SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from __________ to __________
Commission file number 0-12081
AQUILA BIOPHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware (508) 797-5777 04-3307818
(State or other (Registrant's telephone (IRS Employer
jurisdiction of number, including area Identification
incorporation or code) No.)
organization)
365 Plantation Street, Worcester, MA 01605
(Address of principal executive offices) (Zip Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
X YES NO
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of 4,967,642 shares of voting stock
held by non-affiliates of the registrant as of March 19, 1997 was
approximately $32,289,673 based on the last sale price of such
stock on such date.
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
X YES NO
Common Stock Outstanding as of March 19, 1997: 5,001,292 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive proxy statement in connection with the
annual meeting of shareholders to be held May 20, 1997 are
incorporated by reference into Part III of Form 10-K.
AQUILA BIOPHARMACEUTICALS, INC. - FORM 10-K
FIGHTING DISEASE THROUGH IMMUNE MODULATION
PART I
Item 1. BUSINESS
Aquila Biopharmaceuticals, Inc. ("Aquila" or the "Company")
creates and commercializes products which modulate the immune
system to control and prevent infectious diseases and cancer.
Background
Aquila, organized in 1996, became a successor to Cambridge Biotech
Corporation ("CBC") pursuant to the terms of a Reorganization Plan
that was confirmed by the United States Bankruptcy Court on
July 18, 1996 and consummated on October 21, 1996 (the "Plan").
Prior to the confirmation of the Plan, CBC sold its enterics
diagnostic business pursuant to an order of the Bankruptcy Court
to Meridian Diagnostics, Inc. for $5,700,000 in cash and other
considerations. On or about October 21, 1996, CBC's
biopharmaceutical business and its real estate in Rockville,
Maryland were transferred to Aquila, free and clear of liens,
encumbrances, claims and interests, except as otherwise provided
in the Plan or confirmation order. Pursuant to the Plan, CBC
shareholders exchanged all of their CBC common stock for Aquila
common stock and, as a result, CBC became a wholly owned
subsidiary of Aquila. Effective as of October 22, 1996, the
Company sold all the issued and outstanding stock of CBC to
bioMerieux Vitek, Inc. ("bioMerieux") pursuant to a Master
Acquisition Agreement dated as of April 4, 1996. At the same time
bioMerieux entered into a ten year lease with Aquila for a portion
of the Rockville, Maryland real estate which lease was
simultaneously assigned by bioMerieux to CBC.
Aquila's technology and product development programs are based
upon modulation of the immune system using the StimulonTM family of
adjuvants. Advances in biotechnology and immunology have enabled
scientists to develop a new generation of products containing
portions of an infectious agent or a target cell. These
components are intended to be immunologically important. These
new products are safer than traditional vaccines, but often result
in an immune response that is less than optimum. Adjuvants can be
used to improve the immune response.
Aquila's product development programs include the QuilimmuneTM
human health products and the QuilvaxTM products for animal health.
The Company's corporate partners are SmithKline Beecham p.l.c.
("SKB"), Wyeth-Lederle Vaccines and Pediatrics, a business group
of Wyeth-Ayerst International, Inc., a subsidiary of American Home
Products Corporation, Pasteur Merieux Connaught, (the combination
of Pasteur Merieux Serums et Vaccins S.A. and Connaught
Laboratories, Inc.), Progenics Pharmaceuticals, Inc., VaxGen, Inc.
and NABI.
The Immune System and Immune Modulation
The human immune system is made up of several different cell
types, including B cells, T cells and antigen presenting cells.
In general, the immune system responds to the presence of
antigens, environmental agents or pathogens such as viruses,
bacteria, and parasites in two different ways: the humoral
response and the cellular response. When a humoral response is
stimulated, B cells are activated by a specific type of T cell,
called a helper T cell, to produce antibodies which are specific
for the antigen encountered. The antibodies will bind to and can
neutralize the pathogens - bacteria, parasites and viruses - which
have invaded the body. In the cellular response, a second type of
T cell, called a cytotoxic T lymphocyte (CTL) is activated. These
cells recognize and kill cells containing pathogens. In addition,
T cells secrete biologically active molecules called cytokines,
which mediate the effects of immune system cells and modulate
other immune functions. The specific activation of cytotoxic T
cells, called a CTL response, is thought to be very important in
products designed to treat or prevent diseases such as herpes,
hepatitis, HIV and malaria. It is also thought to be critical for
many immunotherapeutic approaches to the treatment of cancer.
Traditional approaches for developing immune protection from
infection in humans involved the use of animal viruses, or the use
of attenuated or killed pathogens as vaccines. For example, the
injection of cowpox virus protects humans against smallpox
infection. Vaccines to protect against polio have been developed
using either attenuated or killed polio viruses. While these
approaches are effective, there is a small but significant risk of
disease developing in people receiving these types of vaccines.
With the advent of recombinant technology, scientists realized
that safer products could be created, using specific components of
an organism rather than the whole organism. For example, the
genes for the surface antigens from a pathogen can be cloned using
genetic engineering and used to make recombinant proteins. The
recombinant proteins are then used in a vaccine, to make a so
called sub-unit vaccine. Other specific components have been used
to stimulate disease specific responses, including peptides
(synthetic or recombinant), carbohydrates and lipoproteins.
When these newer technologies were first used, it was found that
while a disease specific immune response was stimulated, often
this response was not of the right quality or strong enough to
provide protection from infection or disease. As a result, immune
modulation technologies have been developed that are coupled with
specific biotechnology antigen approaches. These methods for
modulating the immune system include conjugation of the antigen to
a carrier protein, the use of viral or bacterial vectors to carry
specific genes, the use of cytokines or lymphokines to stimulate
the immune system and the use of adjuvants. Carrier proteins such
as keyhole lympet hemocyanin (KLH) or the toxoids from diphtheria,
tetanus and cholera have been used effectively. An example of
this type of vaccine is the Haemophilus influenzae type b
conjugate vaccine, such as HibTITERTM sold by Wyeth-Lederle
Vaccines and Pediatrics where the antigen is conjugated to the
diphtheria CRM 197 protein. Viral vectors such as vaccinia,
canary pox, or the bacteria BCG are under evaluation as carriers
of disease specific genes to determine whether they stimulate a
protective immune response. Adjuvants that have been used include
aluminum hydroxide (Alum), MF59 a product of Chiron Corporation
and its affiliates, monophosphoryl lipid A (MPL), a product of
Ribi ImmunoChem Research, Inc. and saponins from Quillaja
saponaria. These adjuvant technologies are not all the same,
affecting the humoral and cell mediated pathways differently.
Some approaches result in general immune stimulation. Others are
more specific. Aquila is developing the StimulonTM family of
saponin adjuvants (QS-21, QS-7) as an immune modulation
technology. The Company uses biotechnology approaches for the
creation of specific antigens, and combines these with the
Company's proprietary StimulonTM adjuvants to create potentially
safe and effective products.
With the advent of new technology, changes are occurring in the
market for immune modulating agents. Because development of these
new products involves a high rate of technological innovation, it
is possible to protect new vaccines through patenting, which can
result in increased profit margins. While product liability costs
are high for traditional vaccines (because of the safety
concerns), product liability costs for vaccines using the new
technology are comparable to those for therapeutic products.
Manufacturing costs can be lower for modern vaccines than for
other therapeutic products. In the manufacturing of recombinant
therapeutic enzymes it is often difficult to retain the enzymatic
activity, and this can limit the choice of manufacturing methods.
The limitations are not so stringent for products used to modulate
the immune system. Historically, vaccines were generally low
priced, because the products were used to prevent disease in
healthy people (prophylaxis). However, in today's approaches to
disease management, vaccines have been recognized as very
effective contributors to controlling the total medical costs of
certain diseases. Therapeutic vaccines are in development for a
number of intractable diseases, as are products for populations
beyond infancy - young adults and the elderly.
The Use of Adjuvants: Technology to Modulate the Immune System
Adjuvants are agents which are added to a product to improve or
adjust the immune response. Alum is the only adjuvant currently
allowed in human vaccines licensed by the United States Food and
Drug Administration ("FDA"). This adjuvant probably acts by a
depot effect, which means that the addition of alum to a vaccine
causes the antigen to remain at the site of injection for a longer
period of time, which seems to increase the humoral immune
response. Another adjuvant under development by Ribi ImmunoChem
Research, Inc., is a mixture of lipopolysaccharides derived from
bacterial cell walls, and is called MPL. Its use can increase the
level of antibodies that are produced in response to an antigen,
but additional components are often required to stimulate a
significant CTL response. Chiron is developing an adjuvant called
MF59 which is an emulsion of three lipids and water. It is a
general, broad immune stimulant which will activate the immune
system in the absence of an antigen. Oil/water emulsions have
been used in older vaccines and also act by a depot effect. The
StimulonTM family of adjuvants, QS-21 and QS-7, Aquila's adjuvants,
are purified, defined molecules, isolated from natural sources.
They stimulate antigen specific responses and have been shown to
promote both antibody and a CTL immune responses in animal
studies.
The StimulonTM Family of Adjuvants
QS-21 is the lead StimulonTM adjuvant. It is a natural product,
purified from the bark of a tree which grows in South America,
called Quillaja saponaria. The bulk bark extract is available in
the United States. QS-21 is purified to greater than 98%. The
Company believes QS-21 is well-suited to pharmaceutical
development and formulation, because it has good stability as a
dried powder (at least 3 years), is water soluble, and, when
rehydrated, is a clear liquid that mixes easily with other vaccine
components. QS-21 is compatible with alum and microparticles
which are used in many experimental vaccine formulations. QS-21
is well-characterized with a known molecular structure -
distinguishing it from competing adjuvant candidates, which are
typically emulsions or biologicals. Because QS-21 is currently
regulated by the FDA as a "constituent material" used in vaccine
preparation, the FDA does not require licensure of facilities used
for its manufacture. A second StimulonTM molecule, QS-7, which has
a slightly different safety and activity profile, is in
development. Patents have issued to Aquila with composition of
matter claims covering QS-7 and QS-21, as well as two other
identified saponins, QS-17 and QS-18. The Company has also been
issued a patent for chemically modified saponins and all patents
include the use of all of these molecules as adjuvants.
The use of StimulonTM adjuvants improves the quality of the immune
response. Addition of QS-21 to antigens will generally broaden
the type of antibody produced and stimulate cell mediated
responses. The quality of these responses is important for the
development of effective products. QS-21 also produces a strong
quantitative response; ie, higher antibody levels are achieved,
and it is potent and active at microgram doses. The use of QS-21
has been tested in a number of human clinical trials, involving
over 900 subjects.
QS-21 increases the titer, or amount, of antibodies produced by
the immune system in response to vaccination with many types of
antigens, including recombinant proteins derived from viruses and
bacteria and free polysaccharide antigens from bacterial
pathogens. An unusual property of QS-21 is its ability both to
increase significantly the antibody response to free
polysaccharide antigens and to boost the titer further with a
subsequent vaccination.
QS-21 broadens the antibody profile through "isotype switching."
The type of protective immunity elicited by an infection with a
virus or bacterium typically includes antibodies of several
isotypes (also called classes and subclasses). Some of these
isotypes can be more important than others in mediating protection
against viral or bacterial pathogens. Vaccination with a
recombinant antigen typically stimulates only a few isotypes.
Some adjuvants, such as alum, also only stimulate a narrow range
of antibody isotypes. Hence, alum may stimulate a high quantity,
but a lower quality antibody. In contrast, QS-21 stimulates high
quantities of a broad range of antibody isotypes, enabling the
vaccine-induced antibody response to resemble natural protective
immune responses.
QS-21 also stimulates cell-mediated immune responses and induces
the production of cytotoxic T-lymphocytes (CTL). The CTL response
is a critical means of natural defense against viral infections
and, is believed to eliminate abnormal cells that might otherwise
develop into cancer. Until recently, it was generally thought
that recombinant antigens could not be used to elicit CTL
responses. The majority of adjuvants, including alum, fail to
induce CTL responses. However, Company scientists discovered that
the simple addition of QS-21 to these antigens stimulates the
production of a CTL response to the recombinant antigens in animal
studies. Other investigators have also reported that CTL
responses induced by recombinant vaccines adjuvanted with QS-21
can mimic the protective CTL responses induced by viral infection
in animal studies.
In a human clinical study reported in Cancer Research (Helling et
al., Vol. 55, p. 2,783, 1995), the effectiveness of QS-21 in
stimulating an antibody response to the carbohydrate cancer
antigen GM2 was shown. When GM2 was coupled to the carrier
protein KLH, and tested in humans, there was almost no stimulation
of an antibody response. When the GM2-KLH antigen was used in
combination with the adjuvant DetoxTM, only one subject of seven
showed a slight increase in antibody titer. However, when QS-21
was added to the GM2-KLH antigen, all of the patients responded
with the development of significant antibody titers. This product
is being developed by Progenics Pharmaceuticals, Inc. (a QS-21
licensee of Aquila) and has recently entered Phase III human
clinical trials.
Recently, SKB in collaboration with the Walter Reed Army Institute
of Research (WRAIR) reported in the New England Journal of
Medicine (Stoute et al., NEJM, January 9, 1997, pp. 86-91) results
of a Phase I human challenge study involving the testing of a
potential malaria vaccine formulated with different adjuvants.
The three different vaccine formulations all contained a
recombinant circumsporozoite malaria antigen fused to a hepatitis
B surface antigen as a carrier protein. The first formulation
also contained MPL and alum; the second an emulsion of oil and
water; and, the third was formulated with QS-21, MPL and the oil
and water emulsion. In the first formulation, with MPL and alum
only, there was a slight immunological response, but following
challenge with the malaria parasite after vaccination, only one of
the seven subjects in this group was protected from malaria. In
the second formulation, with the oil and water emulsion, the
immune response was much stronger, but in the malaria challenge,
only two of seven subjects were protected. In the third vaccine
formulation, with the addition of QS-21, the immune response was
the highest. Most importantly, the quality of the immune response
was significantly different, as six of seven subjects exposed to
the challenge with malaria were protected. These results
demonstrate that the quality of the immune response is critical.
Aquila has been informed that SKB (a licensee of QS-21 from
Aquila) is planning further clinical testing of this potential
product.
The Company believes that the performance of QS-21 will vary
depending upon the nature of the antigen and the target
population. Initial human studies conducted by the Company's
licensees and collaborators have focused on proving the safety of
QS-21 and experimenting with different formulations and dose
levels. These studies, involving over 900 subjects, have shown
that the addition of QS-21 to vaccine formulations improves the
immune response to certain antigens, as evidenced by increased
antibody titer and the induction of a CTL response. No serious
adverse events attributed to QS-21 have occurred thus far in the
clinical studies. Some local reactogenicity and pain on injection
have been seen in some vaccine formulations, but this is believed
to be due principally to particular formulations.
QuilimmuneTM and QuilvaxTM Programs
Aquila's strategy is to develop products itself and in partnership
with other companies. The Company has six products in development
or commercialized.
QuilimmuneTM & QuilvaxTM Product Development
Program Market Status
Quilimmune-P TM Adults >50 years Phase I clinical
Product to prevent >20 mil. people in trials initiated Q4
pneumococcal U.S. 1996
infections
Quilvax-M TM Product to 30 million milk Bovine immunogenicity
prevent bovine cows in the U.S. & trials completed,
mastitis (S. aureus & Europe challenge studies
E. coli) ongoing
Quilimmune-T TM Persons at risk for Pre-clinical research
Product to prevent tick bites
Lyme-HGE diseases
Quilimmune-M TM 1-2 billion persons Spf66/QS-21 Phase I
Product to prevent at risk trial scheduled to
malaria (Plasmodium start 1997
falciparum)
Quilvax-L TM 10 million dogs at Licensing efficacy &
Product to prevent risk in endemic safety trials
canine Lyme disease areas completed; safety
duration of immunity
studies ongoing
Quilvax-FeLV TM
Product to prevent ~ 15 million cats On market,
feline leukemia vaccinated per year LeucogenR, Virbac
in the U.S. and (Europe), GenetivacR,
Europe Mallinckrodt
Veterinary Inc.
(U.S.)
Quilimmune-P TM for the Prevention of Pneumococcal Infections
Quilimmune-P TM is intended to be used to prevent pneumococcal
infections in the elderly. Pneumococcal infections are a major
cause of death in the elderly. There are approximately 20 million
people over the age of sixty-five in the US. Various strains of
Streptococcus pneumoniae are responsible for most community-
acquired cases of pneumonia (500,000 cases per year) and are the
second most common cause of bacteremia (50,000 cases per year,
with 25% mortality). S. pneumoniae also causes half of childhood
otitis media, the most frequent reason (one out of three) for
visits to pediatricians. In some developing countries,
pneumococcal pneumonia kills approximately 10% of the children
under the age of five, making it the single leading cause of
death. Public health officials now place a high priority on the
development of new pneumococcal vaccines, and are considering
expanding the population for which vaccination would be
recommended.
There are currently over 80 recognized serotypes of pneumococci,
each with varying geographic and age-group prevalence. The
currently available vaccines, which were developed and approved in
the early 1980s, cover 23 serotypes, which cause over 90% of
infections in the United States and Europe. These vaccines are
composed of purified capsular polysaccharides, which are not
potent immunogens. Although approved by the FDA for use in
adults, these vaccines are not recommended for children under two
years of age, and are less effective in immune-competent elderly
individuals. Development efforts are underway by several
companies to improve the immune response to S. pneumoniae capsular
polysaccharides by conjugating the polysaccharides to immunogenic
carrier proteins. This approach was used in developing the
successful Hib (Hemophilus influenzae type b) vaccines. However,
the manufacturing expense and cumulative mass of the conjugated
components make it very difficult to include all 23 of the strains
in the currently available vaccine as conjugates. The companies
developing conjugate vaccines have therefore chosen to focus on
the five to ten strains most prevalent in infants and young
children. The resulting vaccines, if successfully developed,
would likely not be appropriate for immunization of adults and the
elderly because they address only the limited number of strains
problematic in children rather than the broader range problematic
in the elderly. It is also likely that the conjugate vaccines
would be too expensive for widespread use in the developing world.
The current pneumococcal vaccines are not widely used for the
elderly, for a number of reasons. Reports in the medical
literature indicate that the current vaccines are effective in the
elderly in only 50-60% of the recipients. A number of side
effects are caused by the current vaccines, including pain on
injection, a sore arm, fever, and a general feeling of malaise for
a few days. Because of these side effects, these traditional
vaccines have not been licensed for repeat use, perhaps resulting
in a misconception in the market that these vaccines give lifetime
protection. In elderly subjects, however, not only is the
effectiveness only 50-60%, but of those 50-60% who do respond, the
antibody titers drop over a number of years. Typically after 3 or
more years, the effective levels of antibodies in such subjects is
quite low (Shapiro et al. NEJM, 1991). Another reason these
vaccines are poorly utilized is because physicians have an option
of treating patients who develop pneumonia with antibiotics. With
increased antibiotic resistance, this option is not as effective,
and physicians are moving towards prevention as a therapeutic
choice. As a result there is an urgent need for a more effective
and safe pneumococcal vaccine for the elderly.
In animal studies Aquila scientists have shown that the use of
Quilimmune-P TM, which contains 23 different capsular
polysaccharides and QS-21, improves the immune response in mice.
For instance, many polysaccharides to which mice do not typically
respond become immunogenic with Quilimmune-P TM. In addition,
antibody titers to many strains increase. The effect may make the
use of a lower antigen dose feasible, which could make the vaccine
less expensive and also reduce side effects. Finally, mice re-
vaccinated with Quilimmune-P TM experience a booster effect for many
strains, a response not seen with existing vaccines. This effect
may allow the administration of periodic booster shots to maintain
immunity levels.
Aquila initiated a Phase I clinical trial in 1996 in healthy
volunteers. The study is being carried out in collaboration with
and supported by the National Institutes of Health (NIH). The
primary end point of the study is to evaluate safety; a secondary
goal is to evaluate immune responses. The study is designed as a
dose response study, evaluating several different dosage levels of
the polysaccharide antigens and adjuvant. The control group is
receiving the marketed vaccine. The study is expected to be
completed in 1997, and if the trial is successful, Aquila intends
to initiate a Phase II trial in an elderly population towards the
end of 1997.
Quilvax-M TM for the Prevention of Bovine Mastitis
Mastitis is an inflammation of a dairy cow's udder. Three
pathogens typically cause these infections: Staphylococcus aureus
("S. aureus"), Escherichia coli ("E. coli"), and Streptococcus
agalactiae. Mastitis is the most costly disease affecting the
dairy industry. The economic impact in the US of bovine mastitis
is estimated to be between $1-2 billion per year. According to
the National Mastitis Council, the losses per cow per year are
$184 (there are about 9.5 million dairy cows in the U.S.). The
principle losses occur from reduced milk production, from milk
which has to be discarded, and from animal replacement costs.
Many times when an animal develops mastitis, it is simply culled
from the herd. There are also extra labor costs, treatment, and
veterinary services to cope with this disease.
There are a number of bovine mastitis vaccines on the market, but
these are directed towards E. coli only. Since E. coli accounts
for only a portion of the number of cases of mastitis, these
vaccines are not widely used. E. coli and S. aureus account for
about 70-80% of the mastitis cases. Aquila's Quilvax-M TM bovine
mastitis product is bivalent, containing antigens for both S.
aureus and E. coli, and is expected to provide broader protection.
The S. aureus component of the product is based on patented anti-
adhesion technology. A single S. aureus protein known as
fibronectin binding protein is primarily responsible for
attachment of S. aureus to host tissue and subsequent
establishment of infection. In the Company's Quilvax-M TM product
program, fibronectin binding protein is used as an antigen to
induce an antibody response to block attachment of the bacterium
to the cells in the cow's udder. Recent bovine field trials have
indicated that Quilvax-M TM is safe, immunogenic, and has a
beneficial impact on mastitis in animals challenged with
S. aureus. The Company believes it could add a streptococcal
component in a next generation vaccine.
The development program is 50% funded by Virbac. The Company has
retained exclusive marketing rights in North America. Virbac has
exclusive marketing rights in Europe. The parties share marketing
rights in the rest of the world.
Quilimmune-T TM for the Prevention of Tick Borne Diseases
Ticks can transmit pathogens that cause a variety of diseases,
including Lyme disease, Rocky Mountain Spotted Fever and
Babesiosis. Lyme disease was first described in 1969, but its
cause, Borrelia burgdorferi transmitted by tick bites, was not
identified until 1981. According to the Center for Disease
Control and Prevention, Lyme disease is the leading tick-borne
infectious disease in the United States, with over 40,000 reported
cases, including cases in all 50 states. In 1991 scientists
reported the discovery of a new disease, human granulocytic
ehrlichiosis (HGE), caused by a microorganism in the genus
Ehrlichia transmitted by the bite of the same tick that carries
Lyme disease. HGE's flu-like symptoms include fever, headache and
muscular aches, as well as joint pain, nausea, vomiting and cough.
HGE is believed to have caused several deaths in immune-
compromised patients.
Aquila scientists found the HGE-causing organism in dogs in 1994
in the course of the efficacy trials of Aquila's canine Lyme
disease product, and traced its source to the ticks. Aquila
believes that it was the first to successfully cultivate the HGE
organism in tissue culture, and the Company has filed patent
applications on infected cell lines, the methods of growing the
organism, and potential vaccine antigens and diagnostic reagents
derived from the pathogen.
