBIT D
CLINICAL STUDIES REFERRED TO IN SECTION 6.2(D)
[ *** ]
*CONFIDENTIAL TREATMENT REQUESTED
40
<PAGE> 41
EXHIBIT E
COUNTRIES REFERRED TO IN SECTION 12.5
UNITED STATES OF AMERICA
TIER 1 EUROPEAN COUNTRIES
MEXICO
JAPAN
INDIA
CHINA
RUSSIA
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<PAGE> 42
EXHIBIT F
CONCEPT DRAWING OF THE PROPOSED DEEP SEATED PROBE REFERRED TO IN SECTION 6.2
42
<PAGE> 43
EXHIBIT G
PRESS RELEASE REFERRED TO IN SECTION 15.1
43
<PAGE> 1
EXHIBIT 10.18
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTION SECTION 200.80(b)(4),
200.83 and 230.406
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (the "Agreement") is made as of October 2, 1998,
by and among ETHICON, INC., a New Jersey Corporation with its principal office
at Route 22, Somerville, New Jersey 08876-0151 ("Ethicon"), GENETRONICS
BIOMEDICAL, LTD., a corporation organized under the laws of British Columbia, a
province of Canada, and Genetronics, Inc., a wholly-owned subsidiary of
Genetronics Biomedical, Ltd. and a California Corporation with its principal
office at 11199 Sorrento Valley Road, San Diego, CA 92121 (both jointly and
severally hereinafter referred to as "Genetronics").
RECITALS
WHEREAS, pursuant to an agreement dated the date hereof (the "License
Agreement"), Genetronics has licensed to Ethicon certain rights to a drug
delivery system in the Territory for use in the Field.
WHEREAS, this Supply Agreement is being entered into in connection with
the License Agreement to set out the terms and conditions under which
Genetronics will supply to Ethicon the components of the drug delivery system.
NOW THEREFORE, in consideration of the mutual covenants and
consideration set forth herein, and contingent upon the simultaneous execution
of the License Agreement, the parties hereto agree as follows:
AGREEMENT
ARTICLE I
DEFINITIONS
SECTION 1.1. As used in this Agreement, the following defined terms
shall have the meanings set out in this Article 1. Capitalized terms used but
not otherwise defined herein shall have the meanings given such terms in the
License Agreement.
(a) "AFFILIATE" shall mean, in relation to either party hereto, (a) any
entity in which the relevant party directly or indirectly holds more than 50% of
the voting stock or power, (b) any entity ("Holding Entity") which holds
directly or indirectly more than 50% of the voting stock or power of the
relevant party, (c) any other entity in which more than 50% of the voting stock
or power is directly or indirectly held by any Holding Entity of the relevant
party or (d) any entity in which the relevant party directly or indirectly holds
less than 50% of the voting stock or power but has management control of such
entity in that it
<PAGE> 2
has the ability to appoint and remove the majority of the Board of Directors (or
other governing body) of such party.
(b) "BANKRUPTCY EVENT" shall mean the person or entity in question
becomes insolvent, or voluntary or involuntary proceedings by or against such
person or entity are instituted in bankruptcy or under any insolvency law, or a
receiver or custodian is appointed for such person or entity, or proceedings are
instituted by or against such person or entity for corporate reorganization or
the dissolution of such person or entity, which proceedings, if involuntary,
shall not have been dismissed within 60 days after the date of filing, or such
person or entity makes an assignment for the benefit of its creditors, or
substantially all of the assets of such person or entity are seized or attached
and not released within 60 days thereafter.
(c) "CHANGE IN CONTROL" shall mean (i) the liquidation or dissolution of
Genetronics or the sale or other transfer by Genetronics (excluding transfers to
subsidiaries) of all or substantially all of its assets; or (ii) the occurrence
of a tender offer, stock purchase, other stock acquisition, merger,
consolidation, recapitalization, reverse split, sale or transfer of assets or
other transaction, as a result of which any person, entity or group (a) becomes
the beneficial owner, directly or indirectly, of securities of Genetronics
representing more than 50% of the ordinary shares of Genetronics or representing
more than 50% of the combined voting power with respect to the election of
directors (or members of any other governing body) of Genetronics' then
outstanding securities, (b) obtains the ability to appoint a majority of the
Board of Directors (or other governing body) of Genetronics, or obtains the
ability to direct the operations or management of Genetronics or any successor
to Genetronics business; provided, however, that Change in Control shall not
include the issuance by Genetronics of equity to the public through a public
offering or offerings.
(d) "DRUG DELIVERY SYSTEM" shall have the meaning given in the License
Agreement.
(e) "EVENT OF DEFAULT" shall have the meaning given in Section 11.4
hereof.
(f) "EFFECTIVE DATE" shall have the meaning ascribed in Section 3.1
hereof.
(g) "ESCROW ACCOUNT" AND "ESCROW AGENT" shall have the meaning ascribed
in Section 10 hereof.
(h) "FDA" shall mean the United States Food and Drug Administration.
(i) "FIRST COMMERCIAL SALE" shall mean the date of the first sale of the
Drug Delivery System to an end user of such system but not with respect to
clinical trials or market development activities. Sale to an Affiliate shall not
constitute the First Commercial Sale unless the Affiliate is the end user of the
Drug Delivery System.
(j) "FORCE MAJEURE EVENT" OR "FORCE MAJEURE NOTICE" shall have the
meaning ascribed in Section 11.6 hereof.
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<PAGE> 3
(k) "HOLDING ENTITY" shall have the meaning ascribed in Section 1.1(a)
hereof.
(l) "MANUFACTURING PLAN" shall have the meaning ascribed in Section 3.1
hereof.
(m) "MARKET REQUIREMENTS" shall mean the Market Requirements stipulated
by Ethicon for the Products in accordance with Section 4.1 hereof and as more
particularly described in Exhibit A hereto.
(n) "PROCESS & PRODUCT DESCRIPTION" shall mean, with respect to each
Product, the design, all regulatory filings with the FDA or any Regulatory
Agency, the regular laboratory procedures, good laboratory procedures, or good
manufacturing procedures (including, but not limited to, FDA good manufacturing
practices or the equivalent practices of any Regulatory Agency, EN 46000 series
procedures and Ethicon (or its parent company) guidelines), as the case may be,
as well as such other know-how, technical specifications, instructions,
processes and other intellectual property and information Genetronics shall
possess and as shall be necessary in order to allow Ethicon to own the design
and the regulatory filings, and to manufacture and/or have manufactured for it
the Product. The source code for any Software shall also be included in such
material. Such Process & Product Description shall be sufficiently clear and
detailed that it can be readily followed and carried out by a skilled person to
make the Drug Delivery System in the manner Genetronics considers most
efficient.
(o) "PRODUCTS" shall mean the Drug Delivery System meeting the
Specifications set forth in Exhibit A hereto.
(p) "PURCHASE PRICE" shall have the meaning as given in Section 5.1
hereof.
(q) "REGULATORY AGENCY" shall mean the regulatory agency or notified
body in a country which performs the same or equivalent function as the FDA in
the United States. Any reference to a rule or requirement of the FDA herein
shall refer, if the circumstances make it applicable, to the equivalent rule or
requirement of any Regulatory Agency.
(r) "SECONDARY FACILITIES" shall have the meaning ascribed in Section
3.1(c) hereof.
(s) "SOFTWARE" shall have the meaning given in the License Agreement.
(t) "SPECIFICATIONS" shall have the meaning given in Section 4.1 hereof
and as more particularly described in Exhibit A hereto.
(u) "TRADEMARKS" shall mean: (i) the trademarks, including all trademark
registrations and applications, listed on Exhibit B hereto, and (ii) in
countries in which such trademarks are not applied for or registered, any rights
of Genetronics with respect to such trademarks under applicable law.
(v) "YEAR 2000 COMPLIANT" shall mean:
3
<PAGE> 4
(i) each Product performs in a consistent manner and functions without
interruptions regardless of the date in time on which such Product is delivered,
used and/or further distributed, whether before, on or after January 1, 2000 and
whether or not the dates are affected by leap years;
(ii) each Product, if computerized, accepts, calculates, compares,
sorts, extracts, sequences and otherwise processes date inputs and date values,
and returns and displays date values and performs, in a consistent manner
regardless of the dates used, whether before, on or after January 1, 2000;
(iii) each Product, if computerized, accepts and responds to two-digit
year-date input in a manner that resolves any ambiguities as to the century in a
defined, predetermined and appropriate manner;
(iv) each Product, if computerized, stores and displays date information
in ways that are unambiguous as to the determination of the century.
ARTICLE 2
SUPPLY RIGHTS
SECTION 2.1. GENETRONICS shall supply the Products to Ethicon in
accordance with and subject to the terms and conditions of this Agreement. For
purposes of clarification only, Genetronics shall only supply the Products to
Ethicon in the Territory for use in the Field.
ARTICLE 3
EFFECTIVE DATE: PRODUCTION FACILITIES
SECTION 3.1. EFFECTIVE DATE.