Aquila has been working with the Centers for Disease Control and
Prevention ("CDC") to develop a blood test to be used in
epidemiological surveys that will determine how widespread the
disease may be. Prior to Aquila's development of the cell lines,
diagnosis of the disease was extremely difficult, and impractical
for survey purposes. Aquila has been conducting additional
internal research to better characterize the organism and to
develop additional vaccine antigens and diagnostic reagents, and
has collaborations with leading academic researchers. Aquila
believes that a combination vaccine could be developed against HGE
and human Lyme disease. Aquila's work in HGE may also have
applicability for animal health applications. The HGE organism
appears to cause illness in dogs. Once the epidemiology is better
understood, Aquila may seek development funding from an animal
health partner.
Quilimmune-M TM for the Prevention of Malaria
According to estimates in published reports, over two billion
people reside in malaria-infected areas. The yearly incidence of
malaria is estimated by the World Health Organization at 300 to
500 million cases, with a death toll of 1.5 to 3 million persons.
While anti-malarial drugs have been in use for decades, they are
expensive and resistant malarial strains are becoming increasingly
common. The World Health Organization has identified malaria as a
priority vaccine target in developing countries.
Aquila is involved in a number of development programs to develop
products for malaria. SKB/WRAIR are developing a vaccine
containing QS-21 based on a recombinant circumsporozite protein
fused to hepatitis B surface antigen. The results of a Phase I
challenge study were published recently in the New England Journal
of Medicine (Stoute et al., NEJM, January 9, 1997, pp. 86-91)
involving three vaccine formulations. QS-21 was a critical
component of the only formulation to protect against malaria
challenge in six of the seven subjects challenged.
In addition to this study, Aquila has a collaboration with the
World Health Organization (WHO) on another malaria product
involving the antigen Spf66. Spf66, a polymerized peptide, was
discovered by Dr. Manuel Pattaroya at Instituto de Immunologica
Hospital San Juan de Dios in Colombia, South America. The antigen
has been tested with an alum adjuvant in three large clinical
trials in humans. Protection was achieved from malaria in two of
the trials in 31% of the adults and children. In the third trial
there was no protection. These mixed results are thought to be
the result of several factors: different manufacturing processes
were used for the Spf66; the design of the trials was different;
the clinical definition of malaria varied between studies; and the
study populations were different.
Aquila has investigated the effectiveness of a Quilimmune-M TM
product containing QS-21 and Spf66. In a study in Aotus monkeys,
57% of the animals were protected from malaria on challenge after
vaccination with Spf66 plus QS-21. In this study, a control
vaccine of Spf66 alum (the product that was used in the human
studies) gave only 25% protection, comparable to the results
obtained previously. A human clinical trial of Quilimmune-M tm is
planned in 1997 and will be overseen by WHO.
Quilvax-L TM for the Prevention of Canine Lyme Disease
Aquila is developing a product pursuant to a 1991 agreement with
Mallinckrodt Veterinary Inc. ("Mallinckrodt") against Lyme disease
in dogs. There are approximately 50 million dogs in the United
States, with perhaps a fifth of them living in areas infested with
the tick which transmits Borrelia burgdorferi, the cause of Lyme
disease. The potential market for a canine Lyme disease product
may be as much as $50 million.
During 1993-94, Aquila conducted efficacy trials on its canine
Lyme disease product using a protocol approved by the United
States Department of Agriculture ("USDA"). The studies showed
that use of Quilvax-L TM resulted in protection from symptoms in 89%
of the dogs. Data from this trial was submitted to the United
States Department of Agriculture ("USDA"), which reviewed the data
in support of licensure and found the outcome satisfactory.
Quilvax-L TM incorporates two outer surface proteins of Borrelia and
QS-21, a formulation which the Company believes offers better
protection against geographically diverse strains of the pathogen.
Mallinckrodt is in the process of conducting field safety studies.
A patent application has been filed on this formulation.
Under the Mallinckrodt agreement, the Company will supply
Mallinckrodt with bulk formulated product, which Mallinckrodt will
then fill, finish, and distribute. The Company will be paid a
supply price for the product and receive a royalty on
Mallinckrodt's sales.
Quilvax-FeLV TM for the Prevention of Feline Leukemia
Aquila has developed a recombinant subunit vaccine against the
feline leukemia virus. The product was approved in 1990 in the US
and 1991 in Europe. It is marketed by Virbac SA in Europe,
Australia and Japan under the tradename LeucogenR and by
Mallinckrodt in the U.S. under the tradename GenetivacR. FeLV is
a highly contagious and commonly fatal disease of cats. Aquila's
product was the first recombinant vaccine ever developed against a
tumor-causing virus in mammals. Aquila manufactures bulk
formulated vaccine for the United States and Australian markets,
and supplies Virbac with bulk antigen and adjuvant for further
manufacture for the European and Japanese markets. The product is
the leading FeLV vaccine in Europe, and in a recent independent
study was found to be the most effective of three leading FeLV
products on the market.
Corporate Partner Programs
In addition to Aquila's own product development programs, the
Company has six corporate partners who have licensed the StimulonTM
adjuvants for a variety of human diseases. The six corporate
partners are SmithKline Beecham p.l.c., Wyeth-Lederle Vaccines and
Pediatrics, Pasteur Merieux Connaught, Progenics Pharmaceuticals,
Inc., VaxGen, Inc. and NABI. Three of the world's four largest
vaccine manufacturers are partners using Aquila's adjuvants. In
return for rights to use StimulonTM adjuvants for specific
diseases, the corporate partners have agreed to pay Aquila license
fees, milestone payments, and royalties on product sales. Aquila
has retained worldwide manufacturing rights for QS-21.
Clinical Trials Completed
Disease Market Trial
Breast Cancer 180,000 cases per year in U.S. Phase I
Influenza* 50 million infections per year Phase I
Phase I
Phase II
Herpes I/II 125 million people infected Phase I
Phase Ib
HIV-1 >1 million people infected in Phase I
U.S. Phase II
Hepatitis B 300,000 cases per year in U.S. Phase I
Malaria 1-2 billion persons at risk Phase I challenge
Melanoma* 30,000 cases per year in U.S. Phase I/II
Phase I/II
Phase I/II
Respiratory Virus 100,000/yr. - infant Phase I
hospitalizations
* Multiple partners and/or different antigens
StimulonTM Product Development Programs
Clinical Trials Ongoing
B-Cell lymph* (two, Phase I) Therapeutic
Breast cancer (two, Phase I) Therapeutic
Colon cancer (two, Phase I) Therapeutic
Hepatitis B Therapeutic
Herpes II Therapeutic
HIV-1* (Phase I) Prophylactic
Influenza* (Phase I) Prophylactic
Melanoma* (six, Phase I/II) Therapeutic
Melanoma* (two, Phase II/III) Therapeutic
Pancreatic cancer (Phase I) Therapeutic
Prostate cancer (two, Phase I) Therapeutic
Strep-pneumo* (Phase I) Prophylactic
Pre-Clinical/Research
Chlamydia
CMV
EBV
Gonococcus
Hepatitis C
Herpes zoster
HIV-1*
Melanoma*
Para influenza
Rotavirus
Toxoplasmosis
Malaria*
* Multiple partners and/or different antigens
* SmithKline Beecham, p.l.c. has licensed QS-21 for a number of
different applications, including influenza, herpes,
hepatitis, Lyme disease and malaria. The world's leading
manufacturer of Hepatitis B vaccine, SmithKline is
aggressively marketing its existing portfolio of vaccines,
while developing new and improved products. SmithKline has
completed a number of Phase I clinical trials of potential
products containing QS-21 and is also investigating the use
of combinations of different adjuvants. (See Management's
Discussion and Analysis for revenues received from SKB.)
* Pasteur Merieux Connaught has licensed QS-21 for use in its
influenza and HIV vaccine programs. Pasteur Merieux has
completed two clinical trials for influenza and has ongoing
pre-clinical work on three potential HIV products.
* Wyeth-Lederle Vaccines and Pediatrics licensed QS-21 in 1992
for use in five vaccines. Wyeth-Lederle, formed as a result
of the acquisition of American Cyanamid by American Home
Products, is a leader in pediatric vaccines. Wyeth-Lederle
initiated a Phase I clinical trial using QS-21 in 1995.
* Progenics Pharmaceuticals, Inc. licensed QS-21 in 1995 for
use in certain therapeutic vaccines for cancer. Progenics'
most advanced program involves the use of QS-21 with a
ganglioside preparation to treat melanoma. Phase I/II
clinical trials of this product, which was initially
developed by physicians at Memorial Hospital for Cancer and
Related Diseases ("Memorial Sloan Kettering"), have been
completed, and a Phase III study has been started under the
aegis of the Eastern and Southwestern Collaborative Oncology
Groups. A second Phase III study is expected to be initiated
in the United Kingdom and a third in Australia. Aquila has
licensed Progenics to use QS-21 in exchange for a license
fee, an equity interest in Progenics, and royalties.
* VaxGen, Inc. (an early stage company whose major corporate
shareholder is Genentech, Inc.) has licensed QS-21 for use in
its HIV-1 vaccine program. VaxGen has conducted Phase I
clinical trials in healthy volunteers with a product
formulated with QS-21, under the auspices of the National
Institutes of Health. This trial was expanded in 1994 after
improved neutralizing antibody responses were observed in
volunteers receiving products containing QS-21. While some
volunteers in this study reported pain on injection, Aquila
has been informed that an additional study with this
potential vaccine is planned.
* NABI has licensed QS-21 for use in production of
immunoglobulin for prevention and treatment of gram-negative
and gram-positive bacterial infections. NABI is currently
evaluating its products in clinical trials without using<PAGE>
adjuvants. The Company is uncertain if or when NABI will
commence clinical trials using QS-21.
Manufacturing and Scale-Up
As part of each StimulonTM adjuvant licensing agreement, the
Company has retained the right to be the exclusive supplier of
Stimulon adjuvants. The license agreements stipulate the supply
prices, within certain ranges. Pursuant to the license
agreements, the Company will also receive royalties on its
licensees' product sales.
The Company currently manufactures QS-21 for commercial animal
health use and for use in human clinical trials. The Company
produces QS-21 with an average batch size sufficient for
approximately 200,000 doses. The Company is scaling the process
to produce a batch size suitable for commercial production up to
2,000,000 doses.
QS-21 is currently classified by the FDA as a constituent material
used in vaccine preparation. As a result, the FDA does not
require licensure of facilities used for its manufacture. Aquila
believes that classification of QS-21 as a constituent material
affords flexibility in the timing of investment in commercial
manufacturing facilities. After the safety and effectiveness of
QS-21 has been demonstrated, Aquila expects to be in a position to
reasonably project the plant capacity and the capital investment
required.
Patents and Proprietary Rights
Aquila has pursued a policy of obtaining patent protection both in
the United States and in selected foreign countries for patentable
subject matter in its proprietary technologies. The Company has
filed or has rights to a number of U.S. patents and patent
applications and their foreign counterparts. Aquila also relies
on trade secrets, proprietary know-how, and continuing technical
innovation to develop and maintain its competitive position.
Aquila's future success will depend, in part, upon its ability to
develop patentable products and technologies and obtain patent
protection for its products and technologies both in the United
States and Europe. There can be no assurance that patent
applications owned or licensed by the Company will issue as
patents, that patent protection will be secured for any particular
technology, or that, if issued, such patents will be valid, or
that they will provide the Company with meaningful protection
against competitors with a competitive advantage. There can be no
assurance that the patents will not be challenged or designed
around by others. Proceedings brought against Aquila's patents
could expose it to significant expense and the risk of adverse
determinations.
Aquila is not aware of any issued third party patents which would
interfere with development of any of its products, but there can
be no assurance that it will not infringe on existing or future
patents owned by others, that third parties will not bring suit
against it for infringement of such patents, that the Company
could obtain necessary or desirable licenses on acceptable terms,
or that it could design around such patents. Any litigation
instituted by third party patent holders could expose Aquila to
significant expense and the risk of adverse determination.
QS-21 and other Adjuvants
Aquila received U.S. Patent No. 5,057,540 in 1991, covering
purified QS-21, QS-7 and the other principal fractions of
Quillaja saponaria and methods of their use in vaccines. It
believes that the standard of purity specified in the patent for
the saponin fractions is necessary to achieve a safety profile
acceptable for human use. CSL International ACN ("CSL") controls
certain patents and patent applications covering ISCOMS (immune
stimulating complexes) prepared from crude saponin fractions,
lipids and various antigens. The Company believes that its
products do not infringe CSL's U.S. or European patents due to
process differences and formulation techniques which avoid ISCOM
formation, although the issue is less clear in Europe. In the
event patents do issue to CSL or other parties which dominate QS-
21, there can be no assurance that Aquila will be able to obtain
licenses or obtain such licenses on favorable terms.
Human Granulocytic Ehrlichiosis
Aquila believes that it was the first to successfully cultivate
the HGE organism in tissue culture. The Company has filed patent
applications on infected cell lines, the methods of growing the
organism, and potential vaccine antigens and diagnostic reagents
derived from the cell line. Other researchers in the field of HGE
have filed patent applications that might conflict with Aquila's
patent applications. There can be no assurance that any of
Aquila's patent applications will issue.
Lyme Disease
Aquila has filed a patent application on its vaccine formulation
of using both the A and the B outer surface proteins and QS-21;
animal data indicates this formulation induces group-specific
immune responses (important for protection against multiple
Borrelia strains) significantly better than vaccines containing
only one or two of these components. There are several patents
pending in the United States and in Europe which, if issued in
their current form, may dominate Aquila's Lyme vaccine. Aquila
believes that it is unlikely that any dominant claims will issue
because of the extensive prior art, but there can be no assurance
that the Company's position is correct and, if dominating patents
do issue, there can be no assurance that it will be able to obtain
the necessary licenses or obtain such licenses on favorable terms.
Mastitis
Aquila exclusively licensed from Alfa Laval Agri AB certain base
technology used in the mastitis program. This technology includes
patents and patent applications on fibronectin binding proteins
from S. Aureus, E. coli and S. dysgalactiae. The Alfa Laval
license calls for payment of an initial license fee, royalties,
and additional license fees as additional patents issue and when
Aquila commercializes the vaccines. As part of the joint
development agreement with Virbac, Aquila arranged for Alfa Laval
to grant a direct license to Virbac in certain territories.
Other Patents
Aquila also holds U.S. patents on its Quilvax-FeLV TM vaccine, drug
delivery compounds, and patents on methods of expressing and
purifying proteins made in a baculovirus expression system have
issued. Aquila was granted by CBC, effective on the closing of
the transaction with bioMerieux: (a) a fully paid-up royalty-free
license to U.S. Patent No. 4,734,362 and foreign counterparts
(protein purification) in the vaccine, therapeutic and related
research fields; (b) a fully paid-up royalty-free license to U.S.
Patent No. 4,753,873 in the veterinary diagnostic field; and (c) a
non-exclusive sublicense to U.S. Patent No. 4,725,669 and U.S.
Patent No. 5,068,174 (HIV-gp120-p27) in the vaccine, therapeutic
and related research fields.
Competition
The biotechnology and pharmaceutical industries are subject to
rapid and significant technological change. Competitors of Aquila
in the United States and abroad are numerous. They include, among
others, major pharmaceutical and chemical companies, specialized
biotechnology firms, universities and other research institutions.
There can be no assurance that Aquila's competitors will not
succeed in developing technologies and products that are more
effective than any which have been developed by the Company or may
be developed by the Company in the future or which would render
the Company's technology and products obsolete and noncompetitive.
Many of these competitors have substantially greater financial and
technical resources and production and marketing capabilities than
Aquila. In addition, some of Aquila's competitors have
substantially greater experience than the Company in preclinical
testing and human clinical trials of pharmaceutical products and
in obtaining FDA and other regulatory approvals of products for
use in healthcare. Accordingly, Aquila's competitors may succeed
in obtaining FDA approval for products more rapidly than could the
Company. There can be no assurance that Aquila's products under
development will be able to compete successfully with existing
products or products under development by other companies,
universities and other institutions or that they will attain
regulatory approval in the United States or elsewhere. If Aquila
commences significant commercial sales of its products, it will
also be competing with respect to manufacturing efficiency and
marketing capabilities, areas in which it may have less
experience. A significant amount of research in the field is also
being carried out at academic and government institutions. These
institutions are becoming increasingly aware of the commercial
value of their findings and are becoming more aggressive in
pursuing patent protection and negotiating licensing arrangements
to collect royalties for use of technology that they have
developed. These institutions may also market competitive
commercial products on their own or in collaboration with
competitors and will compete with Aquila in recruiting highly
qualified scientific personnel.
Aquila is aware of certain programs and products under development
by others which may compete with its programs and products.
Several companies, including Ribi ImmunoChem Research, Inc. and
Chiron Corporation, are developing adjuvants.
At least two of Aquila's adjuvant licensees are also licensees of
Ribi for certain diseases. Fort Dodge and Rhone Merieux already
have canine Lyme disease vaccines on the market, while Pasteur
Merieux Connaught and SKB are in advanced human trials with human
Lyme disease vaccines. Merck, Wyeth-Lederle and possibly others
are in human clinical trials with conjugate pneumococcal vaccines
for the pediatric market, and have existing non-adjuvanted
products on the market. Several companies market mastitis
vaccines for infections caused by E. coli, but these vaccines do
not protect against staphylococcal or streptococcal infections.
The existence of products developed by these and other
competitors, or other products of which Aquila is not aware or
which may be developed in the future, may adversely affect the
marketability of products developed by Aquila.
Government Regulation
The FDA, the USDA, the Environmental Protection Agency and the
Nuclear Regulatory Commission, comparable state agencies and other
agencies, including those in foreign countries, impose
requirements governing the development, manufacture and marketing
of certain of Aquila's products and products under development.
The regulatory process can take several years, involves lengthy
and detailed laboratory and clinical testing, and requires
substantial expenditures. Human biologicals and pharmaceuticals,
including vaccines, typically require three stages of clinical
trials: Phase I to determine the preliminary safety of the
product; Phase II, during which the efficacy of the product is
preliminary assessed and treatment regimens refined; and Phase III
(sometimes referred to as "pivotal trials") during which final
safety and efficacy data are generated. Regulatory approval is
required prior to commencement of initial clinical trials. The
clinical data, together with comprehensive manufacturing and
facility information, is filed with the FDA in a New Drug
Application (NDA) or Product License Application (PLA) and an
Establishment License Application (ELA), or in certain cases as a
Biologics License Application (BLA), on which the regulatory
agencies base their approval decisions. In some instances,
particularly in cases of life-threatening diseases for which there
is no effective treatment, the clinical trial phases may be
combined, or approval may be sought after completion of an
expanded Phase II trial.
Because QS-21 is currently classified by the FDA as a constituent
material used in vaccine preparation, the FDA does not require
licensure of facilities used in its manufacture. Aquila believes
that this affords flexibility on investment in commercial
manufacturing facilities. Aquila has filed a Biologics Master
File for QS-21 with the FDA, which its licensees can reference as
part of their own PLAs and NDAs as they seek FDA approval.
There can be no assurance that, at the end of the regulatory
process, approval will be obtained or that product developments by
competitors in the interim will not have made Aquila's products
obsolete or economically unfeasible. The extent of regulation
which may arise from future legislative or administrative action
cannot be predicted, nor can the potential impact of such future
regulation, or changes in existing regulation, be predicted with
any certainty.
Product Liability
Aquila has potential liability risks that are inherent in the
testing, manufacturing and marketing of medical products. The use
of Aquila's products or conduct of clinical trials may expose
Aquila to product liability claims and possible adverse publicity.
These risks also exist with respect to Aquila's products, if any,
that receive regulatory approval for commercial sale. The Company
currently has limited product liability coverage for the clinical
research use of its products, which management believes is
customary for companies with products at this stage of clinical
development. There can be no assurance that Aquila will be able
to maintain its existing insurance coverage or obtain additional
insurance coverage at acceptable costs, if at all, or that a
product liability claim would not materially adversely affect the
business or financial condition of the Company.
If and when Aquila manufactures products that are recommended for
routine administration to children, it is possible that it will be
required to participate in the National Vaccine Injury
Compensation Program. This program compensates children having
adverse reactions to certain routine childhood immunizations with
funds collected through an excise tax from the manufacturers of
these products.
Human Resources
As of March 1, 1997, Aquila employed 60 full-time employees. The
employees are not represented by any labor unions, and the Company
considers its relations with those employees to be good. Aquila's
scientific staff has expertise in many relevant areas and these
internal resources are augmented by consulting agreements with
research scientists located at various academic institutions and
commercial organizations.
Scientific Advisory Board
Aquila's Scientific Advisory Board consists of six individuals
with recognized expertise in immunology. The Scientific Advisory
Board meets from time to time to discuss matters relating to the
Company's current and long-term scientific planning and research
and development, and the individual members are available for
consultation on an informal basis. All members of the Scientific
Advisory Board are employed by academic institutions, and may have
commitments or consulting or advisory obligations to other
entities that may limit their availability to Aquila. These
entities may be competitors of Aquila. In certain circumstances,
the academic institutions which employ the Scientific Advisory
Board members may assert ownership rights to inventions or other
technology that may result from advice provided to Aquila by such
members. In such circumstances, Aquila could seek to negotiate
licenses to such inventions or technology, but there can be no
assurance that the Company would be able to obtain such licenses
on commercially reasonable terms. No members of the Scientific
Board are expected to devote more than a small portion of their
time to Aquila's business.
The following persons are the current members of the Scientific
Advisory Board:
Mary Lou Clements-Mann, M.D., M.P.H.
Professor
Department of International Health
Johns Hopkins University
Center for Immunization Research
John R. David, M.D.
Richard Pearson Strong Professor and
Chairman of the Department of Tropical Public Health
Professor of Medicine and Chief of the Division
of Tropical Medicine
Harvard Medical School
Michael J. Hawkins, M.D.
Associate Professor of Medicine
Division of Medical Oncology
Vincent T. Lombardi Cancer Research Center
Georgetown University College of Medicine
Arthur I. Hurwitz, D.V.M., Ph.D.
Chairman, Department of Pathology
The Animal Medical Center
New York
Takis S. Papas, Ph.D.
Director, Center for Molecular and Structural Biology
and Professor of Medicine
CMSB/Hollings Oncology Center
Medical University of South Carolina
Richard J. Whitley, M.D.
Professor of Pediatrics
University of Alabama at Birmingham
Children's Hospital
Aquila's discussions as to management's plans and objectives for
Aquila's business after the date hereof are forward looking
statements which involve a number of risks and uncertainties.
Actual results may differ materially from those projected by
Aquila. The following factors, among others, could effect the
Company's actual results: general economic conditions; risks in
product and technology development; delays and difficulties in the
regulatory approval process; difficulties in obtaining raw
materials and supplies for the Company's products; failure of
corporate partners to commercialize successfully products using
the Company's technology; competition from other companies; the
costs of acquiring additional technology; failure to obtain the
funding necessary for the Company's planned activities; and other
risks and uncertainties identified in this report on Form 10-K and
in Aquila's Security and Exchange Commission filings and the
exhibits thereto.
Item 2. PROPERTIES.
Aquila currently leases a 76,475 square foot facility at the
Biotechnology Research Park in Worcester, Massachusetts. The
facility contains research and development laboratories, quality
control laboratories, manufacturing space and administrative
offices. The building is leased pursuant to a lease with a ten
year initial term expiring December 1996. The Lease has been
extended through December 1997. Since the space exceeds its needs
for the continuing business, Aquila may relocate to new space at
the end of 1997. Aquila believes that suitable replacement space
is available at reasonable rates.