(a) Although the parties have entered into this Agreement simultaneously
with the License Agreement, the parties acknowledge that, except as otherwise
provided herein, the obligations of the parties under this Agreement shall only
become effective (hereinafter referred to as the "Effective Date") upon
acceptance by Ethicon of the Manufacturing Plan (as defined below).
(b) Within 60 days after the execution and delivery of this Agreement,
Genetronics shall submit to Ethicon its one year manufacturing capability plan
(the "Manufacturing Plan") for completing implementation of procedures and
facilities for producing the Products which satisfy both the volume,
specifications and other supply requirements of this Agreement. Ethicon shall be
reasonably available for advice and consultation during Genetronics' development
of the Manufacturing Plan.
4
<PAGE> 5
(c) The Manufacturing Plan shall include commercially appropriate plans
(including scheduled availability thereof) which provide for alternative
manufacturing facilities (the "Secondary Facilities") in the event Genetronics'
primary manufacturing facility is incapable (either by reason of force majeure
or otherwise) of supplying the Products as anticipated under this Agreement.
Ethicon shall promptly review the Manufacturing Plan and discuss with
Genetronics changes, if any, required to meet such provisions. Notwithstanding
Ethicon's review of the Manufacturing Plan, it is expressly acknowledged that
Genetronics shall be solely responsible for complying with its obligations under
this Agreement.
SECTION 3.2. PRO-COMMERCIALIZATION AUDIT. Ethicon shall have the right,
upon reasonable advance notice and during regular business hours, to audit or
have audited (by a third party bound by obligations of confidentiality at least
as stringent as those set forth herein) the manufacturing facilities (including,
if applicable, the Secondary Facilities) which Genetronics is going to use to
manufacture the Products (including those facilities of its sub-contractors) to
confirm that such facilities are adequate to meet the requirements of (i) the
Manufacturing Plan, (ii) prevailing FDA, Regulatory Agency and ISO 9001 and EN
46001 requirements (or, if appropriate, ISO 9002 and EN 46002 requirements),
(iii) Ethicon external manufacturing policies (as set out in Exhibit D hereto),
and (iv) the requirements of this Agreement. Such audits may be conducted by
Ethicon as required before initiation of Genetronics production qualification
run and/or before Genetronics shipment of its first commercially saleable
Product. If either of such audits reveal that the manufacturing facilities
either do not satisfy the requirements of the Manufacturing Plan or are not
adequate to meet the requirements of this Agreement, in each case, in all
material respects, then Ethicon shall provide written notice of such fact, which
notice shall contain in reasonable detail the deficiencies found in the
manufacturing facilities and, if practicable, those steps Genetronics should
undertake in order to remedy such deficiencies. Genetronics shall use
commercially reasonable efforts to remedy such deficiencies within 60 days of
receipt of the notification thereof. If such deficiencies are not remedied by
Genetronics after 30 days, then Genetronics shall instruct the Escrow Agent to
permit Ethicon to have access to the Escrow Account to enable Ethicon to begin
contingency planning for alternate sourcing of the Product. If the deficiencies
are not remedied by Genetronics within the 60 day period, such failure shall be
considered a "Failure to Supply" for purposes of Article 7 hereof. If the
deficiencies are remedied by Genetronics within the 60 day period, Ethicon shall
return the contents of the Escrow Account to the Escrow Agent.
SECTION 3.3. POST-COMMERCIALIZATION INSPECTION AND AUDIT. Ethicon shall
have the right, upon reasonable advance notice and during regular business
hours, to inspect and audit the facilities being used by Genetronics for
production of the Products (including those of any sub-contractor used by
Genetronics) to assure compliance by Genetronics with applicable rules and
regulations, FDA Good Manufacturing Practices, ISO 9001 and EN 46001
requirements (or, if appropriate, ISO 9002 and EN 46002 requirements), Ethicon
external manufacturing procedures (as set forth on Exhibit D hereto), and with
the other provisions of this Agreement; provided, however, that two
5
<PAGE> 6
years after the First Commercial Sale, such audits shall be limited to no more
than twice per year. Such inspection and audit shall be conducted in a manner so
as to minimize disruption of the business operations of Genetronics. If an audit
reveals that the facilities either do not satisfy the requirements of the
Manufacturing Plan or are not adequate to meet the requirements of this
Agreement, in each case, in all material respects, then Ethicon shall provide
written notice of such fact, which notice shall contain in reasonable detail the
deficiencies found in the manufacturing facilities and, if practicable, those
steps Genetronics should undertake in order to remedy such deficiencies.
Genetronics shall use commercially reasonable efforts to remedy such
deficiencies within 30 days of receipt of the notification thereof. If such
deficiencies are not remedied by Genetronics; after 14 days, then Genetronics
shall instruct the Escrow Agent to permit Ethicon to have access to the Escrow
Account to enable Ethicon to begin contingency planning for alternate sourcing
of the Product. If the deficiencies are not remedied by Genetronics; within the
30 day period, such failure shall be considered a "Failure to Supply" for
purposes of Article 7 hereof. If the deficiencies are remedied by Genetronics
within the 30 day period, Ethicon shall return the contents of the Escrow
Account to the Escrow Agent.
ARTICLE 4
SPECIFICATIONS
SECTION 4.1. Prior to the placement of the first order for the Products,
Ethicon shall specify the market requirements ("Market Requirements") for launch
of the Products. Genetronics shall then submit to Ethicon specifications for the
Products. If accepted by Ethicon, such specifications shall become a part of
this Agreement and be deemed attached as part of Exhibit A hereof
("Specifications").
SECTION 4.2. Specifications for any improvements to the Product shall be
agreed to by Ethicon no less than 30 days prior to the placement of the first
order for each such improved Product. Such Specifications shall become part of
this Agreement and be deemed attached as part of Exhibit A hereof.
SECTION 4.3. All Products supplied to Ethicon hereunder shall be
supplied in finished form. Products shall be supplied in packaging which is
suitable for delivery to the ultimate end-user of the Products. The packaging
requirements shall be specified in the Specifications.
SECTION 4.4. No changes to the Specifications or to the Products shall
be made by Genetronics without the prior written agreement of Ethicon. In
addition, any changes to the Product, the Specifications or the manufacturing
process which may require the submission of any amendment, filing or other
documentation with any regulatory authority shall be identified, reviewed and
approved by Ethicon through a documented change control system. Ethicon shall
provide a written response to Genetronics of any such proposed changes within 30
days after receipt.
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ARTICLE 5
ORDERS, PRICES AND TERMS
SECTION 5.1. PURCHASE PRICE. The purchase price (the "Purchase Price")
for each Product purchased from Genetronics shall be as set out on Exhibit C;
provided, however the initial Purchase Price for the Generator will remain in
effect for one year from the date of First Commercial Sale.
SECTION 5.2. SHIPPING TERMS. All shipments of Products shall be FOB
Genetronics' manufacturing facility, provided that said facility is located in
the continental United States, and shall be accompanied by a packing slip which
describes the Products and states the purchase order number. To the extent of
any conflict or inconsistency between this Agreement and any purchase order,
purchase order release, confirmation, acceptance or any similar document, the
terms of this Agreement shall govern.
SECTION 5.3. FORECASTS AND PURCHASE ORDERS.
(a) During the term of this Agreement, Ethicon shall provide to
Genetronics; no later than the first day of each month a non-binding rolling 12
month forecast reflecting Ethicon's monthly requirements for Product(s) for that
period. The forecast will be assumed to be mutually agreeable unless Genetronics
notifies Ethicon within 10 business days of receipt of said forecast in which
case the parties agree to discuss an acceptable alternate forecast. In addition,
Ethicon shall provide an initial guidance forecast ("Initial Forecast") 60 days
prior to the estimated date of First Commercial Sale of each new Product. Such
forecast shall be updated prior to such estimated date of First Commercial Sale.
(b) Ethicon shall place binding orders for Products by written or
electronic purchase order (or by any other means agreed to by the parties) to
Seller, which shall be placed at least 60 days prior to the desired date of
delivery. Genetronics shall be obligated to supply no less than 90% of the
Products ordered pursuant to this Agreement to the extent the purchase orders
are, collectively, no greater than 120% of the monthly forecast provided
pursuant to Section 5.3(a) above no less than 90 days prior to delivery of such
purchase order. Ethicon shall at all times be obligated to purchase the quantity
of the Products requested in such purchase orders.
SECTION 5.4. SHORT-SHIPMENTS. Ethicon shall notify Genetronics of any
short shipment claims within 30 days of receipt of a shipment of Products.
SECTION 5.5. INVENTORY. Genetronics agrees to work with Ethicon to
maintain the minimum amount of inventory needed to satisfy customer service
requirements. To that end, Genetronics will disclose to Ethicon the initial
production cycle time and utilize commercially reasonable efforts to work with
Ethicon on a program to reduce the cycle time to the most reasonably possible
minimum level. Ethicon shall be responsible for
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the cost of raw material components sufficient to satisfy the obligations of the
current open Purchase Orders, plus an additional four weeks as dictated by the
current Product forecast. Any purchase of material made and expenses incurred in
excess of these amounts is done at Genetronics own risk. Subject to the prior
sentence, unique materials requiring special consideration will be discussed on
a case by case basis and appropriate purchasing activities negotiated between
the parties. Neither party shall be bound with respect to arrangements for any
such materials in the absence of a definitive written agreement with respect to
such matters.
SECTION 5.6. PRODUCT DEFECTS.
(a) Delivery of any Product by Genetronics to Ethicon shall constitute a
certification by Genetronics that the Product conforms to the Specifications.
Ethicon shall have 90 days after receipt of a shipment of Products to determine
if the Product conforms to the Specifications and to accept or reject any of
such Products which fail to conform to the Specifications. Any claims for
failure to so conform ("Claims") shall be made by Ethicon in writing to
Genetronics, indicating the nonconforming characteristics of the Product.
(b) If Genetronics; agrees with such Claim, then as promptly as possible
after the submission of a Claim by Ethicon, Genetronics shall provide Ethicon
with a replacement Product(s). Genetronics shall pay for all shipping costs of
returning or destroying Products that are the subject of such accepted Claims.
Genetronics shall bear the risk of loss for such Products, beginning at such
time as they are taken at Ethicon's premises for return delivery.
(c) If Genetronics does not agree with such Claim, then the parties
agree to submit the Products in question to an independent party which has the
capability of testing the Products to determine whether or not they comply with
the Specifications. In the event the parties cannot agree upon such independent
party, or in the event it is not possible to acquire the services of such an
independent party, then such dispute shall be resolved pursuant to Article 12.
SECTION 5.7. CUSTOMER WARRANTY & SERVICE.
(a) Genetronics shall warrant the Products to be free from defects in
workmanship or material for 12 months from the date of commercial sale to
Ethicon's customer; provided, however, that with respect to the Generator such
warranty shall be for the greater of 10,000 cycles (as tracked by the Generator)
or 12 months from the date of sale to Ethicon's customer. The Genetronics'
warranty provided for under this Section 5.7(a) shall not apply to any Product
which has been used with unapproved software or hardware, or which has been
customized, modified, damaged, misused or improperly stored, installed or
repaired.
(b) Servicing of Products whether within the manufacturers warranty
period or not shall be managed by Ethicon through designated service centers.
Genetronics agrees
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to provide appropriate training, documentation and recommended spare parts lists
and sources, for the purposes of establishing Ethicon designated service centers
for the Products and Ethicon agrees to pay Genetronic's reasonable expenses of
doing so. Products will be returned to the service center at the direction of
the Ethicon representatives. Products in need of service that are within the
manufacturers warranty period will be repaired and costs associated with these
repairs (including transportation to and from the customer) will be charged back
to Genetronics. Genetronics agrees to fund the cost of a reasonable number of
Products as loaner pool inventory at the respective Ethicon service centers for
Products in need of repair or service that are within the manufacturers warranty
period.
ARTICLE 6
PACKAGING, PROMOTIONAL MATERIAL, TRADEMARKS
SECTION 6.1. PACKAGING. Ethicon's preliminary packaging and labeling
requirements for the Products are set out on Exhibit A, and shall be deemed to
be part of the Specifications for each particular Product. In addition, from
time to time, Ethicon may submit changes to such packaging and labeling
specifications should Ethicon determine such changes are necessary or desirable.
Any packaging and labeling requirements must be commercially reasonable in light
of Ethicon's then-existing packaging practices.
SECTION 6.2. PROMOTIONAL MATERIAL. Genetronics acknowledges and agrees
that pursuant to the License Agreement Ethicon has licensed exclusive rights to
the trademarks, copyrights, plans, ideas, names, slogans, artwork and all other
intellectual property that appear on or are otherwise used by Ethicon in
connection with the distribution, marketing or sale of the Drug Delivery System
in the Territory for use in the Field. All trademarks used by Ethicon and/or its
Affiliates in connection with the Products shall be chosen by Ethicon and/or its
Affiliates in their sole discretion. Ethicon at its cost shall be solely
responsible for producing promotional copy and material with respect to the
Products in the Territory for use in the Field and that it shall dot be
necessary for Genetronics' prior review of such promotional copy or material.
SECTION 6.3. TRADEMARKS. Notwithstanding the foregoing, all uses by
Ethicon of Genetronics' name, or any Trademark, service mark or tradename (or
any mark or name closely resembling the same), now or hereafter owned or
licensed by Genetronics or any of its Affiliates shall be subject to the prior
written consent of Genetronics. Ethicon is not authorized to use Genetronics'
name or any such trademark, service mark or tradename in connection with any
aspect of its business, other than in connection with the sales, marketing,
promotion and distribution of the Drug Delivery System in accordance with the
terms of this Agreement and the License Agreement. Ethicon (a) shall not use any
trademark, service mark or trade name of Genetronics as part of its name, and
(b) shall not do or permit any act to be done at any time which may in any way
impair the! rights of Genetronics in any such trademark, service mark or trade
name. All uses of any trademark, service mark or trade name of Genetronics shall
inure
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to the benefit of Genetronics. Ethicon shall not adopt, use or attempt to
register any trademark, service mark or trade name which is confusingly similar
to any trademark, service mark or trade name of Genetronics.
ARTICLE 7
LICENSE: FAILURE TO SUPPLY
SECTION 7.1 LICENSE. Upon a Failure to Supply (as defined below in
Section 7.2), Genetronics hereby grants to Ethicon a fully paid up exclusive
license, with the right to grant sublicenses to Third Parties, under the
Genetronics Technology to develop, use, sell, make and have made the Drug
Delivery System in the Territory for use in the Field and to use the Software
and Trademarks in connection therewith; it being understood that the license
granted hereunder shall only be effective upon the occurrence of a Failure to
Supply. The parties agree that under the license in the Trademarks granted
herein, to protect the goodwill in the Trademarks, Ethicon shall submit to
Genetronics, for its written approval, specimens of labels, advertising, and
other materials bearing the Trademarks. Genetronics shall communicate its
approval or disapproval of Ethicon's use of the Trademarks within 10 days
following receipt of such specimens. Failure of Genetronics to respond within
such 10 day period shall constitute approval of such use. Genetronics' approval
of Ethicon's use of the Trademarks shall not be unreasonably withheld.
SECTION 7.2 FAILURE TO SUPPLY. A failure to supply (a "Failure to
Supply") shall occur if after the date hereof, (A) there occurs a
pre-commercialization audit failure in accordance with Section 3.2 hereof, or
(B) there occurs a post-commercialization audit and inspection failure in
accordance with Section 3.3 hereof, or (C) the parties are unable or unwilling
or have failed for any reason to agree on the initial Specifications 6 months
after submission of the Market Requirements in accordance with Section 4.1
hereof, or (D) for a period of or exceeding 60 days Genetronics is unable or
unwilling or has failed for any reason (including the occurrence of a Force
Majeure Event as defined in Section 11.6, or following commencement of a case by
or against Genetronics under the Bankruptcy Code (as defined in Section 11.7))
to supply to Ethicon 85% or more of any Products in compliance with the desired
delivery date specified in the purchase orders submitted by Ethicon in
accordance with Section 5.3, or (E) there occurs an Event of Default which is
caused by Genetronics and Ethicon elects not to terminate this Agreement
pursuant to Section 11.5; and thereafter such Failure to Supply is not cured by
Genetronics within 30 days after receipt of written notice from Ethicon. After
the occurrence of a Failure to Supply, (i) Ethicon may make and have made the
Products pursuant to the license granted in Section 7.1 above, (ii) Ethicon
shall have no obligation to purchase any further Products from Genetronics
hereunder, (iii) Genetronics shall instruct the Escrow Agent to make available
to Ethicon or its designee the contents of the Escrow Account, (iv) Genetronics
shall provide such assistance, training and other information as shall be
necessary in order for Ethicon or its designated supplier to manufacture or have
manufactured the Products, and (v) Ethicon
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shall be required to pay to Genetronics all payments due under the License
Agreement. Genetronics shall include any other technical and proprietary
materials, information and techniques necessary or helpful for Ethicon to
procure required raw materials or produce or arrange for an alternative supplier
of Products. Genetronics shall not sell any Products to any Third Party in the
Territory for use in the Field after a Failure to Supply.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
SECTION 8.1. GENETRONICS REPRESENTATIONS AND WARRANTIES. Genetronics
represents and warrants to Ethicon that:
(a) the Products supplied by Genetronics will be manufactured in
accordance with the Specifications for such Product;
(b) the Products shall be supplied free from material defects in design,
construction, materials and workmanship;
(c) the Products are being sold to Ethicon free and clear of all liens,
claims and encumbrances of any nature;
(d) As of the Effective Date, Genetronics is unaware of any pending or
threatened suits, claims, or actions of any type whatsoever with respect to the
Products;
(e) all necessary corporate and other authorizations, consents and
approvals which are necessary or required for the entering into of this
Agreement have been duly obtained;
(f) the entering into of this Agreement by Genetronics will not (i)
violate any provision of law, statute, rule or regulation or any ruling, writ,
injunction, order, judgment or decree of any court, administrative agency or
other governmental body to which Genetronics is subject, or (ii) conflict with
or result in any breach of any of the terms, conditions or provisions of, or
constitute a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Genetronics, under
its organizational documents, as amended to date, or any material note,
indenture, mortgage, lease, agreement, contract, purchase order or other
instrument, document or agreement to which Genetronics is a party or by which it
or any of its properties or assets is bound or affected;
(g) the Products supplied under this Agreement are fully Year 2000
Compliant, or it will be able to demonstrate Year 2000 compliance in full
production versions of the Products, with accompanying documentation, no later
than the December 31, 1998; provided, however, this warranty shall not apply to
output, results, errors or abnormal terminations caused in whole or in part by
(i) any functionality of the Products not
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developed by Genetronics or its agents, (ii) use of the Products in combination
with any other product not created by Genetronics or its agents, (iii) any
modifications of the Products made by a party other than Genetronics or its
agents, or (iv) any data provided to the Products by persons other than
Genetronics or its agents which does not specify the century or is incorrect or
ambiguous;
(h) all of the Products supplied to Ethicon hereunder comply with all
applicable statutes, laws, ordinances and regulations relating to the
manufacture, assembly and supply of medical devices and/or drugs enforced by the
FDA (including compliance with Quality System Regulations) or any Regulatory
Agency and no Product delivered by Genetronics to Ethicon shall be adulterated
or misbranded at the time of delivery within the meaning of the Federal Food,
Drug and Cosmetic Act or its equivalent in another country; and
(i) during the Term, Genetronics is the sole and exclusive owner of or,
for licenses executed after the date hereof, licenses with the right to
sublicense, the Genetronics Technology; provided, however, there are no such
licenses as of the date of this Agreement.