Aquila owns three buildings in Rockville, Maryland. A majority of
a 46,000 square foot building at 1500 East Gude Drive and a 3,800
square foot building at 3 1/2 Taft Court are leased to bioMerieux
under a ten year lease which commenced in October 1996. A 20,852
square foot laboratory building at 3 Taft Court is leased to
Biotech Research Labs, a subsidiary of Boston Biomedica Inc.,
under a five year lease which commenced July 1992.
Item 3. LEGAL PROCEEDINGS.
The Plan of Reorganization (the "Plan") of Cambridge Biotech
Corporation ("CBC") was confirmed by the United States Bankruptcy
Court ("Bankruptcy Court") on July 18, 1996 and consummated on
October 21, 1996.
Four parties appealed the Bankruptcy Court's July 18, 1996 order
confirming the Plan, including Alfa-Laval Agri AB, Behring
Diagnostics, Inc., Deloitte & Touche, LLP ("Deloitte") and
Institut Pasteur with Pasteur Sanofi Diagnostics. The appeals
taken by Alfa-Laval Agri AB and Behring Diagnostics, Inc. have
been dismissed. The appeal by Deloitte remains pending before the
United States District Court for the District of Massachusetts
(No. 96-40192-NMG). Deloitte contests the right of counsel to
Class 5 Claimants to bring an action against Deloitte on behalf of
CBC as provided in the Plan. Finally, an appeal taken by Institut
Pasteur and Pasteur Sanofi Diagnostics (collectively, "Pasteur")
was dismissed and the confirmation affirmed, by the First Circuit
Court of Appeals by order dated January 17, 1997. Pasteur has
until April 17, 1997 to file a writ of certiorari with the Supreme
Court of the United States appealing the First Circuit Court of
Appeals' decision. Although the Company is not a party to this
litigation, a successful appeal could have an adverse effect on
the Company's continuing operations if the appellate court were to
disrupt the transactions consummated pursuant to the Plan.
In July of 1994, the Securities and Exchange Commission ("SEC")
issued an Order Directing Private Investigation (In the matter of
Cambridge Biotech Corporation, United States of America Before the
Securities and Exchange Commission, File No. B-1238),
investigating matters pertaining to CBC's financial statements,
its public filings, and its offerings of its securities. The
investigation concluded on or about October 17, 1996 with the
issuance by the SEC of an "Order Instituting Proceedings pursuant
to 8A of the Securities Act of 1933 and 21C of the Exchange Act
of 1934 Making Findings and Imposing a Cease and Desist Order".
CBC consented to the issuance of the order, without admitting or
denying any wrongdoing, that it cease and desist from committing
or causing any violation of the anti-fraud, corporate reporting,
and books and records provisions of the federal securities laws.
The SEC takes the position that this order is binding on both CBC
and the Company.
In 1995, CBC received a subpoena issued by the United States
District Court, District of Massachusetts for documents to be
presented to the Grand Jury. The Company believes the
investigation was focusing on matters similar to the investigation
of the SEC. CBC cooperated in the investigation and was informed
informally by the U.S. Attorney's Office that it was not a target
of the investigation. The Company believes it is not a target of
any current investigation.
In May 1995, a former employee of CBC filed a complaint against
CBC with the City of Rockville, Maryland Human Rights Commission,
claiming wrongful termination (Human Rights Commission on the
Complaint of Paul R. Shackelford against Cambridge Biotech
Corporation, Complaint No. 95-15-ER). The Company was informed by
letter dated January 28, 1997 from the State of Maryland
Commission on Human Relations that the complaint had been
administratively closed because a pre-determination settlement
agreement had been executed in accordance with the Maryland
Commission on Human Relations' rules and procedures.
CBC filed an appeal in the United States District Court for the
District of Massachusetts, Civil Action No. 96-40219-NMG of the
Bankruptcy Court's order entered on October 21, 1996 relating to
the calculation of the cure amount due to Hugh V. Cottingham
("Cottingham") in connection with CBC's assumption of a certain
License Agreement. Cottingham filed a cross-appeal. CBC and
Cottingham have agreed to settle the dispute and dismiss the
appeal and cross-appeal, and have filed a Joint Motion for Order
Authorizing and Approving Stipulation of Dismissal and proposed
Stipulation of Dismissal.
On January 14, 1997, the Company commenced an adversary proceeding
(No. 97-4011) in the United States Bankruptcy Court for the
District of Massachusetts, in connection with the Chapter 11 case
of CBC, against the State of Maryland, Louis Goldstein as
Comptroller of the Treasury of the State of Maryland, Montgomery
County, Maryland and Molly Q. Ruhl, the Clerk of the Circuit Court
of Montgomery County. In the adversary proceeding, the Company
seeks, among other things, (1) a declaration that the payment of
certain mortgage recordation taxes by the Company, in connection
with the recordation of a deed of trust under the terms of the
Plan of CBC, violated the Bankruptcy Court's order confirming the
Plan and the provisions of the United States Bankruptcy Code
exempting the Company from the payment of such taxes, and (2) the
recovery of such tax payments. The Bankruptcy Court has scheduled
for April 8, 1997 a hearing on the motions to dismiss filed by the
defendants.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to security holders during the quarter
ended December 31, 1996.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following is a list of Executive Officers of the Company,
their ages, positions, offices and business experience, as of
March 1, 1997:
Alison Taunton-Rigby, Ph.D., 52, has been President, Chief
Executive Officer and Director since March of 1996. Dr.
Taunton-Rigby was President and Chief Executive Officer and a
member of the Board of Directors of CBC from April 1995 until
October of 1996. From 1993 to 1994, she was President and
Chief Executive Officer of Mitotix, Inc., a biopharmaceutical
company. Prior to joining Mitotix, Dr. Taunton-Rigby was
Senior Vice President, Biotherapeutics, of Genzyme
Corporation, where she had overall responsibility for
Genzyme's biotherapeutics business. Dr. Taunton-Rigby is a
member of the Board of Directors of BIO, the national trade
organization, where she is also Chair of the Emerging
Companies section. She is also a member of the Board of
Directors and a past President of the Massachusetts Biotech
Council, the trade organization representing Massachusetts
biotechnology companies. Dr. Taunton-Rigby received her
doctorate in Chemistry from the University of Bristol in
England, and is a graduate of the Advanced Management Program
of the Harvard Business School. She is a director of the CML
Group, a specialty retailer, and of Synaptic Pharmaceutical
Corporation. She is also a member of the Bentley College
Ethics Board.
Gerald A. Beltz, Ph.D., 45, is Vice President of Research and
Development of the Company. Dr. Beltz served as Vice
President of Research and Development of CBC from 1993 to
1996. For ten years prior to assuming these positions, Dr.
Beltz held various scientific positions with CBC. Dr. Beltz
was responsible for the initial development of CBC's FeLV
feline leukemia vaccine and HIV-1 diagnostic assays, and is
the lead inventor on the patents covering these products.
Dr. Beltz received his B.S. from Beloit College, his M.A. and
Ph.D. from Princeton University, and did his post-doctoral
work at Harvard University.
Stephen J. DiPalma, 38, is Vice President, Chief Financial
Officer and Treasurer of the Company. Mr. DiPalma served as
Vice President, Chief Financial Officer and Treasurer of CBC
from March 1996 to October 1996. Before joining CBC, Mr.
DiPalma was Chief Financial Officer and Chief Operating
Officer of the Picker Institute, an affiliate of the Beth
Israel Hospital, specializing in quality assessment,
improvement and information services. From 1988 to 1995, Mr.
DiPalma was Chief Financial Officer of Athena Diagnostics
Inc. (formerly Genica Pharmaceuticals Corporation), a
biotechnology company involved in therapeutic development and
diagnostic testing targeted at neurological disorders. From
1985 to 1988, Mr. DiPalma was Director of Finance of the
Health Data Institute, a division of Baxter International
Corporation. Mr. DiPalma holds a B.S. from University of
Massachusetts at Lowell and an M.B.A. from Babson College.
Deborah B. Grabbe, 45, is Vice President of Manufacturing
Operations of the Company. Ms. Grabbe served as Vice
President of Manufacturing Operations for CBC from 1995 until
1996. She was Vice President of Regulatory Affairs and
Product Quality for CBC from 1993 to 1994. Prior to joining
CBC in 1993, Ms. Grabbe was Director of Regulatory and
Clinical Affairs and Director of Product Support for Behring
Diagnostics, Inc. From 1987 to 1988 she was Vice President
of Operations at Biotechnica Diagnostics, Inc. Ms. Grabbe
holds an A.B. from Oberlin College and an M.S. from John A.
Burns School of Medicine, University of Hawaii.
Robert B. Kammer, M.D., 56, is Vice President of Medical
Affairs for the Company. Dr. Kammer served as Vice President
of Medical Affairs for CBC from 1993 until 1996. From 1988
to 1993, Dr. Kammer was employed at Schering-Plough
Corporation as Director, Anti-Infective Clinical Research.
Before joining Schering-Plough, Dr. Kammer worked at Lilly
Research Laboratories. Dr. Kammer received his B.A. and M.D.
degrees from the University of Iowa and did his internship,
residency and fellowship at the Medical College of Virginia.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Price of common stock:
1996 1995
Quarter High Low High Low
1st $1.6250 $0.3750 $0.7500 $0.1250
2nd $1.2500 $0.5000 $1.2500 $0.1870
3rd $0.8125 $0.3437 $1.6250 $0.1870
4th $6.7500 $3.2500 $1.5000 $0.2500
The above prices reflect interdealer prices without retail mark-
up, mark-down or commissions and may not necessarily represent
actual transactions. The prices reported for 1995 and until
October 1996 represent bid prices for transactions of CBC stock
reported by brokers on the "OTC Bulletin Board" and in the so
called "pink sheets." The prices for the last quarter of 1996 are
the high and low bid information as quoted on the NASDAQ National
Market System for Aquila's stock. The prices in the fourth
quarter of 1996 reflect the exchange of CBC shares for shares of
the Company at a ratio of one share of the Company for each 7.569
shares of CBC. The high and low bid prices for CBC stock for the
last quarter of 1996 fell within the range reported for Aquila,
after adjustment for the exchange of shares. The Company's stock
was deemed registered pursuant to Rule 12g-3(a) under the
Securities Exchange Act of 1934 on or about October 21, 1996 and
began trading on the NASDAQ National Market System on October 24,
1996.
Below are high and low prices (rounded to the nearest 1/16)
reported as if the exchange of CBC shares for the Company's shares
at the rate of 7.5696 shares of CBC for one share of the Company
had occurred on January 1, 1995.
1996 1995
Quarter High Low High Low
1st $12.3125 $2.8125 $ 5.6875 $0.9375
2nd $ 9.4375 $3.75 $ 9.4375 $1.4375
3rd $ 6.125 $2.625 $12.3125 $1.4375
4th $ 6.75 $3.25 $11.375 $1.875
As of March 25, 1997, there were approximately 5,445 shareholders
of record of the Company's common stock.
Item 6. SELECTED FINANCIAL DATA
- -------------------------------
Aquila Biopharmaceuticals, Inc.
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Year ended December 31:
- -----------------------
Net Sales $6,573,112 $5,727,716 $5,009,922
=========== ============= ============
Loss from continuing operations ($1,110,146) (5,164,876) ($11,608,156)
Loss from continuing operations
per share:
Primary ($0.29) ($1.50) ($3.40)
=========== ============= ============
Cash dividends declared per $0.00 $0.00 $0.00
share =========== ============= ============
At year end:
- -----------
Total Assets
$26,312,350 $23,044,579 $28,502,670
=========== ============= ============
Long term notes payable $4,055,564 $0 $0
----------- ------------ -------------
Total long term obligations 4,055,564 $0 $0
=========== ============= ============
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General
Aquila is the successor to the biopharmaceutical business of CBC
pursuant to the terms of the Plan and is the successor to CBC
under the Securities Exchange Act of 1934 and Rule 12g-3(a)
thereunder.
Results of Operations
The Statement of Operations presents Aquila's results from
operations exclusive of diagnostic activities, which are presented
as Discontinued Operations in the statement. Revenues, costs,
expenses and other items reflect the results of Aquila's
biopharmaceutical business and administrative functions only, as
more fully described below.
Revenues
Total revenues were $6,573,000 in 1996, or 15% higher than in
1995. Total revenues of $5,728,000 in 1995 increased 14% versus
1994 total revenues of $5,010,000.
Product sales were $1,398,000 and $591,000, in 1996 and 1995
respectively, an increase of 137%. Product sales in 1995 were 13%
lower than in 1994. The increase in product sales in 1996
compared with 1995 was due primarily to increased sales of certain
animal health products to Virbac S.A. and payments received for
materials provided by the Company to corporate partners. Sales of
the animal health products in 1995 were negatively impacted by
production problems during that year. In 1996, animal health
product sales reflect increased volume to compensate for
diminished supply in 1995.
Research and development ("R&D") revenues of $5,176,000 in 1996
represented a small increase compared to $5,137,000 in 1995. R&D
revenues in 1995 were 19% higher than in 1994. The majority of
these revenues were generated from license agreements and the
remainder were generated from funded research agreements. The
Company recognized $3,500,000 in both 1996 and 1995 and $3,000,000
in 1994 in revenue representing installments of a license fee
under an agreement with SmithKline Beecham p.l.c. ("SKB") which
allows SKB to use the Company's proprietary StimulonTM adjuvant
("QS21") in numerous vaccines. Income from this agreement
represented 53%, 61% and 60% of the Company's total revenue in
1996, 1995 and 1994, respectively. A final $3,000,000 installment
of the license fee is payable by SKB in January of 1998 in order
for SKB to maintain access to all the technology under the
agreement. The Company also recognized $1,920,000 in revenue from
its collaboration with Virbac S.A. on the development of a vaccine
for bovine mastitis for the three years from 1994 to 1996.
No royalty revenue has been reported in any period presented.
Although the Company did receive royalty payments under certain
license agreements during each year presented, the underlying
technology which is the subject of those agreements is primarily
diagnostic. Therefore, royalty revenue derived from these
agreements is not considered to be central to Aquila's ongoing
business and is reported as Other Income.
Costs and Expenses
Cost of products sold as a percentage of product sales was 134%,
185% and 195% in 1996, 1995 and 1994, respectively. The decrease
in 1996 from 1995 is primarily due to the increase in product
sales in 1996 compared to 1995. Despite the volume increase, cost
of products sold continued to exceed product sales in 1996 due to
unfavorable pricing. In early 1997, management was successful in
negotiating higher prices for certain of the Company's animal
health products.
Research and development expenses were $4,839,000 in 1996 and
$5,697,000 in 1995, a decrease of 15%. R&D expenses in 1995
increased 12% over 1994 expenses of $5,068,000. The decrease in
1996 is attributable to expenses recognized in 1995 related to a
milestone obligation on certain technology licensed by the
Company, which expense did not recur in 1996, and to a reduction
in personnel-related expenses.
General and administrative expenses ("G&A") were $5,027,000 in
1996 and $5,455,000 in 1995, a decrease of 8%. 1995 G&A expenses
were 23% lower than in 1994. This decrease in 1996 is due
primarily to a reduction in personnel-related expenses.
Other Income, Net
The Company recognized other income, net of $5,777,000 in 1996,
compared to $2,162,000 in 1995 and $360,000 in 1994. This
increase in 1996 is due to income recognized related to the
receipt of a paid-up license fee of $3,250,000 from a third party
and a $500,000 payment received in exchange for the Company's
interest in a joint venture. Both of these payments were
nonrecurring transactions.
As discussed above, other income, net includes royalty income in
all periods presented. Royalty income, net of royalty expense,
was $1,395,000, $1,582,000 and $832,000 in 1996, 1995 and 1994,
respectively.
Reorganization Items
The Company incurred expenses of $2,109,000, $1,200,000 and
$611,000 in 1996, 1995 and 1994, respectively, for professional
fees related to the bankruptcy process and the consummation of the
Plan. The increase in 1996 was due to expenses related to the
consummation of the Plan.
The Company considers all cash up to the amount of liabilities
subject to Chapter 11 proceedings, which were approximately $9.9
million at December 31, 1995, to be cash accumulated as a result
of Chapter 11. Interest earned on cash accumulated as a result of
Chapter 11 was $394,000, $387,000 and $100,000 in 1996, 1995 and
1994, respectively.
Discontinued Operations
On June 24, 1996, the Company sold the assets of the enterics
diagnostic business to Meridian Diagnostics, Inc. for
approximately $5,700,000 in cash and other considerations. The
results of operations of the enterics business are reported as
discontinued operations and prior periods have been restated to
reflect that presentation and the disposal of that business.
Income from discontinued enterics operations was $552,000,
$426,000 and $259,000 in 1996, 1995 and 1994, respectively. A
gain on disposal of the enterics business of $5,218,000 was
recorded in 1996.
On October 22, 1996, the Company sold its retroviral diagnostic
business to bioMerieux for $6,500,000. The results of operations
of the retroviral business are reported as discontinued operations
and prior periods have been restated to reflect that presentation
and the disposal of that business. Income from discontinued
retroviral operations was $901,000 in 1996 compared to losses from
discontinued retroviral operations of $203,000 and $1,183,000 in
1995 and 1994, respectively. A gain on disposal of the retroviral
business of $2,439,000 was recorded in 1996.
On July 21, 1994 the Company's wholly-owned Irish subsidiary, CBL,
filed for protection of the Irish high Court and an Examiner was
appointed pursuant to the Irish Companies Act of 1990. The
appointment of the Examiner and the doubtful recovery of the
Company's investment in CBL led the Company to conclude the
measurement date to be July 21, 1994 under APB 30. Consequently
the accompanying financial statements for 1994 include a loss of
$2,129,000 from the discontinued operations. Net revenue from
discontinued CBL operations were $1,952,000 for the period prior
to disposal. On November 30, 1994 the company sold its interest
in CBL to SelfCare, Inc. Total consideration for the transaction
was $2.1 million. The Company recorded a loss on disposal of
$6,963,000.
Extraordinary Loss on Reorganization
A loss on all transactions related to the consummation of the Plan
of $2,040,000 was recorded in 1996. This loss resulted primarily
from the settlement of the class action lawsuit partially offset
by the forgiveness of liabilities in the bankruptcy case.
Net Income (Loss)
The Company had a loss from continuing operations of $1,110,000,
or $.29 per share, $5,165,000, or $1.50 per share, and
$11,608,000, or $3.40 per share, in 1996, 1995 and 1994,
respectively. The Company had income of $5,960,000, or $1.57 per
share, in 1996 and losses of $4,942,000, or $1.44 per share, and
$22,276,000, or $6.52 per share, in 1995 and 1994, respectively,
including income or loss from discontinued operations, gain or
loss on the disposal of discontinued operations and the
extraordinary loss on consummation.
In 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123"). SFAS 123 requires that companies
either recognize compensation expense for grants of stock, stock
options and other equity instruments based on fair value, or
provide pro forma disclosure of net income and earnings per share
in the notes to the financial statements. The Company adopted the
disclosure provisions of SFAS 123 in 1996 and has applied APB 25
and related interpretations in accounting for its plans.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128").
Earnings Per Share. SFAS 128 specifies the computation,
presentation and disclosure requirements for Earnings Per Share
("EPS"). This statement will be effective for fiscal year 1997
and will require restatement of all prior period EPS data
presented. The Company has not yet determined the financial
impact of adopting this statement.
Liquidity and Capital Resources
The ability of Aquila to fund its long term operations is
dependent upon several factors, including the Company's ability to
attract funding through additional public or private financing or
by establishing corporate partnerships and collaborative
arrangements. There can be no assurance that such additional
funding can be obtained on acceptable terms.
Operating activities used $1,025,000, $880,000 and $3,095,000 of
cash in 1996, 1995 and 1994, respectively. The 1996 net income of
$5,960,000 includes approximately $7,423,000 in gain on
sale of discontinued operations, a loss on the consummation
of the Plan of $2,040,000, and non-cash depreciation and
amortization of $3,448,000. In 1995, the net loss of $4,942,000
included $4,737,000 of non-cash depreciation and amortization. In
1994 the net loss of $22,276,000 included a loss on disposal of
discontinued operations of $7,482,000, and non-cash depreciation
and amortization of $4,282,000.
In 1996, the Company reduced inventories and accounts receivable
by $1,263,000, and $348,000, respectively. By comparison,
inventories increased by $402,000 and accounts receivable
decreased by $143,000 in 1995. In 1996, accounts payable and
other accrued expenses decreased by $1,034,000, primarily due to
payments made against post-petition administrative claims pursuant
to the consummation of the Plan. Cash used to satisfy pre-
petition Chapter 11 liabilities under the Plan was $3,757,000.
Deferred revenue also decreased, due primarily to the recognition
of revenue related to the Company's collaboration with Virbac on
the development of a vaccine for bovine mastitis. The primary
reason for the reduction in deferred revenue in 1995 was the
$3,500,000 license fee received in December, 1994 and earned
during 1995.
Accounts payable and other liabilities increased by $3,349,000 and
$2,074,000 in 1995 and 1994, respectively. The 1995 increase was
due primarily to the patent related milestone obligation
previously mentioned, employee retention bonus plan and timing of
payments. The 1994 increase was primarily due to postponed
payments due to a cash shortage prior to filing for Chapter 11,
employee retention bonus plan and professional fees incurred due
to the Company's filing for Chapter 11.
Investing activities generated $3,306,000 in 1996, due primarily
to the receipt of proceeds from the sales of the enterics and
retroviral diagnostic businesses. In 1995, by comparison,
investing activities used $798,000, primarily related to the
purchase of property, plant and equipment and additions to Patent
and Purchased Technology assets. In 1994 investing activities
generated $5,262,000, due primarily to the proceeds from the sale
of the Company's Irish subsidiary, the proceeds from the
collection of a note receivable and the sale of marketable
securities.
During 1994, the Company's financing activities generated
$5,455,000 due primarily to the stock issued from the January 1994
shelf offering.
Cash and cash equivalents were $9,112,000 at December 31, 1996,
compared to $6,856,000 at December 31, 1995 and $8,538,000 at
December 31, 1994. The increase in 1996 results primarily from
the sales of the enterics and retroviral diagnostic businesses and
the receipt of a paid-up license fee from a sub-licensee of
certain diagnostic technology. Total cash, cash equivalents and
marketable securities were $17,675,000 at December 31, 1996.
The Company currently occupies an office, research and
manufacturing facility in Worcester, Massachusetts under a lease
which expires on December 31, 1997. The Company expects that
relocation to another facility will be necessary. Given the
nature of Aquila's research and manufacturing activities and the
specialized space required to support those activities, it is
expected that the Company will be required to make capital
expenditures to improve the new facility and to acquire new
systems and equipment related to the new facility. While an
accurate estimate cannot be made at this time, it is possible that
these expenditures could be substantial.
Aquila's discussions as to management's plans and objectives for
Aquila's business after the date hereof are forward looking
statements which involve a number of risks and uncertainties.
Actual results may differ materially from those projected by
Aquila. The following factors, among others, could effect the
Company's actual results: general economic conditions; risks in
product and technology development; delays and difficulties in the
regulatory approval process; difficulties in obtaining raw
materials and supplies for the Company's products; failure of
corporate partners to commercialize successfully products using
the Company's technology; competition from other companies; the
costs of acquiring additional technology; failure to obtain the
funding necessary for the Company's planned activities; and other
risks and uncertainties identified in this report on Form 10-K and
in Aquila's Security and Exchange Commission filings and the
exhibits thereto.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements filed as part of this Annual Report on
Form 10-K are listed under Item 14 below.
Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to the Company's definitive proxy
statement, "Proposals 1 and 2, Election of Directors", to be filed
pursuant to Regulation 14A, in connection with the 1997 Annual
Meeting of Shareholders. Information concerning executive
officers of the Registrant is included in Part I of this Report as
Item 4A - Executive Officers of the Registrant.
Item 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the Company's definitive proxy
statement, "Proposals 1 and 2, Election of Directors - Executive
Compensation", to be filed pursuant to Regulation 14A, in
connection with the 1997 Annual Meeting of Shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Incorporated by reference to the Company's definitive proxy
statement, "Proposals 1 and 2, Election of Directors - Security
Ownership of Certain Beneficial Owners and Management", to be
filed pursuant to Regulation 14A in connection with the 1997
Annual Meeting of Shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the Company's definitive proxy
statement, "Proposals 1 and 2, Election of Directors", to be filed
pursuant to Regulation 14A in connection with the 1997 Annual
Meeting of Shareholders.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements.
The following documents are filed as part of this
report:
i. Report of Independent Auditors.
ii. Statement of Operations for each of
the three years in the period ended December 31, 1996.
iii. Balance Sheets at December 31, 1996
and 1995.
iv. Statement of Cash Flows for each of
the three years in the period ended December 31, 1996.
v. Statement of Shareholders' Equity for
each of the three years in the period ended December 31, 1996.
vi. Notes to Financial Statements for the
years ended December 31, 1996 and 1995.
(a) 2. Financial Statement Schedules.
None.
(a) 3. Exhibits.
2. Confirmed Reorganization Plan (consisting of
Reorganization Plan, dated May 20, 1996, and modification date of
July 15, 1996) (incorporated by reference to Exhibit 2 to current
report on Form 8-K, dated July 18, 1996, File No. 0-12081).
3.1 Amended and Restated Certificate of
Incorporation, effective July 25, 1996 (incorporated by reference
to Exhibit 2 to Form 8-K, dated July 18, 1996, File No. 0-12081).
o3.2 Certificate of Amendment of Amended and Restated
Certificate of Incorporation, effective March 24, 1997 (a complete
copy of the Amended and Restated Certificate of Incorporation, as
amended, is filed herewith).
3.3 By-laws (incorporated by reference to Exhibit 2
to Form 8-K, dated July 18, 1996, File No. 0-12081).
4.1 Specimen Certificate representing common stock
of the Company (incorporated by reference to Exhibit 4.1 to Form
8-K, dated October 21, 1996, File No. 0-12081).
4.5 Long Term Debt. No instrument which defines the
rights of holders of long term debt of the Company is filed
herewith. The Company hereby agrees to furnish a copy of any such
instrument to the SEC upon request.
*10.1 Contract Research and License Agreement with
Virbac Laboratories, S.A. dated July 6, 1983 (incorporated by
reference to Exhibit 10.31 to Annual Report on Form 10-K for
fiscal year ended December 31, 1983, File No. 0-12081).
*10.1.1 Amendment to Agreement with Virbac Laboratories,
S.A. (incorporated by reference to Exhibit 10.10.1 to Annual
Report on Form 10-K for fiscal year ended December 31, 1988, File
No. 0-12081).
*10.2 Lease for Worcester Massachusetts facility
(incorporated by reference to Exhibit 10.13 to Annual Report on
Form 10-K for fiscal year ended December 31, 1986, File No.
0-12081).
10.2.1 Amendment to Lease Agreement for Worcester
Massachusetts facility (incorporated by reference to Exhibit 10.18
to Annual Report on Form 10-K for fiscal year ended December 31,
1992, File No. 0-12801).
*10.3 License, Development and Supply Agreement with
SmithKline Beecham, p.l.c., dated as of September 11, 1992, as
amended by Agreement dated as of March 31, 1993 (incorporated by
reference to Exhibit 10.17 to Annual Report of Form 10-K for
fiscal year ended December 31, 1992, File No. 0-12081).
tm10.4 Employment Agreement with Alison Taunton-Rigby,
dated April 6, 1995 (incorporated by reference to Exhibit 10.17 to
Annual Report on Form 10-K for fiscal year ended December 31,
1995, File No. 0-12081).
tm10.5 Employment Agreement with Gerald A. Beltz, dated
August 21, 1995 (incorporated by reference to Exhibit 10.18 to
Annual Report on Form 10-K for fiscal year ended December 31,
1995, File No. 0-12081).
tm10.6 Employment Agreement with Deborah Blackburn
Grabbe, dated August 21, 1995 (incorporated by reference to
Exhibit 10.19 to Annual Report on Form 10-K for fiscal year ended
December 31, 1995, File No. 0-12081).
tm10.7 Employment Agreement with Robert B. Kammer,
dated August 21, 1995 (incorporated by reference to Exhibit 10.20
to Annual Report on Form 10-K for fiscal year ended December 31,
1995, File No. 0-12081).
tm o10.8 Employment Agreement with Stephen J. DiPalma,
dated March 1, 1996.
10.9 Master Acquisition Agreement by and among
bioMerieux Vitek, Inc., Aquila Biopharmaceuticals, Inc. and
Cambridge Biotech Corporation, dated as of April 4, 1996
(incorporated by reference to Exhibit 10.1 to quarterly report on
Form 10-Q for quarter ended June 30, 1996, File No.
0-12081).
10.10 Asset Purchase Agreement between Meridian
Diagnostics, Inc. and Cambridge Biotech Corporation, dated as of
June 24, 1996 (incorporated by reference to Exhibit 2.1 to current
report on Form 8-K, dated June 24, 1996, File No. 0-12081).
o10.11 Lease Agreement with bioMerieux Vitek, Inc.
dated October 22, 1996 for premises located at 1500 East Gude
Drive and 3 Taft Court, Rockville, Maryland.
o10.12 1996 Stock Award and Option Plan.
o10.13 1996 Directors Stock Award and Option Plan.
o10.14 1996 Employee Stock Purchase Plan.
o11. Computation of Earnings Per Share.
o27. Financial Data Schedule.
(b) Reports on Form 8-K filed in the last quarter of 1996.
1. Current report on Form 8-K, dated October 21,
1996.
_____________________
o Filed herewith as part of this Annual Report on Form 10-K.
* Confidential treatment previously granted.
tm Management contract or compensatory plan.
Report of Independent Accountants
We have audited the accompanying balance sheets of Aquila
Biopharmaceuticals, Inc. as of December 31, 1996 and 1995, and the
related statements of operations, cash flows and stockholders' equity
for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Aquila
Biopharmaceuticals, Inc. as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 7, 1997
Aquila Biopharmaceuticals, Inc.
Statements of Operations
For the Years Ended December 31, 1996, 1995 and 1994
Revenue: 1996 1995
Product sales $1,397,597 590,859
Research and development 5,175,515 5,136,857
_________ _________
6,573,112 5,727,716
Cost and expenses:
Cost of sales 1,879,206 1,090,408
Research and development 4,839,116 5,696,964
General and administrative 5,027,190 5,454,835
Loss on impairment of assets 0 0
(Notes 7 and 8) __________ __________
11,745,512 12,242,207
Other income, net (Note 14) 5,777,032 2,162,396
Income/(Loss) from continuing operations before
reorganization items and income tax benefit 604,632 (4,352,095)
Reorganization items (Note 1):
Professional fees (2,109,050) (1,200,188)
Provision for rejected executory contracts 0 0
Interest earned on accumulated cash
resulting from Chapter 11 proceedings 394,272 387,407
Total reorganization items (1,714,778) (812,781)
___________ _________
Loss from continuing operations before
income tax benefit (1,110,146) (5,164,876)
Income tax (expense)/benefit (Note 13) 0 0
_________ _________
Loss from continuing operations (1,110,146) (5,164,876)
Discontinued operations (Note 3):
Income/(Loss) from operations 1,452,810 223,330
Gain/(Loss) on disposal 7,656,683 0
_________ _________
Income/(Loss) before extraordinary loss 7,999,347 (4,941,546)
Extraordinary loss on Reorganization (Note 12) (2,039,816) 0
_________ _________
Net Income/(Loss) $5,959,531 ($4,941,546)
Net income/(loss) per weighted average number
of common shares:
Continuing operations ($0.29) ($1.50)
Discontinued operations $2.40 $0.06
Extraordinary loss on Reorganization ($0.54) $0.00
Net Income/(Loss) per share $1.57 ($1.44)
Weighted average number of
common shares outstanding 3,803,247 3,442,305
Aquila Biopharmaceuticals, Inc.
Statements of Operations
For the Years Ended December 31, 1996, 1995 and 1994
Revenue: 1994
Product sales $675,725
Research and development 4,334,197
_________
5,009,922
Cost and expenses:
Cost of sales 1,317,850
Research and development 5,068,244
General and administrative 7,051,194
Loss on impairment of assets
(Notes 7 and 8) 2,879,707
_________
16,316,995
Other income, net (Note 14) 359,796
Income/(Loss) from continuing operations before
reorganization items and income tax benefit (10,947,277)
Reorganization items (Note 1):
Professional fees (610,832)
Provision for rejected executory contracts (357,501)
Interest earned on accumulated cash
resulting from Chapter 11 proceedings 99,579
_________
Total reorganization items (868,754)
Loss from continuing operations before ___________
income tax benefit (11,816,031)
Income tax (expense)/benefit (Note 13) 207,875
____________
Loss from continuing operations (11,608,156)
Discontinued operations (Note 3):
Income/(Loss) from operations (3,186,400)
Gain/(Loss) on disposal (7,481,710)
__________
Income/(Loss) before extraordinary loss (22,276,266)
Extraordinary loss on Reorganization (Note 12) 0
___________
Net Income/(Loss) ($22,276,266)
Net income/(loss) per weighted average number
of common shares:
Continuing operations ($3.40)
Discontinued operations ($3.12)
Extraordinary loss on Reorganization $0.00
______
Net Income/(Loss) per share ($6.52)
Weighted average number of 3,416,100
common shares outstanding
The accompanying notes are an integral part of the financial statements.
Aquila Biopharmaceuticals, Inc
Balance Sheets
As of December 31, 1996 and 1995
1996 1995
Assets
Current Assets:
Cash and cash equivalents 9,112,091 6,855,751
Marketable securities
(Notes 2 and 4) 8,562,730 216,162
Accounts receivable - trade
(less allowance for
doubtful accounts of $178,565 and
$160,000, respectively) 1,545,612 2,638,024
Other receivables 820,307 125,831
Inventories (Note 5) 451,074 4,367,831
Prepaid expenses and other current assets 778,927 695,455
__________ __________
Total current assets 21,270,741 14,899,054
Investments (Note 6) 394,500 0
Property, Plant, and Equipment, Net (Note 7) 4,308,457 6,985,523
Patents and Purchased Technology, Net (Note 8) 295,620 1,054,579
Other Assets 43,032 105,423
__________ __________
Total Assets 26,312,350 23,044,579
Liabilities & Shareholders' Equity
Current Liabilities:
Accounts payable 943,924 850,480
Accrued royalties 642,959 1,192,169
Accrued professional fees 383,557 753,244
Accrued incentive compensation (Note 16) 0 1,457,622
Other accrued expenses (Note 9) 2,097,326 2,258,196
Deferred revenue (Note 18) 917,600 410,739
Current maturities of long-term debt
(Note 10) 129,103 0
__________ _________
Total Current Liabilities 5,114,469 6,922,450
Deferred Revenue (Note 6) 225,000 2,287,315
Long Term Debt (Note 10) 4,055,564 0
Liabilities Subject To Chapter 11 Proceedings
(Note 11) 0 9,880,309
_________ _________
Total Liabilities 9,395,033 19,090,074
Minority Interest 0 8,989
Commitments and Contingencies (Note 15)
Shareholders' Equity (Note 16):
Preferred stock, authorized:
5,000,000 in 1996 and 1995 none issued - -
Common stock, par value: $.01 per share,
authorized: 30,500,000 and 40,000,000
shares in 1996 and 1995, respectively
issued: 5,000,000 and 26,057,006 shares
in 1996 and 1995, respectively 50,000 260,570
Additional paid in capital 127,514,223 120,382,104
Unearned compensation 0 (138,088)
Treasury stock at cost: 10,526 shares (47,367) 0
Accumulated deficit (110,599,539) (116,559,070)
Total Shareholders' Equity 16,917,317 3,945,516
Total Liabilities and Shareholders' Equity $26,312,350 $23,044,579
The accompanying notes are an integral part of the financial statements.
Aquila Biopharmaceuticals, Inc.
Statement of Cash Flows
For the years ended December 31, 1996 and 1995
1996 1995
---- ----
Cash Flows From Operating Activities:
Net Income/(Loss) $5,959,531 ($4,941,546)
Adjustments to reconcile net income/(loss)
to net cash used in operating activities:
Depreciation and amortization 3,448,192 4,736,689
Provision for doubtful accounts 50,000 61,065
Non cash compensation expense 50,000 219,381
Loss on sale of property, plant and
equipment --- ---
Loss from impairment of assets --- ---
Gain on sale of discontinued
businesses (7,423,020) ---
Loss from bankruptcy consummation 2,039,816 ---
Receipt of investments (169,500) (216,162)
Loss on disposition and write down
of investments 11,164 110,586
Changes in assets and liabilities,
net of effects of disposed
businesses:
Accounts and other receivables 347,936 143,316
Inventories 1,262,592 (402,163)
Deferred revenue (1,780,454) (4,090,520)
Prepaid and other current assets (83,472) 140,830
Accounts payable and other accrued
expenses (1,033,690) 3,349,347
Settlement of liabilities subject to
chapter 11 proceedings (3,757,436) ---
Other noncurrent assets 62,391 368
Minority interest (8,989) 8,989
Discontinued operations-non cash &
working capital changes --- ---
------------ ------------
Net cash used by
operating activities (1,024,939) (879,820)
Cash Flows From Investing Activities:
Purchases of marketable securities (8,562,730) ---
Proceeds from disposal of marketable
securities 204,998 ---
Purchases of property, plant, and
equipment (309,627) (593,551)
Proceeds from sale of property, plant
and equipment --- ---
Proceeds from collection of notes
receivable --- ---
Patents and purchased technology (227,968) (204,927)
Proceeds from sale of discontinued
businesses 12,201,000 ---
Financing activities of discontinued
operations --- ---
------------ ------------
Net cash (used)/provided by
investing activities 3,305,673 (798,478)
Cash Flows From Financing Activities:
Issuance of common stock --- ---
Payment on long-term obligations (24,394) (3,742)
------------ ------------
Net cash (used)/provided by
financing activities (24,394) (3,742)
Effect of exchange rate changes on cash
and cash equivalents --- ---
Net increase/(decrease) in cash ------------ ------------
and cash equivalents 2,256,340 (1,682,040)
Cash and cash equivalents at the
beginning of the year 6,855,751 8,537,791
------------ ------------
Cash and cash equivalents at the
end of the period $9,112,091 $6,855,751
============ ============
Supplemental disclosures:
Income taxes paid/(refunded) $4,231 $0
============ ============
Interest paid $98,541 $0
============ ============
Stock Received for Unearned License Fee $225,000 $0
============ ============
Conversion of Chapter 11 liabilities into
long term debt $4,021,220 $0
============ ============
Stock issued under incentive plan $503,055 $0
============ ============
Stock issued to Creditors pursuant to
Reoganization Plan $881,582 $0
============ ============
Stock issued in settlement of class action
lawsuit $5,625,000 $0
============ ============
The accompanying notes are an integral part of the financial statements
- -------------------------------------------------------------------------------
Aquila Biopharmaceuticals, Inc.
Statement of Cash Flows
For the year ended December 31, 1994
1994
----
Cash Flows From Operating Activities:
Net Income/(Loss) ($22,276,266)
Adjustments to reconcile net income/(loss)
to net cash used in operating activities:
Depreciation and amortization 4,282,125
Provision for doubtful accounts 46,697
Non cash compensation expense 160,253
Loss on sale of property, plant and
equipment 60,343
Loss from impairment of assets 2,879,707
Gain on sale of discontinued
businesses 7,481,710
Gain from discontinued operations ---
Loss from bankruptcy consummation ---
Receipt of investments ---
Loss on disposition and write down
of investments 531,155
Changes in assets and liabilities,
net of effects of disposed
businesses:
Accounts and other receivables 974,979
Inventories 1,524,269
Deferred revenue (468,819)
Prepaid and other current assets (275,089)
Accounts payable and other accrued
expenses 2,073,972
Settlement of liabilities subject to
Other noncurrent assets 44,261
Minority interest ---
Discontinued operations-non cash &
working capital changes (134,235)
------------
Net cash used by
operating activities (3,094,938)
Cash Flows From Investing Activities:
Purchases of marketable securities 4,139,562
Proceeds from disposal of marketable
securities ---
Purchases of property, plant, and
equipment ( 2,118,359)
Proceeds from sale of property, plant
and equipment 84,750
Proceeds from collection of notes
receivable 1,000,366
Patents and purchased technology (266,332)
Proceeds from sale of discontinued
businesses 2,391,256
Financing activities of discontinued
operations 31,152
------------
Net cash (used)/provided by
investing activities 5,262,395
Cash Flows From Financing Activities:
Issuance of common stock 6,832,513
Payment on long-term obligations (1,377,449)
------------
Net cash (used)/provided by
financing activities 5,455,064
Effect of exchange rate changes on cash
and cash equivalents 31,107
Net increase/(decrease) in cash ------------
and cash equivalents 7,653,628
Cash and cash equivalents at the
beginning of the year 884,163
------------
Cash and cash equivalents at the
end of the period $8,537,791
============
Supplemental disclosures:
Income taxes paid/(refunded) ($141,814)
============
Interest paid $254,026
============
Stock Received for Unearned License Fee $0
============
Conversion of Chapter 11 liabilities into
long term debt $0
============
Stock issued under incentive plan $0
============
Stock issued to creditors pursuant to
Reorganization Plan $0
============
Stock issued in settlement of class action
lawsuit $0
============
The accompanying notes are an integral part of the financial statements
Aquila Biopharmaceuticals, Inc.
Statement of Shareholders' Equity
For the years ended December 31, 1996, 1995 and 1994
Additional
Common Stock Paid-In Unearned
Shares Amount Capital Compensation
------ ------ -------- --------------
BALANCE,
DECEMBER 31, 1993 23,403,445 $234,034 $113,854,636 ($796,231)
Private placement of
common stock 2,589,100 25,891 6,609,357 ---
Stock issued for the
employee stock purchase
plan 50,761 508 154,313 ---
Exercises of warrants,
options, and other
shares issued 13,700 137 42,307 ---
Forfeiture of discounted --- --- (449,134) 449,134
stock options
Compensation expense
recognized --- --- --- 160,253
Net loss --- --- --- ---
Translation adjustment --- --- --- ---
--------- -------- -------- --------
BALANCE,
DECEMBER 31, 1994 26,057,006 260,570 120,211,479 (186,844)
Compensation expense
recognized --- --- 170,625 48,756
Net loss --- --- --- ---
-------------------------------------------------
BALANCE,
DECEMBER 31, 1995 26,057,006 260,570 120,382,104 (138,088)
=================================================
Stock exchanged with
former shareholders
pursuant to Reorgan-
ization Plan (22,614,701) (226,147) 226,147 ---
Stock issued in settle-
ment of class action
shareholder lawsuit 1,250,000 12,500 5,612,500 ---
Stock issued
under incentive plan 111,790 1,118 501,937 ---
Stock issued to
creditors pursuant
to Reorganization Plan 195,905 1,959 879,623 ---
Compensation expense
recognized --- --- 50,000 ---
Forfeiture of dis-
counted stock options --- --- (138,088) 138,088
Stock held in Treasury
related to disputed
Chapter 11 claim --- --- --- ---
Net income --- --- --- ---
-------------------------------------------------
BALANCE,
DECEMBER 31, 1996 5,000,000 $50,000 $127,514,223 $0
=================================================
The accompanying notes are an integral part of the financial statements
- -------------------------------------------------------------------------------
Aquila Biopharmaceuticals, Inc.
Statement of Shareholders' Equity
For the years ended December 31, 1996, 1995 and 1994
Cumulative
Treasury Translation
Stock Deficit Adjustment Total
------ ------ -------- --------------
BALANCE,
DECEMBER 31, 1993 --- ($89,341,258) ($1,934,051) $22,017,130
Private placement of
common stock --- --- --- 6,635,248
Stock issued for the
employee stock purchase
plan --- --- --- 154,821
Exercises of warrants,
options, and other
shares issued --- --- --- 42,444
Forfeiture of discounted
stock options --- --- --- 0
Compensation expense
recognized --- --- --- 160,253
Net loss --- (22,276,266) --- (22,276,266)
Translation adjustment --- --- 1,934,051 1,934,051
-------- -------- -------- ---------
BALANCE,
DECEMBER 31, 1994 0 (111,617,524) 0 8,667,681
Compensation expense
recognized --- --- --- 219,381
Net loss --- (4,941,546) --- (4,941,546)
---------------------------------------------------
BALANCE,
DECEMBER 31, 1995 0 (116,559,070) 0 3,945,516
===================================================
Stock exchanged with
former shareholders
pursuant to Reorgan-
ization Plan --- --- --- 0
Stock issued in settle-
ment of class action
shareholder lawsuit --- --- --- 5,625,000
Stock issued
under incentive plan --- --- --- 503,055
Stock issued to
creditors pursuant
to Reorganization Plan --- --- --- 881,582
Compensation expense
recognized --- --- --- 50,000
Forfeiture of dis-
counted stock options --- --- --- 0
Stock held in Treasury
related to disputed
Chapter 11 claim (47,367) --- --- (47,367)
Net income --- 5,959,531 --- 5,959,531
-------------------------------------------------
BALANCE,
DECEMBER 31, 1996 ($47,367) ($110,599,539) $0 $16,917,317
==================================================
The accompanying notes are an integral part of the financial statements
AQUILA BIOPHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Aquila Biopharmaceuticals, Inc. (the "Company" or "Aquila") is in
the business of developing, manufacturing and marketing products
that modulate the immune system to control or prevent infectious
diseases and cancer. The Company's predecessor, Cambridge Biotech
Corporation ("CBC") filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code ("Chapter 11") on
July 7, 1994 with the United States Bankruptcy Court for the
District of Massachusetts Western Division (the "Bankruptcy
Court"). Aquila, organized in 1996 as a Delaware corporation,
became a successor to CBC pursuant to the terms of a
Reorganization Plan (the "Plan") that was confirmed by the
Bankruptcy Court on July 18, 1996 and consummated on October 21,
1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The 1996 Balance Sheet reflects
Aquila alone; no subsidiaries or other entities are consolidated
in the accompanying 1996 Balance Sheet. All of the Company's
former subsidiaries, which were Biotech Research Laboratories,
Inc., FSC ("FSC"), Cambridge Affiliated Corporation ("CAC"),
Cambridge Biotech International Corporation ("CBIC") and Cambridge
Biotech Ltd. ("CBL"), collectively "the subsidiaries", were
disposed of or dissolved by the Company during the period from
1994 through 1996. Results of operations of the subsidiaries are
included in the accompanying financial statements as discontinued
operations. The Balance Sheet at December 31, 1995 includes CBC,
Biotech Research Laboratories, Inc., FSC, and CAC.