(j) as of the Effective Date, Genetronics has not received any notice
from any person or entity claiming to have any right, title or interest in or to
the Genetronics Technology and, to the best of its knowledge, has no reason to
expect that any such notice is forth coming.
(k) as of the Effective Date, to the best of its knowledge, that the
patents included in the Genetronics Patents Rights are valid and enforceable in
those countries listed on Exhibit E to the License Agreement.
(l) as of the Effective Date, Genetronics has no knowledge of (i) any
existing published patent application or issued patent which the manufacture,
use or sale of the Drug Delivery System would infringe, and (ii) any
infringement of the Genetronics Patent Rights by a Third Party.
Genetronics' representations and warranties in this Section 8.1
which are applicable to a Product shall not apply to any such Product which has
been used by a third party with unapproved software or hardware, or which has
been customized, modified, damaged, misused or improperly stored, installed or
repaired, except to the extent that such actions arise from or are aggravated by
acts of or failure to act by Genetronics.
SECTION 8.2. ETHICON REPRESENTATIONS AND WARRANTIES. Ethicon represents
and warrants to Genetronics that:
(a) all necessary corporate and other authorizations, consents and
approvals which are necessary or required for the entering into of this
Agreement have been duly obtained;
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(b) the entering into of this Agreement by Ethicon shall not (i) violate
any provision of law, statute, rule or regulation or any ruling, writ,
injunction, order, judgment or decree of any court, administrative agency or
other governmental body or (ii) conflict with or result in any breach of any of
the terms, conditions or provisions of, or constitute a default (or give raise
to any right of termination, cancellation or acceleration) under, or result in
the creation of any lien, security interest, charge or encumbrance upon any of
the properties or assets of Ethicon under its organizational documents, as
amended to date, or any material note, indenture, mortgage, lease, agreement,
contract, purchase order or other instrument, document or agreement in which
Ethicon is a party or by which it or any of its properties or assets is bound or
affected;
SECTION 8.3. INDEMNIFICATION. In order to distribute among themselves
the responsibility for claims arising out of this Agreement, and except as
otherwise specifically provided for herein, the parties agree as follows:
(a) Genetronics agrees to defend and indemnify and hold Ethicon harmless
against any and all claims, suits, proceedings, expenses, recoveries and damages
(including, but not limited to, any expenses incurred in connection with any
Product recall), including court costs and reasonable attorneys fees and
expenses, arising out of, based on, or caused by (i) any product liability claim
related to alleged defects in materials, design, construction or workmanship of
the Products in the form supplied to Ethicon by Genetronics hereunder, (ii) in
connection with Products manufactured by Ethicon, product liability claims
related to alleged defects in design of Products to the extent designed by
Genetronics, or (iii) the breach by Genetronics of any representation or
warranty contained in this Agreement, in each case except to the extent that
such claims, suits, proceedings, expenses, recoveries or damages arise from or
are aggravated by acts of or failure to act by Ethicon. Ethicon will promptly
notify Genetronics of any such claim or demand which comes to its attention.
(b) Ethicon agrees to defend and indemnify and hold Genetronics harmless
against any and all claims, suits, proceedings, expenses, recoveries, and
damages including court costs and reasonable attorneys fees and expenses, in
connection with any of the Products sold by Ethicon or its Affiliates arising
out of, based on, or caused by (i) statements, whether written or oral, made or
alleged to be made by Ethicon or its Affiliates on the packaging or labeling of
any of the Products, or in the advertising, publicity, promotion, or sale of any
of the Products, (ii) the storage, sale, shipment, promotion or distribution of
the Products by Ethicon or its Affiliates, (iii) any product liability claim
related to alleged defects in materials, design (unless designed by
Genetronics), construction or workmanship of the Products manufactured by or for
Ethicon hereunder by a party other than Genetronics or its Affiliates, or (iv)
the breach by Ethicon of any representation or warranty contained in this
Agreement, in each case except to the extent that such claims, suits,
proceedings, expenses, recoveries or damages arise from or are aggravated by
acts of or failure to act by Genetronics. Genetronics will promptly notify
Ethicon of any such claim or demand which comes to its attention.
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SECTION 8.4. DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN
THIS AGREEMENT OR THE LICENSE AGREEMENT:
(a) NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER
PARTY OF ANY KIND;
(b) NOTHING HEREIN SHALL BE CONSTRUED AS A REPRESENTATION OR WARRANTY BY
GENETRONICS TO ETHICON THAT THE GENETRONICS, TECHNOLOGY IS VALID, ENFORCEABLE,
OR NOT INFRINGED BY ANY THIRD PARTY OR THAT THE PRACTICE OF SUCH RIGHTS DOES NOT
INFRINGE ANY INTELLECTUAL PROPERTY RIGHT OF ANY THIRD PARTY; AND
(c) NEITHER PARTY MAKES ANY WARRANTIES, EXPRESS OR IMPLIED, CONCERNING
THE SUCCESS OF THE DEVELOPMENT OR THE COMMERCIAL EXPLOITATION OF THE DRUG
DELIVERY SYSTEM.
ARTICLE 9
REGULATORY MATTERS.
SECTION 9.1. ADVERSE EVENTS; FDA AUDITS: ETC.
(a) Each party agrees to provide to the other party within 3 business
days of the initial receipt by such party of any report of any serious adverse
experience with respect to a Product of which such party is made aware. Serious
adverse experiences mean any experience that suggests a significant hazard,
contra indication, side effect or precaution, or any experience that is fatal or
life threatening, is permanently disabling, or requires or prolongs inpatient
hospitalization.
(b) Genetronics shall promptly provide to Ethicon copies of any
inspection reports it receives from the FDA or any Regulatory Agency.
(c) Genetronics shall promptly notify Ethicon of any inspections by the
FDA or any Regulatory agency of its facilities.
(d) Product complaints shall be handled in accordance with the
procedures set out in Exhibit E.
SECTION 9.2. RECALLS.
(a) In the event any governmental agency having applicable jurisdiction
shall order any corrective action with respect to a Product supplied hereunder
(including any recall of any product containing a Product), customer notice,
restriction, change, corrective action or market action or any Product change,
and the cause or basis of such corrective action is attributable to a breach by
Genetronics of any of its warranties,
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representations, obligations or covenants contained herein, then Genetronics
shall be liable, and shall reimburse Ethicon for the reasonable costs of such
action, including the cost of any Product affected thereby whether or not such
particular Product shall be established to be in breach of any warranty by
Genetronics hereunder.
(b) In the event that Ethicon determines to undertake any recall of any
Product supplied hereunder (including any recall of any product containing a
Product), customer notice, restriction, change, corrective action or market
action or any Product change, and the cause of such corrective action is due to
a breach by Genetronics; of any of its warranties, representations, obligations
or covenants contained herein, then Genetronics shall be liable, and shall
reimburse Ethicon for the reasonable costs of such action, including the cost of
any Product affected thereby, whether or not such particular Product shall be
established to be in breach of any warranty by Genetronics hereunder.
(c) Genetronics shall maintain in accordance with Section 4.14 of
EN46001 (or any successor provision) those procedures which will enable
Genetronics to take the necessary steps to initiate a recall of the Products at
any time or to issue advisory notices to Ethicon to initiate a recall. Such
procedures shall account for the time differences between Europe and the United
States, and provide for a process for Genetronics to limit liability exposure
until Ethicon has had the opportunity to review relevant details and information
to determine the extent of any action required. Such procedures shall also
identify responsible personnel for contact outside normal business hours who
shall have the authority to make interim decisions with respect to any such
recall action.
ARTICLE 10
ESCROW ACCOUNT: PROCESS & PRODUCT DESCRIPTIONS
SECTION 10.1. In view of the fact that manufacturing the Drug Delivery
System involves trade secrets, Genetronics has agreed to the following
provisions to enhance Ethicon's assurance of continuity of supply of the Drug
Delivery System. Within 30 days after the signing of this Agreement, Genetronics
shall deposit the Process & Product Descriptions into an escrow account (the
"Escrow Account") to be held by the escrow agent (the "Escrow Agent") described
in Exhibit G hereto or to such other escrow agent chosen by the Advisory
Committee and notified to Genetronics from time to time. The Process & Product
Descriptions shall be updated periodically by Genetronics and copies delivered
to the Escrow Agent for deposit in the Escrow Account upon changes being made
thereto according to the same requirements as those required by the Quality
System Regulations (QSR) of the FDA. In general, this means that those changes
which effect safety and effectiveness will be updated on a continuous basis
during the year, and other changes will be updated on a quarterly basis. Ethicon
shall have the right, upon reasonable advance notice to Genetronics and during
regular business hours, to audit or have audited (by a Third Party bound by
confidentiality at least as stringent as those set forth herein) the Escrow
Account. Genetronics shall
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request that the Escrow Agent notify Ethicon in writing of the deposit of the
Process & Product Descriptions with the Escrow Agent and all updates thereto.
The Process & Product Descriptions shall be available at all time to
Genetronics, its then-current management and its successor (including any
trustee in bankruptcy of Genetronics) for inspection and copying but for so long
as this Agreement is in effect, the original deposited Process & Product
Descriptions and amendments shall remain on deposit. Genetronics acknowledges
and agrees that the failure to deposit and update the Process & Product
Descriptions as required hereby would cause irreparable harm to Ethicon if
Ethicon is required to manufacture the Products pursuant to Article 7.
ARTICLE 11
TERM AND TERMINATION
SECTION 11.1. TERM. This Agreement shall commence as of the Effective
Date and shall continue until the expiration of the last to expire of the
Genetronics Patent Rights covering the Drug Delivery System in any country,
unless terminated earlier as provided herein (the "Term").
SECTION 11.2 TERMINATION FOR CAUSE. Upon a failure by Ethicon to pay 60
days after written notice thereof by Genetronics any amount due in accordance
with this Agreement or the License Agreement, Genetronics may terminate this
Agreement.
SECTION 11.3. TERMINATION BY ETHICON. Ethicon may terminate this
Agreement without cause upon 180 days' prior written notice to Genetronics.
SECTION 11.4 EVENTS OF DEFAULT. The occurrence of any one or more of the
following acts, events or occurrences shall constitute an "Event of Default"
under this Agreement:
(a) either party becomes the subject of a Bankruptcy Event; or
(b) in the event Ethicon terminates the License Agreement upon breach by
Genetronics; or
(c) in the event of a Failure to Supply; or
(d) in the event of a Change in Control of Genetronics, and such Change
in Control involves (i) a Competitor (as defined below); (ii) any entity which
has a documented and consistent history of Good Manufacturing Practice problems
with the FDA or equivalent problems with any Regulatory Agency, or (iii) a party
which does not have the financial, production or other resources necessary for
it to meet all of the obligations of Genetronics under this Agreement. For
purposes of this paragraph, a "Competitor" shall mean any entity which is
involved in the same business as any operating company among the Johnson &
Johnson Family of Companies ("J&J") that:
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(A) belongs to the Professional Sector of J&J, or (B) is engaged in the business
of commercially exploiting surgical oncology products.
SECTION 11.5. TERMINATION RIGHTS UPON AN EVENT OF DEFAULT. Upon the
occurrence of an Event of Default under this Agreement, the non-defaulting party
in its sole discretion may terminate this Agreement upon written notice to the
defaulting party.
SECTION 11.6 FORCE MAJEURE EVENTS. If either party is prevented from
performing any of its obligations hereunder (other than payment obligations) due
to any cause which is beyond the non-performing party's reasonable control,
including, without limitation, fire, explosion, flood, or other acts of God;
acts, regulations, or laws of any government; war or civil commotion; strike,
lock-out or labor disturbances; or failure of public utilities or common
carriers (a "Force Majeure Event"), such non-performing party shall not be
liable for breach of this Agreement with respect to such non-performance to the
extent such non-performance is due to a Force Majeure Event. Such nonperformance
will be excused for three months or as long as such event shall be continuing
(whichever period is shorter), provided that the non-performing party gives
immediate written notice to the other party of the Force Majeure Event. Such non
performing party shall exercise all reasonable efforts to eliminate the Force
Majeure Event and to resume performance of its affected obligations as soon as
practicable. Should the event of force majeure continue unabated for a period of
60 days or more, the parties shall enter into good faith discussions with a view
to alleviating its affects or to agreeing upon such alternative arrangements as
may be fair and reasonable having regard to the circumstances prevailing at that
time.
(b) In the event that such alternative arrangements cannot be agreed
upon within 30 days after the expiration of such initial 60 day period, and in
the event Genetronics is the party which is the subject of the force majeure
event, then Ethicon shall have the right and option, upon written notice to
Genetronics (the "Force Majeure Notice"), to either manufacture itself the
Products which are the subject of such force majeure event, or to have a third
party so manufacture such Products. The Force Majeure Notice shall specify the
Products which are the subject thereof. Upon delivery of the Force Majeure
Notice to Genetronics, (i) this Agreement shall be terminated, (ii) Ethicon
shall have all rights to use the Process & Product Descriptions and (iii)
Genetronics shall provide such assistance and other information as shall be
necessary in order for Ethicon to manufacture or have manufactured the Products.
SECTION 11.7. RIGHTS UPON INSOLVENCY. All rights and licenses granted
under or pursuant to this Agreement or the License Agreement by Genetronics to
Ethicon are for all purposes of Section 365(n) of Title 11, U.S. Code (the
"Bankruptcy Code"), licenses of rights to "intellectual property" as defined in
the Bankruptcy Code. The parties agree that Ethicon, as a licensee of such
rights under this Agreement or the License Agreement, shall retain and may fully
exercise all of its rights and elections under the Bankruptcy Code. If a case is
commenced by or against Genetronics under the Bankruptcy Code, then, unless and
until this Agreement is rejected as provided in the Bankruptcy Code, Genetronics
(in any capacity, including debtor-in-possession) and its successors and
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assigns (including, without limitation, a Bankruptcy Code trustee) shall either
perform or caused to be performed all of the obligations provided in this
Agreement to be performed by Genetronics, or provide or cause to be provided to
Ethicon all such intellectual property (including the Escrow Account and all
updates thereof) held by Genetronics and such successors and assigns. If this
Agreement is rejected as provided in the Bankruptcy Code and Ethicon elects to
retain its rights hereunder as provided in the Bankruptcy Code, then
Genetronics; (in any capacity, including debtor-in-possession) and its
successors and assigns (including, without limitation, a Bankruptcy Code
trustee) shall provide or cause to be provided to Ethicon all such intellectual
property (including the Escrow Account and all updates thereof) held by
Genetronics; and such successors and assigns immediately upon Ethicon's written
request therefor. All rights, powers and remedies of Ethicon provided under this
Article are in addition to and not in substitution for any and all other rights,
powers and remedies now or hereafter existing at law or in equity (including,
without limitation, the Bankruptcy Code) in the event of any such commencement
of a bankruptcy proceeding by or against Genetronics. Ethicon, in addition to
the rights, powers and remedies expressly provided herein, shall be entitled to
exercise all other such rights and powers and resort to all other such remedies
as may now or hereafter exist at law or in equity (including the Bankruptcy
Code) in such event.
SECTION 11.8. REASONABLENESS. Genetronics; expressly acknowledges that
the termination provisions contained in this Article 11 are reasonable,
considering the intended nature and scope of this Agreement.
ARTICLE 12
DISPUTE RESOLUTION
SECTION 12.1. DISPUTES. The parties recognize that disputes as to
certain matters may from time to time arise which relates to either party's
rights and obligations hereunder. It is the objective of the parties to
establish procedures to facilitate the resolution of such disputes in an
expedient and cost effective manner by mutual cooperation and without resort to
litigation. To accomplish this objective, the parties agree that any dispute,
claim or controversy arising from or related in any way to this Agreement or the
interpretation, application, breach, termination or validity thereof, including
any claim of inducement of this Agreement by fraud or otherwise (a "Dispute"),
shall be referred to the President of each party, who or whose designee shall
attempt to resolve it in good faith to negotiate a resolution of the Dispute
prior to pursuing other remedies. If within 21 days after referral of the
Dispute to such officers, the parties have not succeeded in negotiation a
resolution of the dispute, such dispute shall be submitted to non-binding
mediation pursuant to Section 12.2. If the parties are unable-to resolve the
Dispute within 45 days after initiation of non-binding mediation, such dispute
shall be submitted to arbitration pursuant to Section 12.3.
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SECTION 12.2. MEDIATION.