CBL's revenue and expenses from January 1, 1994 to July 21, 1994
are reflected on the Statement of Operations as a loss from
discontinued operations. CBIC ceased operations in 1994 . FSC
is a foreign sales corporation which was dissolved by the Company
on January 27, 1995. The Company's 51% ownership interest in CAC
was disposed of in October, 1996 as part of the sale of the
Company's "Retroviral" diagnostic business. All significant
intercompany transactions and accounts have been eliminated. (See
Note 3).
Nature of Operations - The Company is in the business of
developing, manufacturing and marketing products that modulate the
immune system to control or prevent infectious diseases and
cancer. The Company is subject to risks common to companies in
the biotechnology industry including, but not limited to,
development by the Company or its competitors of new technological
innovations, dependence on key personnel, protection of
proprietary technology, and compliance with FDA government
regulations.
Basis of Presentation - Certain prior year amounts have been
reclassified to conform with current year presentation.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make certain estimates and assumptions that effect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Such estimates include, but are not
limited to, valuation allowance against deferred tax assets and
accounts receivable and the charge for excess space (see Note 9).
Actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all highly-
liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents. Cash equivalents include money
market accounts, certificates of deposit, commercial paper and
short-term investments.
Marketable Securities - The Company has classified its marketable
securities in accordance with the Statement of Financial
Accounting Standards No. 115 ("SFAS 115") "Accounting for Certain
Investments in Debt and Equity Securities" . At December 31, 1996, all
marketable securities were commercial paper of domestic corporations
and were classified as "held to maturity". At December 31, 1995,
the Company had classified its marketable securities as "available
for sale". All marketable securities at that date represented shares
of common stock of one insurance company which were sold during
1996. (See Note 4.)
Concentrations of Credit Risk - Financial instruments that
potentially subject the Company to concentration of credit risk
consist primarily of cash investments and accounts receivable. The
Company restricts cash investments to financial institutions and
corporations with high credit standings. Credit risk on accounts
receivable is minimized by the diverse nature of the entities from
which accounts receivable are due. Additionally, the Company
maintains reserves for potential credit losses. Writeoffs for
1996, 1995 and 1994 were $34,000, $51,000 and $929,000,
respectively.
Inventories - Inventories are stated at the lower of cost (first-
in, first-out method) or market.
Long-Lived Assets - The Company adopted Statement of Financial
Accounting Standards No. 121 ("SFAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" in 1994. SFAS 121 requires that long-lived assets be
reviewed for impairment by comparing the cumulative undiscounted
cash flows from the assets with their carrying amount. Any
writedowns are treated as permanent reductions in the carrying
amount of the assets. Management's policy regarding long-lived
assets is to evaluate the recoverability of its assets when the
facts and circumstances suggest that these assets may be impaired.
This analysis relies on a number of factors, including operating
results, business plans, budgets, economic projections and changes
in management's strategic direction or market emphasis. The test
of such recoverability is a comparison of the asset value to its
expected cumulative net operating cash flow over the remaining
life of the asset.
Property, Plant and Equipment - Property, plant and equipment are
recorded at cost. However, the carrying value is included in
management's evaluation of the recoverability of the Company's
long-lived assets. Depreciation for financial accounting purposes
is computed by the straight-line method to amortize the cost of
various classes of assets over their estimated useful lives. The
estimated useful lives of the assets are as follows:
Useful Life
Buildings 30
Furniture, fixtures and equipment 3 - 10
Leasehold and building improvements Lesser of Useful Life
or the Term of the Lease
Maintenance and repairs are charged to operations as incurred,
whereas additions and improvements are capitalized. Gains and
losses on the disposition of properties, if reflected in earnings
and the related asset costs and accumulated depreciation, are
removed from the respective accounts.
Patents and Purchased Technology - Purchased technology related to
the acquisition of assets is recorded at fair market value at
acquisition date. However, the carrying value is included in
management's evaluation of the recoverability of the Company's
long-lived assets. Capitalized patent costs include product
registrations and costs incurred for the support and protection of
existing patents. Purchased technology and patents are amortized
on a straight-line basis over periods ranging from three to seven
years.
Revenue Recognition - Revenue from product and service sales is
recognized at the time of the product shipment or performance of
the service. Revenue from research and development contracts is
deferred and recognized over the contractual periods as services
are performed. In addition, research agreements which have
established payments for distinct achievements or phases are
recorded as income is earned. The initial fee in alliance
agreements is recognized when a definitive agreement is reached
and no contingent factors are present.
Research and Development Costs - Research and development costs
are charged to operations as incurred.<PAGE>
Income Taxes - The Company uses the asset and liability method of
accounting for income taxes. Under this method, deferred tax
assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities using the current
statutory tax rates.
Net Income/(Loss) Per Share - The net income or loss per share is
computed based on the weighted average number of common and common
equivalent shares (using the treasury stock method) outstanding
during each period. Common equivalent shares are included in the
per share calculations where the effect of their inclusion would
be dilutive. Common equivalent shares consist of outstanding stock
options.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
Earnings Per Share. SFAS 128 specifies the computation,
presentation and disclosure requirements for Earnings Per Share
("EPS"). This statement will be effective for fiscal year 1997 and
will require restatement of all prior period EPS data presented.
Management has not yet determined the financial impact of adopting
this statement.
3. DISCONTINUED OPERATIONS
During 1996, the Company disposed of two separate diagnostics
businesses encompassing the Company's diagnostic assets and
operations. On May 16, 1996, the Bankruptcy Court approved the
sale of the "Enterics" business, which was subsequently sold to
Meridian Diagnostics Inc. on June 24, 1996 for approximately
$5,700,000 in cash. The approval by the Bankruptcy Court led the
Company to conclude the measurement date, under the Accounting
Principles Board Statement No. 30 "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" ("APB 30"), to be May 16, 1996.
Consequently, the accompanying financial statements include a gain
from the disposal of the Enterics business of $5,218,000 in 1996
and income from discontinued operations of the Enterics business
of $552,000, $426,000 and $259,000 in 1996, 1995 and 1994,
respectively. Net revenue from discontinued Enterics operations
were $4,718,000, $3,880,000, and $3,571,000 in 1996, 1995 and
1994, respectively.
On October 22, 1996, the Company sold its Retroviral diagnostic
business to bioMerieux Vitek Inc. for approximately $6,500,000 in
cash pursuant to the Reorganization Plan. As the Company could not
be assured the sale of this business would proceed until the
consummation of the Reorganization Plan occurred, which took place
on October 21, 1996, the Company has concluded that October 22,
1996 is the measurement date for the disposal of the Retroviral
business under APB 30 . Consequently, the accompanying financial
statements include a gain from the disposal of the Retroviral
business of $2,439,000 in 1996, income from discontinued
operations of the Retroviral business of $901,000 in 1996, and
losses from discontinued operations of the Retroviral business of
$203,000 and $1,183,000 in 1995 and 1994, respectively. Net
revenue from discontinued Retroviral operations were $9,780,000,
$16,384,000, and $12,436,000 in 1996, 1995 and 1994, respectively.
On July 21, 1994 the Company's wholly-owned Irish subsidiary, CBL,
filed for protection of the Irish High Court and an Examiner was
appointed pursuant to the Irish Companies Act of 1990. At July
21, 1994 CBL's debt to the Company represented approximately 92%
of CBL's total liabilities. The appointment of the Examiner and
the doubtful recovery of the Company's investment in CBL led the
Company to conclude the measurement date to be July 21, 1994 under
APB 30. Consequently the accompanying financial statements for
1994 include a loss of $2,129,000 from the discontinued operations
for the period January 1, 1994 through July 21, 1994. Net revenue
from discontinued CBL operations was $1,952,000 for the period
prior to disposal. On November 30, 1994 the Company sold its
interest in CBL's debt and equity to SelfCare, Inc. (a U.S.
Corporation). Total consideration for the transaction was
approximately $2.1 million. The Company recorded a loss on
disposal of $6,963,000.
The Company, through the acquisition of certain assets of
Codiapharm, S.A. in November, 1991 obtained product registration
rights and distribution contracts for the sale of products
manufactured by CBL, the Company's Irish subsidiary. These assets
were recorded by the Company's subsidiary CBIC. Effective with
the disposal of CBL, the Company wrote off the value of CBIC's assets,
and included this loss of $519,000 in the loss on disposal in 1994.
4. MARKETABLE SECURITIES
Marketable securities are held at amortized cost, which
approximates fair value, based on quoted market prices. At
December 31, 1996, marketable securities consisted entirely of
corporate commercial paper with maturities between 91 and 360 days
and gross unrealized losses of $6,000. At December 31, 1995,
marketable securities consisted entirely of the common stock of
one insurance company that the Company received when the insurance
company demutualized. The Company sold this stock during 1996 and
recorded a loss of $11,000 on the sale.
5. INVENTORIES
Inventories consist of the following at December 31:
1996 1995
---- ----
Finished goods $ 260,000 $ 681,000
Work in process 150,000 2,887,000
Raw materials and supplies 41,000 800,000
-------- -----------
$451,000 $ 4,368,000
======== ===========
6. INVESTMENTS
During 1996, the Company received 270,000 shares of MicroGeneSys,
Inc. stock as payment for a paid up license and for royalties due
and payable under terms of a sublicense agreement in regard to
certain technology. The Company recognized revenue of $95,000
based upon an estimated fair market value of $.35 per share.
During 1996, the Company received 60,000 shares of restricted
Progenics common stock as partial payment of a licensing fee,
subject to the achievement of certain milestones under a license
agreement executed in 1995 between the Company and Progenics.
Based upon an estimated fair market value of $5 per share for
Progenics common stock, the Company recorded an investment of
$300,000 and deferred revenue of $300,000 until the milestones
defined in the agreement are achieved. During 1996 the Company
recognized $75,000 of revenue upon the achievement of the first
milestone under this agreement. The remaining $225,000 is
included in deferred revenue at December 31, 1996.
At December 31, 1995, the Company owned a 19% interest in GRF
Corporation (GRF) as part of a joint venture formed to develop
and market human growth hormone releasing factor (GHRF) thought to
be beneficial in the treatment of osteoporosis and other diseases.
The remainder of this company was beneficially owned by
BioNebraska, Inc. and R&C Enterprises, Inc. Due to the uncertainty
that the joint venture would be able to raise additional funding
to support its activities, this investment had been fully written
off at December 31, 1995. In August, 1996, the Company sold its
share in the joint venture to BioNebraska for $500,000 in cash,
which was reported as Other Income in 1996.
The Company had an investment in ImmuCell Corporation, which was
accounted for on the cost method. In December, 1994 the Company
sold its interest in ImmuCell for $309,000, recognizing a $306,000
loss.
7. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following at
December 31:
1996 1995
---- ----
Land $ 0 $647,000
Buildings 0 3,356,000
Furniture, fixtures,
and equipment 5,985,000 13,329,000
Leasehold and building
improvements 5,993,000 6,780,000
Property leased to
others 5,762,000 988,000
Leased equipment 0 21,000
--------- ----------
Sub-total 17,740,000 25,121,000
Less accumulated
depreciation and
amortization (13,431,000) (18,135,000)
------------ ------------
$4,309,000 $ 6,986,000
========== ===========
Total depreciation and amortization expense during 1996, 1995 and 1994
was $2,649,000, $3,492,000 and $3,174,000, respectively. Accumulated
amortization on leasehold improvements was $5,980,000 and
$4,605,000 at December 31, 1996 and 1995, respectfully.
Accumulated depreciation on property leased to others was
$1,946,000 and $603,000 at December 31, 1996 and 1995,
respectively.
As a result of the Company filing for reorganization under Chapter
11, the Company recognized an impairment loss of $1,145,000 on its
property and plant in Rockville during 1994.
8. PATENTS AND PURCHASED TECHNOLOGY
Purchased technology and intangibles consist of the following at
December 31:
1996 1995
---- ----
Purchased technology $3,451,000 $ 3,451,000
Patents and patent support 746,000 949,000
---------- -----------
Sub-total 4,197,000 4,400,000
Less accumulated amortization (3,901,000) (3,345,000)
----------- -----------
$ 296,000 $1,055,000
========== ==========
Total amortization expense was $799,000, $1,245,000 and $1,107,000
in 1996, 1995 and 1994, respectively.
As a result of the Company filing for reorganization under Chapter
11, the Company recognized an impairment loss in 1994 of
$1,734,000 on certain purchased technology.
9. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
1996 1995
---- ----
Contract obligations $ 747,000 $ 975,000
Compensation 760,000 321,000
Rockville restructuring charge 0 257,000
Charge for excess space 361,000 0
Other 229,000 705,000
------- -------
$2,097,000 $2,258,000
========== ==========
In 1996 a charge was recorded against the gain on the sale of the
Enterics business of $361,000, representing the Company 's best
estimate of minimum lease expense related to space in the
Company's Worcester facility determined to be permanently in
excess of the Company's needs from continuing operations. The
space was previously utilized by the Enterics diagnostic
business. During 1992 the Company recorded a restructuring charge
for the consolidation of the Rockville manufacturing facilities
and processes into the Worcester, Massachusetts and Galway,
Ireland locations. The Company made $121,000 and $351,000 in
payments against this reserve in 1995 and 1994, respectively. The
remaining balance of $257,000 at December 31, 1995 consisted of
estimated severance costs and related expenses which were paid on
or about October 22, 1996, the date of the sale of the Retroviral
business, which was largely located at the Rockville manufacturing
facility.
10. DEBT
As of December 31, 1995 the Company was in default of its debt
agreements, with the exception of the capital lease agreement, and
the balance was included in liabilities subject to Chapter 11
proceedings at that date (see Note 11). During 1996, the Company's
debt agreements which were in default were restructured or paid
off as part of the Reorganization Plan. At December 31, 1996,
debt consists of the following:
1996
Mortgage note payable; monthly payments of ----
$46,000 through October, 2001, variable interest,
collateralized by real estate $4,180,000
Equipment capital lease; interest at 9.5%;
due 12/97; 5,000
----------
4,185,000
Less: current maturities (129,000)
----------
Net long term debt $4,056,000
==========
The building loans previously in default have been restructured
into a single loan collateralized by land, buildings and
improvements with a net book value of $3,816,000. As part of the
agreement restructuring the building loans, unpaid accrued
interest under the previous loans was forgiven and the principal
amount of the restructured loan was agreed to be $4,200,000.
Interest on the restructured loan is the lender's prime rate plus
2 percentage points. The interest rate on the restructured loan
at the time of the Plan consummation was 10.25%. The interest rate
is subject to adjustment at six-month intervals. The mortgage
calls for a balloon payment for the entire unpaid balance at the
end of the mortgage's five year term.
Annual principal payments on long-term debt during the next five years
are as follows:
Year ending December 31,
-----------------------
1997 $ 129,000
1998 140,000
1999 156,000
2000 172,000
2001 3,588,000
Thereafter -
----------
Total $4,185,000
==========
11. LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS
As described in Note 1, the Company's predecessor filed for
Chapter 11 protection on July 7, 1994 and had been operating as
debtor-in-possession at December 31, 1994 and 1995. At those
dates, substantially all liabilities of the Company were subject
to settlement under the Reorganization Plan. The principal
categories of claims included in Liabilities Subject to Chapter 11
Proceedings in the Balance Sheet as of December 31, 1995 are set
forth below:
1995
----
Priority liabilities $ 15,000
Collateralized Debt (see Note 10) 4,021,000
Prepetition unsecured liabilities 5,844,000
---------
Total $ 9,880,000
===========
These amounts represented management's best estimate of all valid
claims at the respective balance sheet dates. In April, 1996 the
Company filed the Reorganization Plan with
the Bankruptcy Court which, among other matters, described the
proposed settlement of these liabilities. The Bankruptcy Court
confirmed the Reorganization Plan on July 18, 1996 and it was
consummated on October 21, 1996.
Pursuant to the terms of the Reorganization Plan, the
collateralized debt was restructured as described in Note 10.
Priority liabilities were paid in cash at 100% of the value of the
claim. Prepetition unsecured liabilities included approximately
$1,393,000 in damages pursuant to contracts under which the
Company was in default, which damages were paid in cash at 100% in
order to cure the default and continue the contracts.
Approximately $40,000 of the prepetition unsecured liabilities
were claims of less than $500 that were aggregated into a
"Convenience Class" and were paid in cash at 100% to facilitate
the reorganization. The balance of the prepetition unsecured
liabilities were paid either in cash at 51% or in stock at 100% of
the face value of the claim. For those claims paid in stock, the
Bankruptcy Court determined the value of the reorganized company's
stock to be $9.50 per common share. For financial statement
purposes, the Company valued the common stock at $4.50 per share,
the market price on the distribution date.
At December 31, 1996, all claims previously identified as
Liabilities Subject to Chapter 11 Proceedings had been satisfied
except one, which remains in dispute. A reserve for the full
amount of the claim has been established and is accrued for in
Other Accrued Expenses.
12. EXTRAORDINARY LOSS ON REORGANIZATION
On October 21, 1996, the Company recognized an extraordinary loss
of $2,040,000 on its reorganization and emergence from Chapter 11
Bankruptcy. The major components of this loss were as follows:
Recognition of expense related to issuance
of 1,250,000 shares in settlement of
shareholders class action $5,625,000
Recognition of costs incurred
to restructure mortgage on
Rockville real estate 193,000
Forgiveness of debt on pre-petition
liabilities (3,778,000)
-----------
$2,040,000
===========
13. INCOME TAXES
A reconciliation between the amount of reported income tax
expense/(benefit) and the amount computed using the U.S. federal
statutory rate of 34% is as follows for the years ended December
31:
1996 1995 1994
---- ---- ----
Tax expense/(benefit) at federal
statutory rates 34.0% -34.0% -34.0%
Utilization of loss carryforwards -34.0% 34.0% 34.0%
Other 0 0 -1.6%
----- ----- -----
Reported expense/(benefit) for income
taxes 0.0% 0.0% -1.6%
====== ====== =====
The components of the deferred tax assets and liabilities at
December 31, 1996 and 1995
are as follows:
1996 1995
---- ----
Current:
Inventory $140,000 $500,000
Other 620,000 300,000
-------- --------
Total current 760,000 800,000
Noncurrent:
Capital Loss Carryover 4,691,000 7,200,000
Depreciation & Amortization 2,383,000 2,200,000
Restructuring & merger costs 426,000 1,100,000
Other 1,469,000 900,000
Federal & State NOL's 26,706,000 27,400,000
Federal tax credits 1,246,000 1,200,000
---------- ----------
Total noncurrent 36,921,000 40,000,000
---------- ----------
Sub-total 37,681,000 40,800,000
Less: valuation allowance (37,681,000)(40,800,000)
----------- ----------
Net deferred tax asset $0 $0
=========== ==========
Management has assessed the positive and negative evidence
relating to recoverability of the deferred tax asset and has
determined that it is more likely than not that the deferred tax
benefit will be unrealized due to the uncertainty of earning
sufficient taxable income. Accordingly, a valuation reserve has
been established for the full amount of the deferred tax asset.
As of December 31, 1996, the Company had federal net operating
loss (NOL) carryforwards of approximately $61,000,000. These loss
carryforwards begin to expire in the year 2000 and expire fully by
the year 2011. Utilization of these NOL's may be limited pursuant
to the provisions of Section 382 of the Internal Revenue Code of
1986. The Company's NOL's are subject to review by the Internal
Revenue Service and various state tax authorities.
14. OTHER INCOME, NET
Included in Other Income, Net is royalty income earned under
certain license and sublicense agreements related primarily to
diagnostic technologies, net of expenses due, in some cases, to
third-party licensors. This royalty income was previously reported
as revenue. Since the completion of the Company's Reorganization
Plan and the discontinuance of all other diagnostic operations,
however, this income is no longer considered to be central the
Company's business and has therefore been reclassified as Other
Income in all years presented. The net royalty income reported
under Other Income was $1,395,000, $1,582,000 and $832,000 in
1996, 1995, and 1994, respectively.
Other Income, Net in 1996 includes $3,250,000 received from Abbott
Laboratories under an amendment to a sublicense agreement which
granted Abbott a fully paid-up sublicense for the non-exclusive
diagnostic use of certain HIV-related technology. Also included in
Other Income in 1996 is $500,000 received from BioNebraska in
exchange for the Company's share in a joint venture (see Note 6).
The Company receives rental income on certain property from
various tenants and sub-tenants under noncancelable leases which
extend to 2006. The Company received $362,000, $286,000 and
$458,000 in rental income in 1996, 1995 and 1994, respectively.
The Company records the expenses associated with the rental income
by aggregating the expenses with the rental income in Other
Income, Net on its Statement of Operations. The Company incurred
approximately $54,000, $75,000 and $420,000 in expenses during
1996, 1995 and 1994, respectively, in regard to these leases.
Future minimum rental income on noncancelable operating leases for
the year ended December 31, 1996 are as follows:
1997 621,000
1998 477,000
1999 483,000
2000 517,000
2001 517,000
Thereafter 2,621,000
---------
Total future minimum rental income $5,236,000
==========
15. COMMITMENTS AND CONTINGENCIES
Leases - The Company has entered into operating lease agreements
for its executive offices, warehouse, research laboratories,
manufacturing facilities, and office equipment. The base lease
periods range from two to ten years. During 1996, the Company
extended the lease for its Worcester facility, housing its
executive offices, research laboratories, and manufacturing
facilities one year to December 31, 1997 and extended the lease
for its warehouse through April, 1997. Costs incurred under the
operating leases are recorded as rent expense and totaled
$1,105,000, $1,161,000 and $1,406,000 for real estate and $3,000,
$9,000 and $632,000 for equipment in 1996, 1995 and 1994,
respectively. As of December 31, 1996, the future minimum lease
payments required under operating leases are $1,032,000, all of
which is payable under the Worcester facility lease through
December, 1997.
Employment and Consulting Agreements - The Company has agreements
with various consultants and key employees, with terms ranging
from one to three years. These agreements provide for future
aggregate annual payments of approximately $525,000. Costs
incurred and charged to operations under these contracts
aggregated $1,268,000, $1,259,000 and $2,165,000 in 1996, 1995 and
1994, respectively.
Other Agreements -During 1992, the Company paid $2,300,000 to
Alfa-Laval, a Swedish company, to acquire its fibronectin binding
technology for use in mastitis vaccines and certain other
products. In 1995 the Company recorded $700,000 in expenses for
the granting of certain patents on this technology. The agreement
provides for additional payments to Alfa-Laval conditioned upon
the first commercial sale of future vaccines at $1,333,000 per
vaccine, and up to $1,300,000 conditioned upon the granting of
additional patents in the United States and Europe on the
technology acquired.
Contingencies - In November 1993, five civil actions were
commenced in the United States District Court, District of
Massachusetts, against the Company, certain of its officers, and
in three of the actions, the Company's former auditors. The
actions were instituted by persons alleging to be shareholders of
the Company and to be representative of a class of shareholders
claiming damages resulting from alleged violations of securities
laws by defendants in connection with the 1992 results of the
Company and the restatement thereof. The actions have been
consolidated under the caption In Re: Cambridge Biotech
Corporation Securities Litigation, Civil Action No. 93-12486-REK.
In February, 1996 the plaintiffs agreed to settle all claims
against the Company and the individual defendants and pleadings
were filed with the United States District Court for the District
of Massachusetts for the purpose of approving the settlement.
Under the terms of the Settlement, the class members received
1,250,000 shares of Aquila common stock and are entitled to
receive 90% of any recoveries from prosecution of claims, if any,
against the Company's former auditors. The Company is entitled
to receive 10% of any recoveries from prosecution of such claims.
Prosecution of claims against the Company's former auditors is an
ongoing matter.