(a) Any Dispute submitted to non-binding mediation shall be mediated in
accordance with the Model Procedures for the Mediation of Business Disputes
promulgated by the Center for Public Resources ("CPR") then in effect, except
where those rules conflict with these provisions, in which case these provisions
control. The mediation shall be conducted in Trenton, New Jersey and shall be
attended by a senior executive with authority to resolve the dispute from each
of the operating companies that are parties.
(b) The mediator shall be an attorney specializing in business
litigation who has at least 15 years of experience as a lawyer with a law firm
or corporation of over 25 lawyers or was a judge of a court of general
jurisdiction and who shall be appointed from the list of neutrals maintained by
CPR.
(c) The parties shall promptly confer in an effort to select a mediator
by mutual agreement. In the absence of such an agreement, the mediator shall be
selected from a list generated by CPR with each party having the right to
exercise challenges for cause and two peremptory challenges within 72 hours of
receiving the CPR list.
(d) The mediator shall confer with the parties to design procedures to
conclude the mediation within no more than 45 days after initiation. Under no
circumstances shall the commencement of arbitration under Section 12.3 below be
delayed more than 45 days by the mediation process specified herein.
(e) Each party agrees to toll all applicable statutes of limitation
during the mediation process and not to use the period or pendency of the
mediation to disadvantage the other party procedurally or otherwise. No
statements made by either side during the mediation may be used by the other
during any subsequent arbitration.
(f) Each party has the right to pursue provisional relief from any
court, such as attachment, preliminary injunction, replevin, etc., to avoid
irreparable harm, maintain the status quo, or preserve the subject matter of the
arbitration, even though mediation has not been commenced or completed.
SECTION 12.3. ARBITRATION.
(a) Any Dispute will be submitted for resolution to arbitration pursuant
to the commercial arbitration rules then pertaining of the Center for Public
Resources ("CPR"), except where those rules conflict with these provisions, in
which case these provisions control. The arbitration will be held in Trenton,
New Jersey.
(b) The panel shall consist of three arbitrators chosen from the CPR
Panels of Distinguished Neutrals each of whom is a lawyer specializing in
business or patent litigation with at least 15 years experience with a law firm
or corporation of over 25 lawyers or was a judge of a court of general
jurisdiction. In the event the aggregate
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<PAGE> 20
damages sought by the claimant are stated to be less than $5 million, and the
aggregate damages sought by the counterclaimant are stated to be less than $5
million, and neither side seeks equitable relief, then a single arbitrator shall
be chosen, having the same qualifications and experience specified above.
(c) The parties agree to cooperate (1) to obtain selection of the
arbitrator(s) within 30 days of initiation of the arbitration, (2) to meet with
the arbitrator(s) within 30 days of selection and (3) to agree at that meeting
or before upon procedures for discovery and as to the conduct of the hearing
which will result in the hearing being concluded within no more than 9 months
after selection of the arbitrator(s) and in the award being rendered within 60
days of the conclusion of the hearings, or of any post-hearing briefing, which
briefing will be completed by both sides with 20 days after the conclusion of
the hearings. In the event no such agreement is reached, the CPR will select
arbitrator(s), allowing appropriate strikes for reasons of conflict or other
cause and three peremptory challenges for each side. The arbitrator(s) shall set
a date for the hearing, commit to the rendering of the award within 60 days of
the conclusion of the evidence at the hearing, or of any post-hearing briefing
(which briefing will be completed by both sides in no more than 20 days after
the conclusion of the hearings), and provide for discovery according to these
time limits, giving recognition to the understanding of the parties hereto that
they contemplate reasonable discovery, including document demands and
depositions, but that such discovery be limited so that the time limits
specified herein may be met without undue difficulty. In no event will the
arbitrator(s) allow either side to obtain more than a total of 40 hours of
deposition testimony from all witnesses, including both fact and expert
witnesses. In the event multiple hearing days are required, they will be
scheduled consecutively to the greatest extent possible.
(d) The arbitrator(s) shall render their award following the substantive
law of New Jersey. The arbitrator(s) shall render an opinion setting forth
findings of fact and conclusions of law with the reasons therefor stated. A
transcript of the evidence adduced at the hearing shall be made and shall, upon
request, be made available to either party.
(e) To the extent possible, the arbitration hearings and award will be
maintained in confidence.
(f) The United States District Court for the District of New Jersey may
enter judgment upon any award. In the event the panel's award exceeds $5 million
in monetary damages or includes or consists of equitable relief, then the court
shall vacate, modify or correct any award where the arbitrators' findings of
fact are clearly erroneous, and/or where the arbitrators' conclusions of law are
erroneous; in other words, it will undertake the same review as if it were a
federal appellate court reviewing a district court's findings of fact and
conclusions of law rendered after a bench trial. An award for less than $5
million in damages and not including equitable relief may be vacated, modified
or corrected only upon the grounds specified in the Federal Arbitration Act. The
parties consent to the jurisdiction of the above-specified Court for the
enforcement of these provisions, the entry of judgment on any award, and the
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<PAGE> 21
vacatur, modification and correction of any award as above specified. In the
event such Court lacks jurisdiction, then any court having jurisdiction of this
matter may enter judgment upon any award and provide the same relief, and
undertake the same review, as specified herein.
(g) Each party has the right before or during the arbitration to seek
and obtain from the appropriate court provisional remedies such as attachment,
preliminary injunction, replevin, etc. to avoid irreparable harm, maintain the
status quo or preserve the subject matter of the arbitration.
(h) EACH PARTY HERETO WAIVES ITS RIGHT TO TRIAL OF ANY ISSUE BY JURY.
(i) EACH PARTY HERETO WAIVES ANY CLAIM TO PUNITIVE OR EXEMPLARY DAMAGES
FROM THE OTHER.
(j) EACH PARTY HERETO WAIVES ANY CLAIM OF INDIRECT, SPECIAL, INCIDENTAL
AND CONSEQUENTIAL DAMAGES FROM THE OTHER.
ARTICLE 13
MISCELLANEOUS
SECTION 13.1. CONFIDENTIALITY; PRESS RELEASES.
(a) Ethicon and Genetronics will be exchanging information relating to
the Products at the inception of and from time to time during the term of this
Agreement. Any such information which is considered by the disclosing party to
be confidential will be identified in writing as confidential information or, if
disclosed orally or in another non-written manner, shall be confirmed in writing
as being confidential promptly after the disclosure thereof. The party receiving
such information will maintain the information in confidence using the same
standard of care it uses to maintain its own information in confidence during
the term of this Agreement and for a period of five years thereafter. Such
obligation of confidentiality shall not apply to information which (i) is known
to the receiving party prior to the disclosure, (ii) is publicly known as of the
date of the disclosure, (iii) becomes publicly known after the date of
disclosure through no fault of the receiving party, (iv) is received from a
third party who has no obligation of confidentiality to the disclosing party or
(v) is developed independently by the receiving party, (vi) is required to be
disclosed to comply with a court or administrative subpoena or order; provided,
however, that the receiving party first uses reasonable efforts to obtain an
order preserving the confidentiality of any Confidential Information, and
provided, further, that the receiving party gives the other party timely notice
of the contemplated disclosure to provide the disclosing party the opportunity
to intervene to preserve the confidentiality of any Confidential Information, or
(vii) is required to be disclosed under applicable laws, rules or regulations,
including, without limitation, the rules and regulations of the Toronto Stock
Exchange or other governmental bodies.
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<PAGE> 22
(b) Notwithstanding paragraph (a) above, Ethicon shall be permitted to
disclose to its wholesalers and other direct customers such confidential
information relating to the Products as Ethicon shall reasonably determine to be
necessary in order to effectively market and distribute the Products provided
that such entities are bound by the same confidentiality obligation of Ethicon
has with respect to Genetronics confidential information.
(c) No party to this Agreement shall originate any publicity, news
release or other public announcement written or oral, whether relating to this
Agreement or the existence of any arrangement between the parties, without the
prior written consent of any other party named in such publicity, news release
or other public announcement, except where such publicity, news release or other
public announcement is required by law; provided that in such event, the party
issuing same shall still be required to consult with the other party or parties
named in such publicity, news release or public announcement a reasonable time
(being not less than 48 hours) prior to its release to allow the named party or
parties to comment on the use of its name and, after its release, shall provide
the named party or parties with a copy thereof.
(d) Neither party shall use the name of the other for advertising or
promotional claims without the prior written consent of the other party.
SECTION 13.2. INSURANCE. Genetronics agrees to procure and maintain in
full force and effect during the term of this Agreement and for as long as the
Products are marketed valid and collectible insurance policies in connection
with the supply of Products pursuant to this Agreement, which policies shall
provide for the type of insurance and amount of coverage described in Exhibit F.
The existence of such insurance coverage shall in no way limit the liability of
Genetronics hereunder. Upon Ethicon's request, Genetronics; shall provide to
Ethicon a certificate of coverage or other written evidence reasonably
satisfactory to Ethicon of such insurance coverage.
SECTION 13.3. QUARTERLY REVIEW. The parties agree to establish a
quarterly operations review process pursuant to which the parties will review
(either in person, by telephone, video conference or other mutually agreeable
means) Product quality, cycle time, manufacturing capacity, delivery and cost
reduction efforts.
SECTION 13.4 SURVIVAL. Those provisions of this Agreement dealing with
rights and obligations upon and/or after termination of this Agreement shall
survive termination of this Agreement to the extent necessary to give effect to
such provisions.
SECTION 13.5. PENALTIES. If either party terminates this Agreement in
accordance with the terms herein, the terminating party shall owe no penalty or
indemnity to the terminated party on account of such termination.
SECTION 13.6. INDEPENDENT- CONTRACTOR STATUS. Neither party shall have
any authority to obligate the other in any respect nor hold itself out as having
any such
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authority. All personnel of Genetronics shall be solely employees of Genetronics
and shall not represent themselves as employees of Ethicon, and all personnel of
Ethicon shall be solely employees of Ethicon and shall not represent themselves
as employees of Genetronics.
SECTION 13.7. BINDING EFFECTS BENEFITS ASSIGNMENT.
(a) This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective permitted successors and assigns. Nothing
contained herein shall give to any other person any benefit or any legal or
equitable right, remedy or claim. Anything to the contrary herein
notwithstanding, Genetronics agrees that the right and obligations under this
Agreement of Ethicon may, from time to time, be exercised or performed, as the
case may be, in whole or in part by Affiliates of Ethicon.
(b) Genetronics shall be permitted to assign all or part of this
Agreement to any Affiliate of Genetronics upon written notice to Ethicon, such
assignment shall be subject to the assignee agreeing in writing to assume the
benefits and obligations of this Agreement. Anything contained herein to the
contrary notwithstanding, this Agreement shall not be assignable by Genetronics
without the prior written consent of Ethicon, such consent not to be
unreasonably withheld; provided; however, that if such assignment involves any
entity of the type reference in Section 11.4(e), then Ethicon's refusal of
consent to such an assignment shall be deemed to have been reasonable.
(c) Ethicon shall be permitted to assign all or part of this Agreement
to any Affiliate of Ethicon upon written notice to Genetronics, such assignment
shall be subject to the assignee agreeing in writing to assume the benefits and
obligations of this Agreement. Anything contained herein to the contrary
notwithstanding, this Agreement shall not be assignable by Ethicon without the
prior written consent of Genetronics, such consent not to be unreasonably
withheld.
SECTION 13.8. ENTIRE AGREEMENTS AMENDMENTS. Before signing this
Agreement the parties have had numerous conversation, including without
limitation preliminary discussions, formal negotiations and informal
conversations at meals and social occasions, and have generated correspondence
and other writings, in which the parties discussed the transaction which is the
subject of this Agreement and their aspirations for success. In such
conversations and writings, individuals representing the parties may have
expressed their judgments and beliefs concerning the intentions, capabilities
and practices of the parties, and may have forecasted future events. The parties
recognize that such conversations and writings often involve an effort by both
sides to be positive and optimistic about the prospects for the transactions.
However, it is also recognized that all business transactions contain an element
of risk, as does the transaction contemplated by this Agreement, and that it is
normal business practice to limit the legal obligations of contracting parties
to only those promises and representations which are essential to their
transaction so as to provide certainty as to their future rights and remedies.
Accordingly, this Agreement is intended to define the full extent of the legally
enforceable undertakings of the parties hereto, and no promise
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<PAGE> 24
or representation, written or oral, which is not set forth explicitly in this
Agreement is intended by either party to be legally binding. Each of the parties
acknowledge that in deciding to enter into this Agreement and to consummate the
transaction contemplated hereby none of them has relied upon any statements or
representations, written or oral, other than those explicitly set forth herein
or therein. No subsequent alteration, amendment, change or addition to this
Agreement shall be binding upon the parties hereto unless reduced to writing and
signed by the respective authorized officers of the parties.
SECTION 13.9. SEVERABILITY. In the event that any provision of this
Agreement would be held in any jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provision in any other
jurisdiction. Notwithstanding the foregoing, if such provision could be more
narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 13.10.REMEDIES. Unless otherwise expressly provided, all
remedies hereunder (including, but not limited to, those remedies provided for
in Section 12.10 hereof), are cumulative, are in addition to any other remedies
provided for by law and may, to the extent permitted by law, be exercised
concurrently or separately, and the exercise of any one remedy shall not be
deemed to be an election of such remedy or to preclude the exercise of any other
remedy.
SECTION 13.11.NOTICES. Any notice, request, consent or communication
(collectively, a "Notice") under this Agreement shall be effective if it is in
writing and (i) personally delivered, (ii) sent by certified or registered mail,
postage prepaid, return receipt requested, (iii) sent by an internationally
recognized overnight delivery service, with delivery confirmed, or (iv) telexed
or telecopied, with receipt confirmed, addressed as set forth in this Section or
to such address as shall be furnished by either party hereto to the other party
hereto. A Notice shall be deemed to have been given as of (i) the date when
personally delivered, (ii) 7 business days after being deposited with the United
States Postal Service, certified or registered mail, properly addressed, return
receipt requested, postage prepaid, (iii) two business days after being
delivered to said overnight delivery service properly addressed, or (iv)
confirmation of receipt of the telex or telecopy, as the case may be. All
Notices shall specifically state: (i) the provision (or provisions) of this
Agreement with respect to which such Notice is given, and (ii) the relevant time
period, if any, in which the party receiving the Notice must respond.
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<PAGE> 25
If to GENETRONICS:
Genetronics, Inc.
11199 Sorrento Valley Road
San Diego, CA 92121-1334
Attention: Vice President, Corporate Development
Fax: (619) 410-3395
with a copy to:
Cooley Godward LLP: 4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Attention: M. Wainwright Fishburn, Esq.
Fax: No. (619) 453-3555;
If to ETHICON:
Ethicon, Inc.
Route 22 West
Somerset, New Jersey 08876
Attention: Vice President, New Business Development
Fax: (908) 218-3492
with a copy to:
Office of General Counsel
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Fax: 1-908-524-2788;
SECTION 13.12. WAIVERS. The failure of either party to assert a right
hereunder or to insist upon compliance with any term or condition of this
Agreement shall not constitute a waiver of that right or excuse a similar
subsequent failure to perform any such term or condition by the other party.
SECTION 13.13. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and execution by each of the parties of any one of such
counterparts will constitute due execution of this Agreement. Each such
counterpart hereof shall be deemed to be an original instrument, and all such
counterparts together shall constitute but one agreement.
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<PAGE> 26
SECTION 13.14. HEADINGS. The article and section headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 13.15. CONSTRUCTION. The parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in the construction or interpretation of
this Agreement.
SECTION 13.16. PATENT MARKINGS. To the extent it is commercially
reasonable to do so, Ethicon agrees (a) to mark the Products sold in the United
States with all applicable United States patent numbers and/or trademarks, and
(b) to mark the Products shipped to or sold in other countries in such a manner
as to conform with the patent and trademark laws and practices of the country of
manufacture or sale.
SECTION 13.17. EXPORT LAW COMPLIANCE. Ethicon understands and recognizes
that the Products and other materials made available to it hereunder may be
subject to the export administration regulations of the United States Department
of Commerce and other United States government regulations related to the export
of technical data and equipment and products produced therefrom and hereby
agrees to comply with all applicable laws, rules and regulations.
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<PAGE> 27
IN WITNESS WHEREOF, Ethicon and Genetronics intending legally to be
bound hereby have caused this Supply Agreement to be duly executed as of the
date first above written.
ETHICON, INC.
By: /s/ Howard Zauberman
-------------------------------------------
Name: Howard Zauberman
Title: Vice President Growth Technologies/
New Business Development
GENETRONICS BIOMEDICAL, LTD.
By: /s/ Louis J. Crandell
-------------------------------------------
Name: Louis J. Crandell
Title: President and Chief Executive Officer
By: /s/ Martin Nash
-------------------------------------------
Name: Martin Nash
Title: Senior Vice President
GENETRONICS INC.
By: /s/ Louis J. Crandell
-------------------------------------------
Name: Louis J. Crandell
Title: President and Chief Executive Officer
By: /s/ Martin Nash
-------------------------------------------
Name: Martin Nash
Title: Senior Vice President
27
<PAGE> 28
EXHIBIT A
PRODUCTS
MARKET REQUIREMENTS; SPECIFICATIONS
MARKET REQUIREMENTS:
[T BE COMPLETED AT A LATER DATE]
GENERATOR:
APPLICATOR:
SPECIFICATIONS;
[TO BE COMPLETED AT A LATER DATE]
GENERATOR:
(including power cable)
APPLICATOR:
DRUG:
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<PAGE> 29
EXHIBIT B
TRADEMARKS
MEDPULSER(R)
29
<PAGE> 30
EXHIBIT C
PURCHASE PRICE
1. GENERATOR:
(a) The Purchase Price for a Generator (including the power cable) shall
be [...***...] provided, however, that at the end of each Quarter following the
First Commercial Sale, Ethicon shall calculate whether the Purchase Price is
less than the "Adjusted Generator Purchase Price" (as defined below). Ethicon
will consolidate sales by Affiliates and report on sales by country, reflecting
the Adjusted Generator Purchase Price. If so, Ethicon shall forward a payment to
Genetronics for the difference. For purposes of this paragraph (a) "Adjusted
Generator Purchase Price" shall mean [...***...] of Net Sales (as defined in the
License Agreement) of the Generator, and "Quarter" shall mean the fiscal quarter
used for internal accounting purposes by Ethicon.