In March 1995, an Adversary Proceeding No. 95-4074 was commenced
in the Bankruptcy court, by Institut Pasteur and Genetic Systems
Corporation alleging patent infringement and asking for damages
and injunctive relief. The Company filed an answer and
counterclaim denying the plaintiff's allegations and alleging a
breach by Institute Pasteur of its license agreement with the
Company. On September 1, 1995, the Bankruptcy Court issued a
summary judgment upholding the Company's license under two patents
issued to Institut Pasteur to commercialize diagnostics tests for
the HIV-2 strain of the AIDS virus. The Bankruptcy Court also
ruled that the Company's HIV-1 Western blot confirmatory test
infringes a third patent issued to Institut Pasteur, and enjoined
the Company from the manufacture and sale of the HIV-1 Western
blot test. On January 5, 1996, the Bankruptcy Court lifted its
injunction with respect to the Company's production and sale of
the HIV-1 Western blot kits. The Court ruled that the Company has
a license for the HIV-1 patent and must pay a royalty on related
sales. Institut Pasteur has appealed the Bankruptcy Court's
ruling. While the final outcome of these patent issues cannot be
determined with certainty, the Company no longer practices the
technology that is the subject of these proceedings, as it is part
of the Retroviral business that was sold to bioMerieux. Further,
the Company has not indemnified bioMerieux against any adverse
decision on this appeal, other than any liability arising out of
the conduct of the Company prior to the sale of the Retroviral
business to bioMerieux. Accordingly, based on the information
management currently possesses, management believes any settlement of
this appeal will not have a material adverse effect on the Company's
financial position or results of operations.
Institut Pasteur and Pasteur Sanofi Diagnostics (together
"Pasteur") objected to the confirmation of the Company's
Reorganization Plan, arguing that the treatment under the Plan of
certain technology cross-licenses was improper. The Bankruptcy
Court overruled the objection and Pasteur appealed. The U.S.
District Court for the District of Massachusetts dismissed the
appeal and affirmed the Confirmation Order on September 27, 1996.
Pasteur appealed this judgment to the U.S. Court of Appeals for
the First Circuit. By order dated January 17, 1997, the Court of
Appeals affirmed the judgment of the District Court (affirming the
Confirmation Order). To date, Pasteur has not sought further
review of the Confirmation Order, although the time to file a
petition with the U.S. Supreme Court does not expire until August
17, 1997.
In July of 1994, the Securities and Exchange Commission issued an
Order Directing Private Investigation in the matter of Cambridge
Biotech Corporation, investigating matters pertaining to the
Company's financial statements, its public filings and the
offerings of its securities. The Company cooperated fully with
the investigation, which concluded on or about October 17, 1996,
with issuance by the SEC of an order instituting public
administrative proceedings pursuant to Sec. 8A of the Securities
Act of 1933 and Sec. 21C of the Exchange Act of 1934. The Company
consented to the issuance of the order without admitting or
denying any wrongdoing, that it cease and desist from
violations of the anti-fraud, corporate reporting, and books and
records provision of the federal securities laws.
The Company has and is engaged in negotiations of various
contracts with other parties regarding issues generally incidental
to the normal course of business. While the outcome of these
negotiations and the ultimate liability from these discussions is
difficult to determine, in the opinion of management any
additional liability will not have a material adverse effect on
the Company's financial position, liquidity, or results of
operations.
16. SHAREHOLDERS' EQUITY
Capital Stock - In the first quarter of 1994 the Company issued
2,589,100 shares in connection with a shelf offering. The
offering raised net proceeds of $6,635,000 after deducting legal
costs and other expenses associated with the offering.
The Company has 5,000,000 shares of preferred stock and 30,500,000
shares of common stock authorized at December 31, 1996. No terms
have been established for the preferred stock and none has been
issued. 5,000,000 shares of Aquila common stock have been issued,
and 10,526 are in treasury.
Employee Incentive Stock Plan - On October 27, 1994, the Company's
plan to institute a retention bonus plan for some of its employees
was approved by the United States Bankruptcy Court for the
District of Massachusetts. The plan called for bonuses to be paid
in stock of the reorganized Company upon emergence from Chapter 11
reorganization. The Company recorded compensation expense of
$830,000 and $627,000 in 1995 and 1994, respectively. Shares of
Aquila common stock totaling 111,790 were issued under the
retention bonus plan shortly after the consummation of the Plan.
Exchange of Shares - pursuant to the Reorganization Plan, an
exchange of CBC common shares for Aquila common shares was
effected on October 21, 1996, in the form of 1 Aquila common
share issued for every 7.6 CBC common shares held of record on
that date. In total, 3,442,305 shares of Aquila common were issued
in exchange for 26,057,006 shares of CBC common. All weighted
average shares and per share data have been restated to reflect
the exchange of shares as of the earliest period presented.
17. EMPLOYEE BENEFITS PLAN
The Company has a savings plan for its employees pursuant to
Section 401(k) of the Internal Revenue Code.
Substantially all employees can participate, and the plan allows
for a minimum deferral of 1% to a maximum deferral of 15% percent
of plan compensation, as permitted by law or as limited by the
plan administrator. Prior to the Chapter 11 filing, the Company
matched 50% of the first 6% of an employee's compensation, if
contributed to the plan. Any contributions made by the Company
vest over a three-year period. The amount charged to operations
for the plan was $93,000 in 1994. The Company suspended its
matching contribution on the date of the Chapter 11 filing, but
reinstituted the matching contribution beginning in January, 1997.
Currently, the Company matches 25% of the first 6% of the
employees compensation, if contributed to the plan. Any
contributions made by the Company are vested at 33% for each year
of employment.
Stock Option Plans - Prior to the consummation of the Plan, the
Company had three stock option plans, each of which was canceled
under the Plan.
At December 31, 1996, the Company had two stock option plans.
Under the 1996 Stock Award and Option Plan (the "Employee plan"),
the Company may grant incentive stock options, nonqualified stock
options, discounted stock options, deferred stock awards,
restricted stock awards, or Stock Appreciation Rights to its
employees for up to 2 million shares of common stock. Under the
1996 Directors Stock Award and Option Plan (the "Directors plan"),
the Company may grant the same types of options and awards as
under the Employee plan, except that certain additional
restrictions apply to the grant of Stock Appreciation Rights under
the Directors plan. Up to 200,000 shares of common stock may be
issued under the Directors plan.
In 1996 the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), Accounting for Stock Based
Compensation. SFAS 123 requires that companies either recognize
compensation expense for grants of stock, stock options and other
equity instruments based on fair value, or provide pro forma
disclosure of net income and earnings per share in the notes to
the financial statements. The Company adopted the disclosure
provisions of SFAS 123 in 1996 and has applied APB Opinion 25 and
related Interpretations in accounting for its plans. Accordingly,
no compensation expense has been recognized for options granted at
or above fair market value under these plans. Had compensation
expense for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates, as
calculated in accordance with SFAS 123, the Company's net income
or loss and earnings per share for the years ended December 31,
1996 and 1995 would have been reduced to the pro forma amounts
indicated below:
1996 1995
Net Income Earnings Per Share Net Loss Earnings Per Share
---------- ------------------ -------- ------------------
As Reported $5,960 $1.57 $(4,942) $(1.44)
Pro Forma 5,529 1.45 (5,199) (1.51)
The effects of applying SFAS123 in this pro forma disclosure are
not indicative of future amounts. SFAS123 does not apply to awards
prior to 1995, and additional awards in future years are
anticipated. The weighted average fair value of options granted in
1996 and 1995 is $2.65 and $2.47, respectively. A pro forma impact
is reflected for 1995 related to options granted in that year but
canceled and reissued in 1996. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions used for grants in
1996 and 1995, respectively; expected volatility of 72.94% in both
years, risk-free interest rates of 6.19% and 5.41%, expected lives
of 4 years for all options grants, and no dividend yield.
A summary of the status of the Company's two stock option plans as
of December 31, 1996 is presented below:
Weighted Average
Shares Exercise Price
------ ----------------
Options granted below
fair market value 173,405 $2.80
Options granted at
fair market value 551,750 $4.50
Options forfeited 12,500 $4.50
------- -----
Balance, December 31, 1996 712,655 $4.09
The following table summarizes information about Aquila stock
options outstanding at December 31, 1996:
Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/96 Contractual Price at 12/31/96 Price
Life
-------- ----------- ----------- --------- ------------ ---------
$2.80 173,405 8.9 years $2.80 173,405 $2.80
4.50 539,250 9.2 years 4.50 165,625 4.50
------- --------- ----- ------- -----
$2.80 to 712,655 9.1 years 4.09 339,030 3.63
$4.50
At December 31, 1996, there were 1,487,345 options available to
be granted. Options available for exercise and weighted average
exercise price are not presented for 1995 and 1994, as all options
outstanding on those dates have been canceled pursuant to the
Plan. Therefore, the Company believes the presentation of that
information would not be meaningful. Compensation expense of
$50,000 was recorded in 1996 related to options granted to a
consultant during the year.
18. AGREEMENTS
The Company has a comprehensive agreement with SmithKline Beecham
p.l.c. ("SmithKline") which allows SmithKline to use the Company's
proprietary Stimulon adjuvant ("QS-21") in numerous vaccines
including hepatitis, lyme disease, human immunodeficiency virus
(HIV), influenza and malaria. The agreement grants certain
exclusive worldwide rights in some fields of use, and co-exclusive
or non-exclusive rights in others. The Company recognized
$3,500,000, $3,500,000 and $3,000,000 in license fees under this
agreement during 1996, 1995 and 1994, respectively. The agreement
calls for royalties to be paid by SmithKline on its future sales
of licensed vaccines which include Aquila's adjuvant. The terms
of the collaborative agreement with SmithKline include funding
through 1998.
The Company has product development agreements with Virbac S.A.
and supply agreements with Virbac S.A and Virbac Inc., the U.S.
subsidiary of Virbac S.A. (together, "Virbac") which cover the
ongoing collaboration between Virbac and the Company relating to
the development of products for feline immune deficiency virus
("FIV") and bovine mastitis and the supply of vaccine and
adjuvant for feline leukemia ("FeLV"). The Company recognized
$1,177,000, $581,000 and $472,000 in revenues under the product
development agreements during 1996, 1995 and 1994, respectively.
In addition, $895,000 and $2,072,000 were included in deferred
revenue at December 31, 1996 and 1995, respectively, related to
the product development agreements. Sales to Virbac under the
terms of the supply agreements were $883,000, $546,000 and
$662,000 in 1996, 1995 and 1994, respectively.
As part of its program to develop, manufacture and market products
for detection, prevention and treatment of human and animal
infectious diseases, the Company has entered into various
agreements with the National Institute of Health ("NIH"). Such
agreements provide the Company with research and development
funding through 1996, assuming, in certain cases, achievement of
mutually defined milestones. Revenue recognized under these
agreements amounted to $296,000, $596,000 and $787,000 in 1996,
1995 and 1994, respectively.
19. MAJOR CUSTOMERS
SmithKline is the Company's principle source of research and
development revenue. Research and development revenues from
SmithKline represented 53% , 61% and 60% of the Company's total
revenue in 1996, 1995 and 1994, respectively. SmithKline also
purchases certain clinical trial material from the Company for use
in its product development programs.
Virbac represents a substantial portion of the Company's product
sales and research and development revenue. Revenue from
development agreements with Virbac represented 18%, 10% and 9% of
total revenue in 1996, 1995 and 1994, respectively. Product sales
to Virbac represented 13%, 10% and 12% of total revenues in 1996,
1995 and 1994, respectively.
20. SEGMENT INFORMATION
The Company operates in one industry segment consisting of the
development, manufacturing and marketing of products that modulate
the immune system to control or prevent infectious diseases and
cancer. Total export sales were approximately $3.1 million, $4
million and $3.7 million in 1996, 1995 and 1994, respectively, of
which $1,344,000, $238,000, and $286,000 were from continuing
operations in 1996, 1995 and 1994, respectively.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AQUILA BIOPHARMACEUTICALS, INC.
March 31, 1997 By:__/s/ Alison Taunton-Rigby__
Alison Taunton-Rigby
President, (Principal
Executive Officer)
March 31, 1997 By:__/s/ Stephen J. DiPalma
Stephen J. DiPalma
Vice President-Finance,
Treasurer
and Chief Financial Officer
(Principal Financial Officer)
March 31, 1997 By:__/s/ Paul Foulkrod
Paul Foulkrod
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934 this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated:
Signature Title Date
/s/ Alison Taunton-Rigby_______ Director March 31, 1997
Alison Taunton-Rigby
/s/ Elliott D. Hillback, Jr.__ Director March 31, 1997
Elliott D. Hillback, Jr.
/s/ John M. Nelson__________ Director March 31, 1997
John M. Nelson
/s/ Keith J. Dorrington______ Director March 31, 1997
Keith J. Dorrington
/s/ Jeffrey T. Beaver____ Director March 31, 1997
Jeffrey T. Beaver
INDEX OF EXHIBITS
2. Confirmed Reorganization Plan (consisting of
Reorganization Plan, dated May 20, 1996, and modification date of
July 15, 1996) (incorporated by reference to Exhibit 2 to current
report on Form 8-K, dated July 18, 1996, File No. 0-12081).
3.1 Amended and Restated Certificate of
Incorporation, effective July 25, 1996 (incorporated by reference
to Exhibit 2 to Form 8-K, dated July 18, 1996, File No. 0-12081).
o3.2 Certificate of Amendment of Amended and Restated
Certificate of Incorporation, effective March 24, 1997 (a complete
copy of the Amended and Restated Certificate of Incorporation, as
amended, is filed herewith).
3.3 By-laws (incorporated by reference to Exhibit 2
to Form 8-K, dated July 18, 1996, File No. 0-12081).
4.1 Specimen Certificate representing common stock
of the Company (incorporated by reference to Exhibit 4.1 to Form
8-K, dated October 21, 1996, File No. 0-12081).
4.5 Long Term Debt. No instrument which defines the
rights of holders of long term debt of the Company is filed
herewith. The Company hereby agrees to furnish a copy of any such
instrument to the SEC upon request.
*10.1 Contract Research and License Agreement with
Virbac Laboratories, S.A. dated July 6, 1983 (incorporated by
reference to Exhibit 10.31 to Annual Report on Form 10-K for
fiscal year ended December 31, 1983, File No. 0-12081).
*10.1.1 Amendment to Agreement with Virbac Laboratories,
S.A. (incorporated by reference to Exhibit 10.10.1 to Annual
Report on Form 10-K for fiscal year ended December 31, 1988, File
No. 0-12081).
*10.2 Lease for Worcester Massachusetts facility
(incorporated by reference to Exhibit 10.13 to Annual Report on
Form 10-K for fiscal year ended December 31, 1986, File No.
0-12081).
10.2.1 Amendment to Lease Agreement for Worcester
Massachusetts facility (incorporated by reference to Exhibit 10.18
to Annual Report on Form 10-K for fiscal year ended December 31,
1992, File No. 0-12801).
*10.3 License, Development and Supply Agreement with
SmithKline Beecham, p.l.c., dated as of September 11, 1992, as
amended by Agreement dated as of March 31, 1993 (incorporated by
reference to Exhibit 10.17 to Annual Report of Form 10-K for
fiscal year ended December 31, 1992, File No. 0-12081).
tm10.4 Employment Agreement with Alison Taunton-Rigby,
dated April 6, 1995 (incorporated by reference to Exhibit 10.17 to
Annual Report on Form 10-K for fiscal year ended December 31,
1995, File No. 0-12081).
tm10.5 Employment Agreement with Gerald A. Beltz, dated
August 21, 1995 (incorporated by reference to Exhibit 10.18 to
Annual Report on Form 10-K for fiscal year ended December 31,
1995, File No. 0-12081).
tm10.6 Employment Agreement with Deborah Blackburn
Grabbe, dated August 21, 1995 (incorporated by reference to
Exhibit 10.19 to Annual Report on Form 10-K for fiscal year ended
December 31, 1995, File No. 0-12081).
tm10.7 Employment Agreement with Robert B. Kammer,
dated August 21, 1995 (incorporated by reference to Exhibit 10.20
to Annual Report on Form 10-K for fiscal year ended December 31,
1995, File No. 0-12081).
tmo10.8 Employment Agreement with Stephen J. DiPalma,
dated March 1, 1996.
10.9 Master Acquisition Agreement by and among
bioMerieux Vitek, Inc., Aquila Biopharmaceuticals, Inc. and
Cambridge Biotech Corporation, dated as of April 4, 1996
(incorporated by reference to Exhibit 10.1 to quarterly report on
Form 10-Q for quarter ended June 30, 1996, File No.
0-12081).
10.10 Asset Purchase Agreement between Meridian
Diagnostics, Inc. and Cambridge Biotech Corporation, dated as of
June 24, 1996 (incorporated by reference to Exhibit 2.1 to current
report on Form 8-K, dated June 24, 1996, File No. 0-12081).
o10.11 Lease Agreement with bioMerieux Vitek, Inc.
dated October 22, 1996 for premises located at 1500 East Gude
Drive and 3 Taft Court, Rockville, Maryland.
o10.12 1996 Stock Award and Option Plan.
o10.13 1996 Directors Stock Award and Option Plan.
o10.14 1996 Employee Stock Purchase Plan.
o11. Computation of Earnings Per Share.
o27. Financial Data Schedule.
_____________________
o Filed herewith as part of this Annual Report on Form 10-K.
* Confidential treatment previously granted.
tm Management contract or compensatory plan.
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AQUILA BIOPHARMACEUTICALS, INC.
(Original Certificate of Incorporation filed
with the Secretary of State of Delaware on March 7, 1996.)
FIRST. The name of the corporation is Aquila
Biopharmaceuticals, Inc.
SECOND. The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of the
registered agent at such address is The Corporation Trust Company.
THIRD. The nature of the business or purpose to be conducted
or promoted is: to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware.
FOURTH. The name and address of the incorporator is:
Jane V. Hawkes of 311 Main Street, Worcester, Massachusetts.
FIFTH.
A. Number of Shares.
The total number of shares of capital stock which the
corporation shall have the authority to issue is thirty-five
million five hundred thousand (35,500,000) shares, of which thirty
million five hundred thousand (30,500,000) shares shall be common
stock, par value $.01 per share, and five million (5,000,000) shares
shall be preferred or special stock, par value $.01 per share.
The number of authorized shares of preferred or special stock
may be increased or decreased (but not below the number of shares
outstanding) by the affirmative vote of the holders of a majority
of the common stock, without a vote of the holders of the
preferred or special stock, or of any class or series thereof,
unless a vote of any such holders is required pursuant to the
certificate or certificates establishing the class or series of
preferred or special stock.
B. General.
No holder of any stock of the corporation shall be entitled
as such, as a matter of right, to subscribe for or purchase any
part of any new or additional issue of stock of any class
whatsoever of the corporation, or of securities convertible into
stock of any class whatsoever, whether now or hereafter
authorized, or whether issued for cash or other consideration or
by way of dividend.<PAGE>
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or
series of stock shall be as set forth below in Paragraphs C
through E of this Article FIFTH; provided, that in no event shall
the corporation have authority to issue any class or series of
stock which does not have the right to vote generally in the
election of directors, notwithstanding anything in Paragraphs C,
D, or E of Article FIFTH to the contrary.
C. Preferred or Special Stock.
Subject to any limitation prescribed by law or by Paragraph E
of this Article FIFTH, the board of directors of the corporation
is expressly authorized to provide for the issuance of the shares
of preferred or special stock in one or more classes or one or
more series within any class, and by filing a certificate pursuant
to applicable law of the State of Delaware, to establish or change
from time to time the number of shares to be included in each such
class or series, and to fix the designation, powers, preferences
and rights of the shares of each such class or series and any
qualifications, limitations and restrictions thereof. Any action
by the board of directors under this Paragraph C shall require the
affirmative vote of a majority of the directors then in office.
The authority of the board of directors with respect to each such
class or series of preferred or special stock shall include, but
not be limited to, the right to determine or fix one or more of
the following:
(a) The distinctive class or serial designation and the
number of shares constituting such class or series;
(b) The dividend rates or the amount of dividends to be paid
on the shares of such class or series, whether dividends shall be
cumulative and, if so, from which date or dates, the payment date
or dates for dividends, and the participating and other rights, if
any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the
shares of such class or series;
(d) Whether the shares of such class or series shall be
redeemable and, if so, the price or prices at which, and the terms
and conditions on which, such shares may be redeemed;
(e) The amount or amounts payable upon the shares of such
class or series and any preferences applicable thereto in the
event of the voluntary or involuntary liquidation, dissolution or
winding up of the corporation;
(f) Whether the shares of such class or series shall be
entitled to the benefit of a sinking or retirement fund to be
applied to the purchase or redemption of such shares, and if so
entitled, the amount of such fund and the manner of its
- 2 -<PAGE>
application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of any other class
or classes or of any other series of the same or any other class
or classes of stock of the corporation and, if so convertible or
exchangeable, the conversion price or prices, or the rate or rates
of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of
such class or series shall be issued;
(i) Whether the shares of such class or series which are
redeemed or converted shall have the status of authorized but
unissued shares of preferred or special stock and whether such
shares may be reissued as shares of the same or any other class or
series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the board of directors of
the corporation may deem advisable.
All stock issued pursuant to this Paragraph C shall be
hereinafter referred to as "preferred stock".
D. Common Stock
Subject to all of the rights of the preferred stock, and
except as provided by law or in this Article FIFTH (or in any
certificate of designations of any class or series of preferred
stock) or by the board of directors pursuant to this Article
FIFTH:
(a) the holders of the common stock shall have the right to
vote for the election of directors and on all other matters
requiring stockholder action, each share being entitled to one
vote;
(b) dividends may be declared and paid or set apart for
payment upon the common stock out of any assets or funds of the
corporation legally available for the payment of dividends, but
only when and as declared by the board of directors or any
committee thereof authorized by the board of directors to declare
dividends; and
(c) upon the voluntary or involuntary liquidation,
dissolution or winding up of the corporation, the net assets of
the corporation shall be distributed pro rata to the holders of
the common stock in accordance with their respective rights and
interests.
- 3 -<PAGE>
E. Limitations on Issuance of Preferred Stock
The authority of the board of directors to establish a class
or series of preferred stock under Paragraph C above is subject to
the following limitation:
Until the conclusion of the corporation's 1997 annual
meeting, no class or series of preferred stock shall be
established or shares thereof issued unless approved either by (i)
a unanimous vote of the board of directors, or (ii) a vote of a
majority of the shares of capital stock represented in person or
by proxy at a meeting of stockholders.
SIXTH. In furtherance and not in limitation of the powers
conferred by the State of Delaware:
A. The board of directors shall have the power to adopt,
alter, amend and repeal the by-laws of the corporation. Any by-
laws of the corporation adopted by the directors under the powers
conferred hereby may be altered, amended or repealed by the
directors or by the stockholders. Notwithstanding the foregoing
or any other provisions of this certificate of incorporation or
the by-laws of the corporation to the contrary, any such action by
the board of directors to adopt, alter, amend or repeal the by-
laws of the corporation shall require the affirmative vote of a
majority of the directors then in office at a duly constituted
meeting of the board of directors. Notwithstanding the foregoing
or any other provisions of this certificate of incorporation or
the by-laws of the corporation to the contrary, any action by the
stockholders to adopt, alter, amend or repeal the by-laws of the
corporation shall require the affirmative vote of the holders of
at least sixty-six and two-thirds percent (66 2/3%) of the then
outstanding shares of stock entitled to vote thereon, voting
together as a single class, at a duly constituted meeting of the
stockholders called expressly for such purpose.