(b) The Purchase Price for Generators designated by Ethicon for market
development activities and for clinical trials shall be the cost from
Genetronics; or its contract manufacturer plus [...***...] which will be
documented with a purchase quote and be subject to audit by Ethicon in
accordance with the provisions in the License Agreement.
2. APPLICATOR:
(a) The Purchase Price for the Applicator shall be $[...***...];
provided, however, that at the end of each Quarter following the First
Commercial Sale, Ethicon shall calculate whether the Purchase Price is less
than the "Adjusted Applicator Purchase Price" (as defined below). Ethicon will
consolidate sales by Affiliates and report on sales by country, reflecting the
Adjusted Applicator Purchase Price. If so, Ethicon shall forward a payment to
Genetronics; for the difference. For purposes of this paragraph "Adjusted
Applicator Purchase Price" shall mean [...***...] of Net Sales of the
Applicator, to be paid by installments at the end of each Quarter following the
First Commercial Sale. For purposes of this paragraph, "Quarter" shall mean the
fiscal quarter used for internal accounting purposes by Ethicon. All payments
shall be subject to audit by Ethicon in accordance with the audit provisions in
the License Agreement.
(b) The Purchase Price for Applicators designated by Ethicon for market
development activities and for clinical trials shall be the cost from
Genetronics or its contract manufacturer plus [...***...] which will be
documented with a purchase quote and be subject to audit by Ethicon in
accordance with the provisions in the License Agreement.
* CONFIDENTIAL TREATMENT REQUESTED.
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<PAGE> 31
3. DRUG:
(a) The name of the drug is Bleomycin (the "Drug"); provided; however,
in the event Genetronics shall acquire rights to any other drug for use with
Electroporation in the Territory for use in the Field from any Third Party
supplier, such drug shall be deemed a Drug for purposes of this Agreement.
(b) The Price of the Drug will be [...***...] will be documented with a
purchase quote and be subject to audit by Ethicon in accordance with the audit
provisions in the License Agreement.
(c) Genetronics agrees to use reasonable commercial efforts during the
Term to ensure that Ethicon is supplied with commercial quantities of the Drug
in the Territory for use in the Field. In addition, Genetronics acknowledges
that it has entered into an agreement (the "Abbott Agreement") with Abbott
Laboratories for supply of the Drug. Promptly after signing the Supply
Agreement, Genetronics will, to the extent reasonably possible, attempt to
assign to Ethicon its rights under the Abbott Agreement solely with respect to
supply of the Drug in the Territory for use in the Field. For purposes of
clarification only, Genetronics need not transfer its rights under the Abbott
Agreement relating to the use of the Drug outside the Territory and/or the
Field.
* CONFIDENTIAL TREATMENT REQUESTED.
31
<PAGE> 32
EXHIBIT D
ETHICON MANUFACTURING POLICIES
PURPOSE/SCOPE: This document is intended to provide the requirements for
becoming a qualified external manufacturer and maintaining a
qualified status.
ACCEPTABLE QUALITY RATING:
[...***...]
ACCEPTABLE PRODUCT DESIGN CONTROL:
[...***...]
* CONFIDENTIAL TREATMENT REQUESTED.
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<PAGE> 33
ACCEPTABLE PRODUCT/PKG. STABILITY:
[...***...]
ACCEPTABLE PRODUCT/PROCESS VALIDATION/VERIFICATION:
[...***...]
CLOSURE OF DUE DILIGENCE ITEMS:
[...***...]
PRODUCT RELEASE MECHANISM:
[...***...]
PROCESS FOR COMPLAINTS, RETURNS AND RECALLS;
[...***...]
* CONFIDENTIAL TREATMENT REQUESTED.
33
<PAGE> 34
[...***...]
MEASURES
[...***...]
* CONFIDENTIAL TREATMENT REQUESTED.
34
<PAGE> 35
EXHIBIT E
PRODUCT COMPLAINTS
U.S. AND EX-U.S.
Ethicon Responsibilities
- - Ethicon considered distributor;
- - Receive and report all Product complaints to Genetronics; and
- - Report all adverse event Product complaints to the FDA or any similar
regulatory authority in foreign countries.
Genetronics Responsibilities
- - Receive, log, evaluate, test, investigate and implement corrective action, as
appropriate, on all Product complaints;
- - Provide required reporting to the FDA or any similar regulatory authority in
foreign countries; and
- - Provide status reports to Ethicon within the agreed upon time frame.
General:
- - Each party shall notify the other party in writing within 3 business days
after receiving notice of any claim, action or inquiry by the FDA relating to
non-compliance or any notice with respect to any violation of any applicable
laws, rules or regulations. In addition, each party shall notify the other
party in writing of any adverse reaction, malfunction, injury or other similar
claims with respect to the Drug Delivery System of which it becomes aware.
~ Each party shall notify the other party in writing within 3 business days of
any FDA audit, or any audit from any other regulatory body, of its factories
for the manufacture of the Drug Delivery System, or any request for
information from the FDA or other regulatory body related to the manufacture
of the Drug Delivery System, as soon as practically possible after such party
receives notice of such audit or such request.
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<PAGE> 36
- - Each party shall notify the other party in writing within 3 business days
after receiving notice of any claim, action or inquiry by the FDA or other
applicable United States or foreign regulatory body or government authority or
court of law relating to noncompliance of Products covered in this Agreement.
- - Genetronics shall file, and maintain at its own cost, all appropriate facility
registrations with the FDA in the United States and any similar regulatory
authority in foreign countries which have the authority to approve the sale of
the Drug Delivery System for use in humans.
36
<PAGE> 37
EXHIBIT F
INSURANCE
Genetronics will obtain and maintain the following insurance coverage:
- - Commercial general liability coverage in the amount of [...***...];
- - Product liability insurance in the amount of [...***...] per occurrence and
US$10,000,000 in the aggregate;
- - Clinical trial insurance in an amount not less than [...***...] per occurrence
AND [...***...] in the aggregate; and
- - All risk property insurance covering the buildings, machinery and equipment,
and inventory, all on a 100% replacement value basis.
Such policies shall name Ethicon as an additional insured and shall provide for
[...***...] written notice of cancellation. Genetronics shall annually provide
Ethicon with a certificate of insurance evidencing required coverage. The
existence of such insurance coverage shall in no way limit the liability of
Genetronics.
* CONFIDENTIAL TREATMENT REQUESTED.
37
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EXHIBIT G
ESCROW AGENT
Data Securities International
9555 Chesapeake Drive, Suite 200
San Diego, California 92123
Attention: DSI Contract Administration
Tel: (619) 694-1900
Fax: (619) 694-1919
38
<PAGE> 1
EXHIBIT 21.1
1. Genetronics, Inc.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated May 3, 1999 (except for note 16 which is as of June 10,
1999) in the Registration Statement (Form S-1) and related Prospectus of
Genetronics Biomedical Ltd. for the registration of 4,142,611 shares of its
common stock.
"ERNST & YOUNG LLP"
Vancouver, Canada
October 4, 1999. Chartered Accountants
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
APPOINTMENT OF ALTERNATIVE DIRECTOR
KNOW ALL MEN BY THESE PRESENTS that the undersigned, FELIX T.
THEEUWES of 27350 Altamont Road, Los Altos, CA, 94022, hereby nominates,
constitutes and appoints JAMES L. HEPPELL as his true and lawful attorney for
him and in his place to act as a director of GENETRONICS BIOMEDICAL LTD. (the
"Company") for all purposes and, in particular, to execute and deliver all
documents which are required to be signed by Felix T. Theeuwes as a director of
the Company, and to attend meetings of the directors of the Company and vote
thereat on behalf of Felix T. Theeuwes.
The undersigned hereby ratifies each and every act which James L.
Heppell may do in pursuance of these presents.
This authority shall be good and valid from Monday, September 27,
1999 until Sunday, October 10, 1999 inclusive.
DATED at Cupertino, California, this 17th day of September, 1999.
Witness:
/s/ "Jean Liu" /s/ "Felix Theeuwes"
- ----------------------------------- -----------------------------------
Signature FELIX T. THEEUWES
Jean Liu
- -----------------------------------
Print Name
282 Richland Avenue
- -----------------------------------
Address
San Francisco, CA, 94110
- -----------------------------------
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,487,034
<SECURITIES> 0
<RECEIVABLES> 635,521
<ALLOWANCES> 19,685
<INVENTORY> 754,809
<CURRENT-ASSETS> 15,937,100
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<DEPRECIATION> 843,824
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0
0
<COMMON> 28,540,182
<OTHER-SE> (11,717,283)
<TOTAL-LIABILITY-AND-EQUITY> 18,162,857
<SALES> 699,078
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<CGS> 326,737
<TOTAL-COSTS> 326,737
<OTHER-EXPENSES> 3,576,526
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