B. Elections of directors need not be by written ballot
unless the by-laws of the corporation shall so provide.
C. The books of the corporation may be kept at such place
within or without the State of Delaware as the by-laws of the
corporation may provide or as may be designated from time to time
by the board of directors of the corporation.
D. A director of the corporation shall be relieved of any
personal liability to the corporation or its stockholders for
monetary damages for breach of his or her fiduciary duty as a
director of the corporation to the extent provided either (i) in
the order of the United States Bankruptcy Court for the District
of Massachusetts confirming the Reorganization Plan but in any
event to no greater extent than is permitted by Section 102(b)(7)
or any successor or similar provision of the Delaware General
Corporation Law, or (ii) by the Delaware General Corporation Law,
as now or hereafter in effect and interpreted by the courts of the
- 4 -<PAGE>
State of Delaware, in the absence of any specific provision in a
corporation's certificate of incorporation.
E. Except as otherwise fixed pursuant to the provisions of
Article FIFTH hereof relating to the rights of the holders of any
class or series of preferred stock to elect directors, the number
of directors of the corporation shall be fixed from time to time
by or in the manner provided in the corporation's by-laws. The
directors, other than those who may be elected by the holders of
any class or series of preferred stock, shall be classified with
respect to the term for which they severally hold office into
three classes, as nearly equal in number as possible, as shall be
provided in the manner specified in the by-laws.
At the annual shareholders meeting of the corporation in
1997, the term of office of the class of directors designated as
Class I directors shall expire and new Class I directors shall be
elected for a term to expire at the annual shareholders meeting in
1999. At the annual shareholders meeting in 1997, the term of the
office of the class of directors designated as the Class II
directors shall expire and new Class II directors shall be elected
for a term expiring in 2000, and at the annual shareholders
meeting in 1998, the term of office of the class of directors
designated as the Class III directors shall expire and new Class
III directors shall be elected for a term expiring in 2001. At
each succeeding annual meeting of shareholders of the corporation,
the successors to the class of directors whose terms expire at
that meeting shall be elected to hold office for a term expiring
at the annual meeting of shareholders held in the third year
following the year of their election and until their respective
successors are elected and qualified. If the number of directors
is changed, any increase or decrease in the number of directors
shall be apportioned by the board of directors so that each class
is as nearly equal as possible, provided that no decrease in the
number of directors shall affect the term of any director then in
office.
F. Subject to the rights of any class or series of
preferred stock to elect or remove directors, any director
(including persons elected by directors to fill vacancies on the
board of directors) may be removed from office, with or without
cause, by the affirmative vote of (i) the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the then outstanding
shares of stock entitled to vote generally in the election of
directors, voting together as a single class, at a duly
constituted meeting of stockholders called expressly for such
purpose, or (ii) at least two-thirds of the directors then in
office. At least thirty (30) days prior to any such meeting of
stockholders, written notice shall be sent to the director whose
removal will be considered at the meeting.
G. Except as otherwise fixed pursuant to the provisions of
Article FIFTH hereof relating to the rights of the holders of any
class or series of preferred stock to elect directors, any vacancy
- 5 -<PAGE>
occurring in the board of directors, including any newly created
directorships resulting from an increase in the number of
directors or any vacancy resulting from death, resignation,
disqualification, removal or other cause, shall be filled solely
by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the board of
directors. Any director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full
term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
SEVENTH. Any action required by law to be taken at any
annual or special meeting of stockholders of the corporation, or
any action which may be taken at any annual or special meeting of
such stockholders, shall be taken only at such a meeting.
Except as otherwise required by law or Article SIXTH hereof,
and subject to the rights of the holders of any class or series of
preferred stock, special meetings of the stockholders of the
corporation may be called only by (i) the board of directors
pursuant to a resolution approved by affirmative vote of majority
of the directors then in office, (ii) the Chairman of the Board,
if one is elected, (iii) the President, or (iv) the holders of at
least sixty-six and two-thirds percent (66 2/3%) of the then
outstanding shares of stock entitled to vote generally in the
election of directors. Only those matters set forth in the notice
of special meeting may be considered or acted upon at such special
meeting, unless otherwise provided by law. Advance notice of any
matters which stockholders intend to propose for action at an
annual meeting shall be given in the manner provided in the by-
laws of the corporation.
EIGHTH. Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them
and/or between this corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this
corporation under Section 291 of Title 8 of Delaware Code or on
the application of trustees in dissolution or of any receiver or
receivers appointed for this corporation under Section 279 of
Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be
summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement,
the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application
- 6 -<PAGE>
has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on
this corporation.
NINTH. The corporation reserves the right to repeal, alter
or amend this certificate of incorporation in the manner now or
hereafter prescribed by statute and this certificate of
incorporation, and all rights conferred upon stockholders herein
are granted subject to this reservation. No repeal, alteration or
amendment of this certificate of incorporation shall be made
unless the same is first approved by the board of directors of the
corporation pursuant to a resolution adopted by the affirmative
vote of a majority of the directors then in office, and thereafter
approved by the stockholders. For the purposes of the foregoing
sentence, and notwithstanding any other provisions of this
certificate of incorporation or the by-laws of the corporation
(and notwithstanding the fact that a lesser percentage may be
specified by law, this certificate of incorporation or the by-laws
of the corporation), the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66 2/3%) of the then
outstanding shares of stock entitled to vote thereon (or such
greater proportion as may be required by law), voting together as
a single class, at a duly constituted meeting of stockholders
called expressly for such purpose, shall be required to repeal,
alter or amend any provision of, or adopt any provision
inconsistent with, this Article NINTH, Sections B, C, D and E of
Article FIFTH, Article SIXTH, or Article SEVENTH.
The Amended and Restated Certificate of Incorporation has
been duly adopted in accordance with Section 245 and Section 242
of the General Corporation Law of the State of Delaware.
______________________________
Jane V. Hawkes, Secretary
- 7 -
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of March 1, 1996 (the
"Commencement Date") by and between Cambridge Biotech
Corporation, debtor and debtor in possession United States
Bankruptcy Court for the District of Massachusetts, Western
Division, Case Number 94-43054-JFQ, a Delaware Corporation,
having a principal place of business at 365 Plantation Street,
Worcester, Massachusetts ("CBC") and Stephen J. DiPalma, of
Natick, MA 01760 ("Executive").
WHEREAS, CBC has filed a petition under Chapter 11 of the
United States Bankruptcy Code (the "Code");
WHEREAS, CBC desires to employ Executive for the period and
upon the terms and conditions provided in this Agreement; and
WHEREAS, Executive desires to serve in the employ of CBC on
a full-time basis upon the terms and conditions hereinafter
provided.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
1. Employment. CBC hereby employs Executive, and
Executive hereby accepts employment by CBC, for the period stated
in Paragraph 3 hereof and upon the terms and conditions herein
provided.
2. Position and Responsibilities; Principal Location.
(a) During the term of this Agreement, Executive will serve
as Vice President, Chief Financial Officer and Treasurer, subject
to election by the Board of Directors, reporting to the Chief
Executive Officer. Executive shall devote his primary energies,
attention and abilities to the business of CBC and shall perform
such duties as shall be assigned to him by the CEO. Executive
may not serve as a director of other companies without the prior
approval of the Chief Executive Officer.
(b) The principal location at which Executive will perform
his duties will be at CBC's principal offices in Worcester,
Massachusetts or in a location not more than fifty (50) miles
distant from Boston, Massachusetts.
3. Term of Employment. The term of Executive's employment
hereunder shall be for two years from the Commencement Date;
provided, however, that thereafter the term shall be extended
automatically to the date which is 180 days after either party
shall deliver written notice to the other of such party's
election not to extend the term of this Agreement. The last day<PAGE>
of such term, as may be extended from time to time, is herein
sometimes referred to as the "Expiration Date."
4. Compensation and Benefits. For all services rendered
by Executive during his employment hereunder, CBC shall
compensate Executive as follows:
(a) Salary. CBC shall pay Executive a base salary of
$125,000 per year, subject to increase from time to time in
accordance with the usual practice of CBC with respect to review
of compensation of its senior executives. Executive's salary
shall be payable in periodic installments in accordance with
CBC's usual practice for its senior executives.
(b) Regular Benefits. Executive shall be entitled to
participate in any and all employee benefit plans, medical
insurance plans, life insurance plans, disability income plans,
retirement plans, bonus incentive plans and other benefit plans
from time to time in effect for senior executives of CBC. Such
participation shall be subject to: (i) the terms of the
applicable plan documents; (ii) generally applicable policies of
CBC; and (iii) the discretion of the Board or any administrative
or other committee provided for in or contemplated by such plan.
(c) Business Expenses. CBC shall reimburse Executive for
all reasonable travel and other business expenses incurred by him
in the performance of his duties and responsibilities, subject to
such reasonable requirements with respect to substantiation and
documentation as may be specified by CBC.
(d) Vacation. Executive shall be entitled to paid vacation
in accordance with the policies of CBC (but in no event less than
three weeks per year), to be taken at such times and intervals as
shall be determined by Executive with the approval of CBC, which
approval shall not be unreasonably withheld.
(d) Bonus. Executive shall be eligible to receive an
annual bonus based upon achievement of corporate and individual
objectives; the award of any bonus shall lie solely in the
discretion of the Board of Directors.
5. Termination and Termination Benefits. Notwithstanding
the provisions of Paragraph 3, Executive's employment hereunder
shall terminate under the following circumstances:
(a) Death. In the event of Executive's death during his
employment hereunder, CBC shall continue to pay an amount equal
to Executive's base salary to Executive's beneficiary designated
in writing to CBC prior to his death (or to his estate if he
fails to make such designation) for a period of six (6) months
after the date of Executive's death, at the salary rate in effect
on the date of his death, said payments to be made on the same
periodic dates as base salary payments would have been made to
Executive had he not died.
- 2 -<PAGE>
(b) Termination by CBC for Cause. Executive's employment
hereunder may be terminated by CBC for cause, without further
liability on the part of CBC, effective immediately by notice to
Executive stating the nature of such cause. The following shall
constitute "cause" for such termination.
(i) Deliberate dishonesty of Executive with respect to
CBC or any subsidiary or affiliate thereof; or
(ii) Conviction of Executive of a crime involving moral
turpitude; or
(iii) The material failure by Executive to perform
Executive's duties hereunder (other than any such failure
resulting from the incapacity of Executive due to physical or
mental illness) which failure continues for thirty (30) days
after notice to Executive setting forth in reasonable detail
the manner in which Executive has not performed Executive's
duties; or
(iv) Unlawful conduct pertaining to CBC or any of its
affiliates or shareholders or involving a criminal act;
material and conscious falsification or unauthorized
disclosure of important records or reports; embezzlement or
unauthorized conversion of property; violation of conflict of
interest or vendor relations policies; or willful disclosure
of significant trade secrets or other information likely to be
used to the detriment of CBC.
(c) Termination by Executive for Cause. Executive may
terminate his employment hereunder without liability effective
after thirty (30) days notice by Executive to CBC in the event of
the material breach by CBC of this Agreement if such breach shall
continue for more than thirty (30) days after notice to CBC setting
forth in reasonable detail the nature of such breach.
(d) Termination by CBC Without Cause. Executive's employment
may be terminated without cause by CBC by thirty (30) days written
notice to Executive.
(e) Certain Termination Benefits. In the event of
termination pursuant to Paragraphs 5(c) or 5(d), Executive shall be
entitled to the following:
(i) Base Salary. For the period after the date of
termination until the Expiration Date, CBC shall continue to
pay Executive base salary at the rate in effect on the date of
termination.
(ii) Regular Benefits.
(A) For the period subsequent to the date of
termination until the Expiration Date, Executive shall
continue to receive at CBC's expense all benefits
- 3 -<PAGE>
described in Paragraph 4(b) existing on the date of
termination (except for any cash bonus plans which shall
be pro-rated through the date of termination), provided
that CBC's obligation to continue such benefits shall
cease on a benefit by benefit basis on that date, if any,
on which Executive is employed on a full-time basis and
Executive receives in connection with such employment
benefits which are substantially equivalent to CBC's
benefits.
(B) For purpose of application of CBC's benefits,
Executive shall be treated, to the extent that applicable
law pertaining to the particular CBC benefit plan permits
CBC to do so, as if he had remained in the employ of CBC,
with a total annual salary at the rate in effect on the
date of termination and service or similar credits, if
any, will continue to accrue during such period as if
Executive had remained in the employ of CBC.
(C) If in spite of the provisions of this clause
(ii), benefits or service credits under any benefit plan
shall not be payable or provided under any such plan to
Executive, or to Executive's dependents, beneficiaries or
estate, because Executive is no longer deemed to be an
employee of CBC, CBC itself shall pay or provide payment
of such benefits and service credits for such benefits to
Executive or to Executive's dependents, beneficiaries or
estate.
(D) To the extent that applicable law does not
permit any CBC benefit referred to above to be provided,
paid, or funded through the applicable CBC benefit plan,
then CBC shall not be required to provide such benefit
through such plan and shall only be required to provide
in the case of a benefit the tax treatment of which is
enhanced by such plan an amount equal to what would have
been CBC's initial contribution to such plan and not the
equivalent benefit.
(iii) Set-off. CBC shall be entitled to set off against
any cash compensation to be provided to Executive under
Paragraph 5(e) above 50 percent of the amount of any cash
compensation received by Executive from other employment
during the period in which Executive received cash
compensation under Paragraph 5(e). Executive shall inform CBC
of any such amounts of cash compensation and shall refund to
CBC any amount which CBC has paid which exceeds the amounts
due from CBC after application of the set-off provided for in
this paragraph. Notwithstanding the foregoing and any other
provision of this Agreement, Executive shall be under no
obligation to seek or accept any employment after termination
of employment with CBC for any reason.
- 4 -<PAGE>
6. Disability.
(a) If, due to physical or mental illness, Executive shall
be disabled so as to be unable to perform substantially all of
his duties and responsibilities hereunder, CBC may designate
another executive to act in his place during the period of such
disability. Notwithstanding any such designation, Executive
shall continue to receive his full salary and benefits under
Paragraph 4 of this Agreement, unless his employment is
terminated as provided in this Paragraph 6.
(b) If Executive shall become totally and permanently
disabled, then CBC may terminate Executive's employment hereunder
and shall continue to pay to Executive his full salary and
provide him with the benefits he was receiving immediately prior
to such termination for six months, provided that such salary
shall be reduced by the amount of any disability insurance
proceeds actually paid to Executive or for his benefit with
respect to such period of time under any disability policy
provided by CBC for Executive.
(c) The determination that by virtue of total and permanent
disability Executive is unable to perform his duties hereunder
shall be made by a physician chosen by CBC and reasonably
satisfactory to Executive (or Executive's legal representative)
and such determination shall be conclusive. The cost of such
examination shall be borne by CBC. Executive shall be
conclusively presumed to be totally and permanently disabled if
for reasons involving physical or mental illness or injury
Executive fails to perform his duties hereunder for a period of
one hundred twenty (120) consecutive calendar days or for any
periods aggregating one hundred twenty (120) days or more in any
six (6) consecutive month period. The date of termination of
Executive's employment hereunder in the event of total and
permanent disability shall be the earlier of such physicians's
examination pursuant to which such determination is made or the
first business day after which either such 120-day period or such
six-month period has expired.
7. Non-competition, Confidential Information, and
Non-Solicitation.
(a) Non-competition. Executive agrees that he will not at
any time during the term of this Agreement and for a period of
two (2) years following the termination of this Agreement for any
reason, directly or indirectly, as a partner, officer, director,
consultant, employee, stockholder or otherwise, engage in any
employment, pursuit or association in which he shall have
substantial responsibility with respect to products and/or
services which are in direct competition with products and/or
services of CBC, provided however, in any event the holding by
Executive of any investment in any security shall not be deemed
to be a violation of this Paragraph 7 if such investment does not
- 5 -<PAGE>
constitute more than 5% of the outstanding issue of such
security.
(b) Confidential Information. Executive will not disclose
to any other person (except as required by applicable law or in
connection with the performance of his duties and
responsibilities hereunder), or use for his own benefit or gain,
any confidential information of CBC obtained by his incident to
his employment with CBC. The term "confidential information"
includes, without limitation, financial information, business
plans, prospects and opportunities (such as lending
relationships, financial product developments, possible
acquisitions or dispositions of businesses of facilities),
products, plans, intellectual property, analyses, projects,
processes, marketing, research of development activities, and all
technical or scientific information or know-how of CBC which have
been discussed or considered by CBC but does not include any
information which has become part of the public domain by means
other than Executive's non-observance of his obligations
hereunder.
(c) Non-solicitation. Executive agrees that he will not at
any time during the term of this Agreement and for a period of
three (3) years following the termination of this Agreement for
any reason, directly or indirectly, solicit or recruit any
employee of CBC to serve as an employee of, consultant to, or
partner of Executive or any entity.
(d) Relief; Interpretation. Executive agrees that CBC
shall be entitled to injunctive relief for any breach by him of
the covenants contained in Paragraphs 7(a), (b), or (c). In the
event that any provision of this Paragraph 7 shall be determined
by any court of competent jurisdiction to be unenforceable by
reason of its being extended over too great a period of time, too
large a geographic area, or too great a range of activities, it
shall be interpreted to extend only over the maximum period of
time, geographic areas, or range of activities as to which it may
be enforceable. For purposes of this Paragraph 7, the term "CBC"
shall mean CBC and any of its subsidiaries.
(e) Survival. Executive's obligations under this
Paragraph 7 shall survive termination of this Agreement.
8. Conflicting Agreements. Executive hereby represents
and warrants that the execution of this Agreement and the
performance of his obligations hereunder will not breach or be in
conflict with any other agreement to which he is a party or is
bound, and that he is not now subject to any covenants against
competition or similar covenants which would affect the
performance of his obligations hereunder.
9. Withholding. All payments made by CBC under this
Agreement shall be net of any tax or other amounts required to be
withheld by CBC under applicable law.
- 6 -<PAGE>
10. Arbitration of Disputes. Any controversy or claim
arising out of or relating to this Agreement or the breach
thereof shall be settled by arbitration in accordance with the
laws of the Commonwealth of Massachusetts by three arbitrators.
The party initiating arbitration shall nominate one arbitrator in
the request for arbitration and the other party shall nominate a
second in the answer thereto within thirty (30) days of receipt
of the request. The two arbitrators so named will then jointly
appoint the third arbitrator. If the answering party fails to
nominate its arbitrator within the thirty (30) day period, or if
the arbitrators named by the parties fail to agree on the third
arbitrator within sixty (60) days, then such arbitrator shall be
appointed by the American Arbitration Association in the City of
Boston. Such arbitration shall be conducted in the City of
Worcester, Massachusetts in accordance with the rules of the
American Arbitration Association, except with respect to the
selection of arbitrators which shall be provided in this
Paragraph 10. Judgment upon the award entered by the arbitrators
may be entered in any court having jurisdiction thereof.
11. Assignment; Successors and Assigns, etc. Neither the
employer nor Executive may make any assignment of this Agreement
or any interest herein, by operation of law or otherwise, without
the prior written consent of the other party; provided, however,
that CBC may assign its rights under this Agreement without the
consent of Executive in the event CBC shah hereafter consolidate
with or merge into any other person, or transfer all or
substantially all of its properties or assets to any other
person. In the event of the Executive's death prior to the
completion by CBC of all payments due him under this Agreement,
CBC shall continue such payments to the Executive's beneficiary
designated in writing to CBC prior to his death (or to his
estate, if he fails to make such designation). This Agreement
shall inure to the benefit of and be binding upon CBC and the
Executive, their respective successors, executors,
administrators, heirs and permitted assigns.
12. Enforceability. If any portion or provision of this
Agreement shall to any extent be declared illegal or
unenforceable by a court of competent jurisdiction, then the
remainder of this Agreement, or the application of such portion
or provision in circumstances other than those as to which it is
so declared illegal or unenforceable, shall not be affected
thereby, and each portion and provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
13. Waiver. No waiver of any provision hereof shall be
effective unless made in writing and signed by the waiving party.
The failure of any party to require the performance of any term
or obligation of this Agreement, or the waiver by any party of
any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of
any subsequent breach.
- 7 -<PAGE>
14. Notices. All notices and other communications required
or permitted hereunder shall be in writing and shall be
delivered, mailed by first-class mail, postage prepaid, or sent
by telex or facsimile with a mailed confirmation copy, addressed:
(a) If to CBC:
Cambridge Biotech Corporation
365 Plantation Street
Worcester, MA 01605
Attention: Secretary
Facsimile No: 508-797-4014
(b) If to Executive:
Stephen J. DiPalma
6 Eastleigh Lane
Natick, MA 01760
or such other addresses or facsimile numbers as shall be
furnished in writing by either party and any such notice or
communication shall be deemed to have been given in the case of
notices or communications which have been delivered or sent by
facsimile or telex an the date of delivery or sending provided
such day is a business day and in the case of notices or
communications which have been mailed on the second business day
after the date mailed.
15. Amendment. This Agreement may be amended or modified
only by a written instrument signed by Executive and by a duly
authorized representative of CBC.
16. Governing Law. This is a Massachusetts contract and
shall be construed under and be governed in all respects by the
laws of the Commonwealth of Massachusetts without reference to
its conflict of laws provisions.
17. Entire Agreement. Except for the Invention and Non-
Disclosure Agreement executed as of even date herewith, this
Agreement constitutes the entire understanding between the
parties with respect to the subject matter hereunder and
supersedes and replaces all prior agreements, understandings,
writings, and discussions between the parties.
- 8 -<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a
sealed instrument by CBC, by its duly authorized officers, and by
the Executive, as of the date first above written.
CAMBRIDGE BIOTECH CORPORATION
By: _/s/ Alison Taunton-Rigby_____
Alison Taunton-Rigby
President and CEO
By: /s/ Stephen J. DiPalma _______
Stephen J. DiPalma
- 9 -
EXHIBIT 10.11
LEASE
between
AQUILA BIOPHARMACEUTICALS, INC.
Landlord
and
BIOMERIEUX VITEK, INC.
Tenant
Dated: October 22, 1996<PAGE>
TABLE OF CONTENTS
Section Page
Table of Contents............................................. i
1. Introductory Provisions................................... 1
(a) Fundamental Lease Provisions.......................... 1
(b) References and Conflicts.............................. 2
(c) Exhibits.............................................. 2
2. Premises.................................................. 2
(a) Leased Premises....................................... 2
(b) The Property.......................................... 2
(c) Tenant's Proportionate Share.......................... 3
3. Term and Acceptance by Tenant............................. 3
(a) Lease Term............................................ 3
(b) Renewal Option........................................ 3
(c) Acceptance of Leased Premises......................... 5
(d) Permits............................................... 5
4. Rent...................................................... 5
(a) Minimum Annual Rent................................... 5
(b) Additional Rent....................................... 5
(i) General......................................... 5
(ii) Real Estate Taxes............................... 6
(iii) Insurance....................................... 7
(iv) Utility Expenses Not Separately Metered......... 9
(v) Landlord's Enforcement Costs.................... 9
(c) Payment of Rent....................................... 9
5. Use ...................................................... 10
(a) Use................................................... 10
(b) Compliance With Laws, Fire Insurance, Condition of
Leased Premises....................................... 10
6. Common Areas.............................................. 11
(a) Common Areas Defined.................................. 11
(b) Landlord's Control.................................... 11
(c) Parking Spaces........................................ 12
7. Rules and Regulations..................................... 12
8. Utilities................................................. 12
9. Landlord's Right of Entry................................. 12
10. Maintenance and Repair.................................... 12
(a) Tenant's Responsibility............................... 12
(b) Landlord's Responsibility............................. 13
11. Alternations or Improvements by Tenant.................... 14
12. Surrender................................................. 14
13. Tenant Holding Over....................................... 15
14. Assignment and Subletting................................. 15
(a) Assignment by Tenant.................................. 15
(b) Assignment by Landlord................................ 17
15. Bankruptcy................................................ 17
16. Default................................................... 18
17. Landlord's Rights Upon Tenant's Default................... 18
- 2 -<PAGE>
18. Lender Requirements....................................... 20
(a) Subordination......................................... 20
(b) Attornment............................................ 20
(c) Notice to Mortgagee Upon Landlord's Default........... 21
19. Estoppel Certificates..................................... 21
20. Damage by Fire or Other Casualty.......................... 21
(a) Restoration........................................... 21
(b) Termination........................................... 22
(c) Lender's Approval..................................... 23
21. Condemnation.............................................. 23
22. Landlord's Liability...................................... 24
23. Tenant's and Landlord's Liability......................... 24
24. Indemnity................................................. 24
(a) By Tenant............................................. 24
(b) By Landlord........................................... 24
25. Tenant's Insurance........................................ 25
(a) Coverages............................................. 25
(i) Comprehensive Liability......................... 25
(ii) All-Risk Casualty............................... 25
(iii) Workers' Compensation........................... 25
(b) Policy Requirements.................................. 25
(c) No Limitation of Liability........................... 26
26. Waiver of Subrogation..................................... 26
27. No Liens Permitted; Discharged............................ 26
28. Signs, Awnings and Canopies............................... 27
29. Environmental Protection.................................. 27
30. Notices................................................... 28
31. Time ..................................................... 28
32. Postponement of Performance............................... 29
33. Brokers................................................... 28
34. No Waiver................................................. 29
35. Amendments................................................ 29
36. Applicable Law............................................ 29
37. Transfer of the Property.................................. 29
38. Option to Purchase........................................ 30
39. Option on Additional Space................................ 31
40. Procedure to Require Purchase or Termination of Option.... 31
41. Waiver of Counterclaim and Trail by Jury/Attorneys Fees... 31
42. Separability.............................................. 32
43. Corporate Authority....................................... 32
44. Interpretation............................................ 32
(a) Captions............................................. 32
(b) Gender............................................... 32
(c) Covenants............................................ 32
(d) Interpretation....................................... 32
45. Landlord's Agreement re: Contract of Sale of the
Property.................................................. 32
46. Reasonableness of Expenses................................ 33
47. Limits of Landlord's Liability............................ 33
48. Binding Effect............................................ 33
49. Recording................................................. 33
- 3 -<PAGE>
LEASE AGREEMENT
THIS LEASE is made as of this 22nd day of October, 1996, by
and between Aquila Biopharmaceuticals, Inc. (the "Landlord"), with
a business and mailing address of 365 Plantation Street,
Worcester, Massachusetts 01605, and bioMerieux Vitek, Inc., a
Missouri Corporation, (the "Tenant"), with a business and mailing
address of 595 Anglum Drive, Hazelwood, Missouri 63242-2395.
WITNESSETH:
For and in consideration of the covenants herein contained
and upon the terms and conditions herein set forth, the parties
agree as follows:
1. Introductory Provisions.
(a) Fundamental Lease Provisions. Certain Fundamental
Lease provisions are presented in this Section in summary form
solely to facilitate convenient reference by the parties hereto:
(1) Leased Premises
3 Taft Court
1500 East Gude Drive
Rockville, Maryland
(2) Gross Leasable Area
2,000 square feet at 3 Taft Court and
38,543 square feet at 1500 E. Gude Drive
(3) 1500 E. Gude 3 Taft
Drive Court
A. Proportionate Share - 85% 8%
B. R.E. Proportionate Share - 85% 34%
C. Insurance Proportionate Share - 85% 34%
(4) Rent Commencement Date October 22, 1996
(5) Expiration Date - Tenth Anniversary of the
Rent Commencement Date
(6) Minimum Annual Rent
Lease Year 1-3 $466,244.50 per year
Lease Year 4-7 $506,787.50 per year
Lease Year 8-10 $547,330.50 per year
- 4 -<PAGE>
(7) Basic Monthly Rent
Lease Year 1-3 $38,853.71 per month
Lease Year 4-7 $42.232.29 per month
Lease Year 8-10 $45,610.88 per month
(8) Tenant's Use Clause - Manufacturing; general
office, research and
development, and uses
incidental thereto
(b) References and Conflicts. Each reference in this
Lease to any of the fundamental Lease provisions contained in
Section 1(a) shall be construed to incorporate all of the terms
provided for under such provisions, and such provisions shall be
read in conjunction with all other provisions of this Lease
applicable thereto. If there is any conflict between any of the
fundamental Lease provisions set forth in Section 1(a) and any
other provisions of the Lease, the latter shall control.
(c) Exhibits. The following drawings and special
provisions are attached hereto as exhibits and hereby made a part
of this Lease:
Exhibit A. Description of Leased Premises
2. Premises.
(a) Leased Premises. Landlord hereby leases to Tenant,
and Tenant hereby rents from Landlord, certain premises (the
"Leased Premises") situated at 1500 East Gude Drive and 3 1/2 Taft
Court, Rockville, MD 20850 and as more fully described on Exhibit
A, and as set forth on the floor plan (or site plan) attached
hereto as Exhibit A-1, together with the non-exclusive right to
use the common areas of the Property as more fully described in
Section 7 hereof. The Leased Premises shall consist of the agreed
square footage of floor space as specified in Section 1(a)(2).
(b) The Property. The Leased Premises is (i) a part of
improved real property owned by Landlord which is more fully
described as "Lot 5, Block A, in the Red Gate Industrial Park
Subdivision as shown on a plat thereof recorded in Plat Book 102,
Plat 11503 among the Land Records of Montgomery County, Maryland"
("Parcel 1"), and (ii) "Lot numbered Nine (9) in Block lettered
"B" in the subdivision known as "RED GATE INDUSTRIAL PARK" as per
plat thereof recorded in Plat Book 114 at Plat 13548 among the
Land Records of Montgomery County, Maryland, more commonly known
as 1500 East Gude Drive, Rockville, Maryland 20850 ("Parcel 2").
(Parcel 1 and Parcel 2 are sometimes collectively referred to
herein as the "Property"). Landlord represents and warrants to
Tenant that it is the owner in fee simple of the Property, subject
to certain encumbrances, rights of way, easements, and other
matters of record, none of which interfere with or adversely
- 5 -<PAGE>
affect the continued use and occupancy of the Leased Premises as
contemplated herein. Located on Parcel 1 is a portion of the
Leased Premises, and a building known as 3 Taft Court, Rockville,
Maryland currently leased to BTRL Contracts and Services, Inc.
pursuant to a lease dated June 30, 1992. The gross leasable area
of the Property is specified in Section 1(a)(3) ("Gross Leasable
Area" or "GLA"). The GLA of the Property shall be used
hereinafter for purposes of Tenant's "Proportionate Share" (as
hereinafter defined) of certain expenses payable to Landlord as
"Additional Rent" (as hereinafter defined). Landlord reserves the
right to modify the GLA of the Property, and shall modify the GLA
of the Property, from time to time during the Lease Term as a
result of construction of new leasable improvements or the
demolition of existing leasable improvements on the Property.
Landlord's right to modify the GLA of the Property shall not be
construed to provide Landlord with any right to modify the floor
plan of the Leased Premises, or to deprive Tenant of the
reasonable use of any portion of the parking areas or other common
areas allocated to it.
(c) Tenant's Proportionate Share. Tenant's
Proportionate Share of certain expenses hereinafter made payable
to Landlord as Additional Rent is specified in Section 1(a)(4).
Said computation is based upon the ratio of the total area of
floor space in the Leased Premises to the GLA of the Property.
The Proportionate Share shall be modified during the Lease Term in
the event that the GLA of the Property is modified as described in
Section 2(b) above.
3. Term and Acceptance by Tenant.
(a) Lease Term. The term of this Lease (sometimes
herein called the "Lease Term") shall begin as of the date
specified in Section 1(a)(5) ("Rent Commencement Date") and,
unless sooner terminated as herein provided, continue thereafter
through the date specified in Section 1(a)(6) ("Expiration Date").
The period commencing with the Rent Commencement Date and ending
on the last day of the twelfth (12th) full calendar month
thereafter shall constitute the first "Lease Year" as such term is
used herein. Each successive full twelve (12) month period during
the Lease Term shall constitute a "Lease Year".
(b) Renewal Option. Tenant may extend the original
term of this Lease for two (2) consecutive additional terms of ten
(10) Lease Years each by giving to Landlord notice of each such
election at least one hundred eighty (180) days prior to the
expiration of the original term or then renewal term hereof, as
applicable; provided, however, that Tenant shall not have such
right to extend if it shall then be in default under the terms of
this Lease (at the time of election) or if this Lease shall have
earlier expired or terminated, and that there shall only be two
(2) such renewal terms. The Minimum Annual Rent payable during
each renewal term shall be a sum equal to the fair rental value
(the "Fair Rental Value") of the Leased Premises on the date which
- 6 -<PAGE>
is one hundred eighty (180) days prior to the commencement date of
said renewal term (such Fair Rental Value being determined by
agreement between Landlord and Tenant), but in no event shall such
Minimum Annual Rent be less than the Minimum Annual Rent payable
by Tenant for the last Lease Year of the prior term or more than
one hundred twenty-five percent (125%) of the Minimum Annual Rent
payable by Tenant for the last Lease Year of the prior term.
If, at least five (5) months prior to the
expiration of the then current term of this Lease, Landlord and
Tenant are unable to agree upon said Fair Rental Value for the
next renewal term, either party may serve a written notice on the
other party nominating and appointing an appraiser who shall have
at least five years experience in real estate in the Rockville,
Maryland area and in the case of the third appraiser shall not
have acted in any manner for either Landlord or Tenant within four
years of the appointment, and within fifteen (15) days thereafter
the other party shall appoint an appraiser. Upon the appointment
of the two appraisers as hereinabove provided, said appraisers
shall forthwith, and within fifteen (15) days after the
appointment of the second appraiser, and before exchanging views
to the question at issue, appoint in writing a third appraiser and
give written notice of such appointment to each of the parties.
In the event the two appraisers shall fail to appoint or agree
upon third appraiser within said fifteen (15) day period, a third
appraiser shall be selected by the parties themselves if they so
agree upon such third appraiser within a further period of ten
(10) days. If any appraiser shall not be appointed or agreed upon
within the time herein provided, then either party may apply to
the appropriate Court of the State of Maryland having jurisdiction
for appointment of such appraiser. Said appraisers shall be sworn
faithfully and fairly to determine the Fair Rental Value. The
three appraisers shall afford to the parties a hearing and the
right to submit evidence, with the privilege of cross-examination,
on the question at issue and shall, with all possible speed, make
their determination in writing and shall give notice to the
parties of such determination. The concurring determination of
any two of said three appraisers shall be binding upon the
parties, or, in case no two of the three appraisers shall render a
concurring determination, then the determination of the third
appraiser appointed shall be binding upon the parties. The fees
and expenses of the appraisers shall be divided equally between
the parties.
If Tenant shall have exercised an option to extend
the term of this Lease within the time period herein provided,
this Lease shall be deemed extended upon all of the then executory
terms, covenants and conditions contained herein except that the
Minimum Annual Rent payable during such extended term shall be as
set forth above in this paragraph. Time shall be of the essence
as to any notice which may be given by Tenant under this
paragraph.
- 7 -<PAGE>
(c) Acceptance of Leased Premises. Tenant accepts
possession of the Leased Premises in "as is" condition, Tenant
expressly acknowledges and agrees that Landlord has made no
representations or warranties with respect to the Leased Premises,
and that no promises to alter, repair or improve the Leased
Premises or the Property have been made by Landlord or its agents
or employees, unless specifically set forth herein.
Notwithstanding the foregoing, Landlord agrees that on the
commencement date of the Lease the leaks in the roof and/or
surrounding areas of the buildings on the property situated at
1500 E. Gude Drive and 3 Taft Court shall be repaired, or that
Landlord shall continue to use diligent efforts to remove the
cause of any continuing or new leaks.
(d) Permits. Tenant shall be responsible for obtaining
any permits or licenses necessary, because of any change in
Tenant's use of the Leased Premises from that use contemplated
herein, for its lawful occupancy of the Leased Premises. This
requirement shall not relieve Tenant of its liability for the
payment of Minimum Annual Rent and Additional Rent, and the
performance of all other obligations contained herein, from and
after the Rent Commencement Date, in the event that all of said
approvals, permits and licenses have not been acquired prior
thereto.
4. Rent.
(a) Minimum Annual Rent. The Minimum Annual Rent
reserved hereunder in Section 1(a)(7) shall be payable by Tenant
to Landlord during each Lease Year of the Lease Term in equal
monthly installments of Basic Monthly Rent in the amounts set
forth in Section 1(a)(8), due in advance, without notice or
demand, and without set-off, deduction, recoupment or abatement of
any kind except as otherwise set forth herein, on the Rent
Commencement Date and the first (1st) day of each and every
calendar month thereafter during the Lease Term. In the event
that the Rent Commencement Date occurs on a day other than the
first day of a calendar month or the Lease Term ends on a day
other than the last day of a calendar month, then the Basic
Monthly Rent or Additional Rent for such partial month(s) shall be
computed on a per diem basis by dividing the Basic Monthly Rent or
Additional Rent by thirty (30) and multiplying it by the number of
days in the partial calendar month. Rent shall be paid to
Landlord, or to such other person(s), or at such other address as
Landlord may designate to Tenant from time to time.
(b) Additional Rent.
(i) General. Whenever it is provided by the terms
of this Lease that Tenant is required to make any payment to
Landlord other than a payment of Minimum Annual Rent, such payment
shall be deemed to be a payment of additional rent ("Additional
Rent"). Unless otherwise expressly specified herein, Additional
Rent shall be paid by Tenant with the next installment of Basic
- 8 -<PAGE>
Monthly Rent thereafter falling due. Additional Rent shall
include, but not be limited to:
(ii) Real Estate Taxes. Commencing upon the first
day of the first month of the Lease, and thereafter on the first
day of each calendar month throughout the Lease Term, Tenant shall
pay to Landlord, without notice or demand therefor (other than the
annual notice of Landlord's estimate of Tenant's R.E.
Proportionate Share of the Real Estate Taxes and a copy of the tax
bills as described in the following paragraph of this section),
and without any deduction whatsoever, one-twelfth (1/12) of its
R.E. Proportionate Share of Landlord's good faith estimate of the
Real Estate Taxes to be incurred by Landlord on the Property
during that tax year (prorated, if necessary, if the remainder of
the Lease Term constitutes less than the full tax year). Tenant's
obligation to pay its R.E. Proportionate Share of the Real Estate
Taxes incurred during the Lease Term shall survive the expiration
or other termination of the Lease.
The term "Real Estate Taxes" shall mean all taxes and
assessments, general and special, ordinary and extraordinary,
foreseen and unforeseen, now or hereafter assessed, levied or
imposed upon the Property, including both the land and the
improvements which are built thereon, including, without
limitation, front foot benefit charges and adequate public
facility costs and assessments, together with (i) any tax,
assessment, or other imposition in the nature of a real estate
tax, (ii) any ad valorem tax on rent or any tax on income if
imposed in lieu of or in addition to real estate taxes and
assessments, and (iii) any taxes and assessments which may
hereafter be substituted for real estate taxes, including by way
of illustration only, any tax, assessment or other imposition
(whether a business rental or other tax) now or hereafter levied
upon Landlord for a tenant's use or occupancy of or conduct of
business on the Property, or a tenant's improvements to or
furniture, fixtures or equipment on the Property. Real Estate
Taxes shall also include all reasonable costs incurred by Landlord
in contesting the validity or amount of any such taxes. Real
Estate Taxes shall not include transfer, inheritance, capital
stock or income taxes or other similar personal tax of Landlord,
nor any late charges, penalties or interest, incurred due to
untimely payments by Landlord in connection with said tax.
Within fifteen (15) days after Landlord's receipt from the
taxing authority of the Real Estate Tax bills for the fiscal 1997
tax year and for each tax year thereafter during the Lease Term,
Landlord shall deliver to Tenant a copy of such tax bills,
together with a statement showing Tenant's R.E. Proportionate
Share of the actual Real Estate Taxes due for said tax year and
the amount of payments made by Tenant based upon the estimate
thereof. Tenant shall pay Landlord, within thirty (30) days of
Tenant's receipt of such statement, Tenant's R.E. Proportionate
Share of the excess, if any, of the Real Estate Taxes for such tax
year over the estimated costs thereof. If the amount paid by
- 9 -<PAGE>
Tenant as Tenant's R.E. Proportionate Share of the estimated Real
Estate Taxes for such tax year exceeded Tenant's R.E.
Proportionate Share of actual Real Estate Taxes for such tax year,
the excess shall be credited toward payment of the next
installment of Basic Monthly Rent to be paid by Tenant after
Tenant receives said statement from Landlord. If the amount paid
by Tenant for the last tax year of the Lease Term exceeds Tenant's
R.E. Proportionate Share of actual Real Estate Taxes for such tax
year, Landlord shall pay Tenant the excess amount within thirty
(30) days after Landlord's submission to Tenant of the aforesaid
statement for such tax year.
Upon Tenant's written request, Landlord will contest, at
Tenant's expense, the validity or amount of any such Real Estate
Tax. Tenant shall be entitled to its R.E. Proportionate Share of
any refund or reduction.
Tenant shall receive a credit for the amount of any expenses
it paid which resulted in a refund or reduction applicable to the
rest of the Property.
Landlord shall deposit and thereafter hold in escrow, until
disbursement, the funds received from Tenant pursuant to this
section in an interest bearing, federally insured account. All
interest earned on said account shall be credited to Tenant and
shall be used in the adjustments to Tenant's payments made
hereunder from time to time during the lease Term so that Landlord
collects only such monies as are necessary to pay Tenant's R.E.
Proportionate Share of said Real Estate Taxes.
In addition to Tenant's obligation for the payment of its
R.E. Proportionate Share of the Real Estate Taxes, Tenant shall be
liable for, and shall pay before delinquency, all taxes levied
against any personal property or trade fixtures placed by Tenant
in or about the Leased Premises.
(iii) Insurance. Commencing upon the Rent
Commencement Date and thereafter throughout the Lease Term, Tenant
shall pay to Landlord without notice or demand therefor and
without any deduction whatsoever, its Insurance Proportionate
Share of the premium cost of the casualty insurance, liability
insurance, rent loss insurance, and other reasonable and necessary
form of insurance carried by Landlord with respect to the Property
("Insurance Cost") during any policy year; provided, however, that
if the adjacent building on Parcel 1 is demolished during the
Lease Term, then commencing upon such demolition and for so long
as the Leased Premises constitutes one hundred percent (100%) of
the leasable improvements on the Property, Tenant shall be
obligated to pay one hundred percent (100%) of the Insurance Cost.
Not less than ten (10) days before the Rent Commencement
Date, Landlord shall deliver to Tenant a written statement, with
supportive documentation of Landlord's estimate of the amount of
the Insurance Cost for the then current policy year, and Tenant's
- 10 -<PAGE>
Insurance Proportionate Share of such Insurance Cost. On the Rent
Commencement Date, and on the first day of each month thereafter
throughout the Lease Term, Tenant shall pay one-twelfth (1/12) of
Tenant's Insurance Proportionate Share of Landlord's estimate,
with supportive documentation of the Insurance Cost for the then-
current policy year, as shown on Landlord's estimate. Landlord
shall submit its estimate of the Insurance Cost for the
forthcoming policy year and Tenant's Insurance Proportionate Share
thereof at the Commencement of each such policy year, and Tenant's
monthly payments made after its receipt of such estimate shall be
in the amount of one-twelfth (1/12) of the amount of Tenant's
Insurance Proportionate Share of Insurance Cost as shown on such
estimate. Landlord may revise its estimate of the Insurance Cost
at any time during a policy year by notice to Tenant, setting
forth such revised estimate, with supportive documentation and
Tenant's Insurance Proportionate Share thereof. In such event,
all monthly payments made by Tenant after such notice shall be in
an amount calculated on the basis of such revised estimate.
Tenant shall, in all cases, continue to make monthly payments of
Insurance Cost based on the last estimate received from Landlord
until it receives a revised or updated estimate.
After the end of each policy year, Landlord will as soon as
practicable submit to Tenant a statement of the actual Insurance
Cost for such policy year and Tenant's Insurance Proportionate
Share thereof. Landlord shall cause its insurance carrier,
whenever practical, to issue policies of insurance covering the
Leased Premises which are separate and apart from all other
properties owned by Landlord, in which event Tenant's
Proportionate Share of Insurance Cost shall be the full cost
payable pursuant to said separate policy. Where such separate
policies cannot be issued practically, Landlord shall cause its
insurance carrier to provide a written statement identifying the
manner in which all premiums paid by Landlord are allocated to
reflect the portion thereof attributable to the insurance carried
on the Leased Premises and the portion thereof attributable to the
insurance carried on other properties owned by Landlord. Tenant
shall pay Landlord, within thirty (30 days of Tenant's receipt of
such statement, Tenant's Insurance Proportionate Share of the
excess, if any, of Insurance Cost for such policy year over the
projected Insurance Cost. If the amount paid by Tenant as
Tenant's Insurance Proportionate Share of the estimated Insurance
Cost for such policy year exceeded Tenant's Insurance
Proportionate Share of actual Insurance Cost for such policy year,
the excess shall be credited toward payment of the next
installment of Basic Monthly Rent to be paid by Tenant after
Tenant receives said statement from Landlord. If the amount paid
by Tenant for the last policy year of the Lease Term exceeds
Tenant's Insurance Proportionate Share of actual Insurance Cost
for such year, Landlord shall pay Tenant the excess amount within
thirty (30) days after Landlord's submission to Tenant of the
aforesaid Insurance Cost statement for such policy year.
- 11 -<PAGE>
Landlord shall deposit and thereafter hold in escrow, until
disbursement, the funds received from Tenant pursuant to this
section in an interest bearing, federally insured account. All
interest earned on said account shall be credited to Tenant and
shall be used in the adjustments to Tenant's payments made
hereunder from time to time during the Lease Term so that Landlord
collects only such monies an are necessary to pay Tenant's
Insurance Proportionate Share of said Insurance Cost.
Landlord agrees that, at all times during the Lease Term, it
shall carry casualty insurance and liability insurance in such
form and in such amounts which are consistent with good business
practice and generally comparable to the coverage of casualty
insurance policies and liability insurance policies carried by
landlord's owning commercial buildings located in Montgomery
County, Maryland that are similar to the Leased Premises.
(iv) Utility Expenses Not Separately Metered.
(aa) Throughout Lease Term, Tenant agrees to
pay to Landlord, as Additional Rent, Tenant's Proportionate Share
of all water usage charges, exterior electric lighting charges,
and any other utility charges ("Shared charges") not separately
metered (and only for so long as each is not separately metered)
for each of the Leased Premises and the common areas of the
Property.
(bb) Upon receipt of each billing for Shared
charges, Landlord will as soon as practicable submit to Tenant a
statement of Shared Charges incurred for the preceding billing
period. Tenant shall pay Landlord, within thirty (30) days of
Tenant's receipt of such statement, Tenant's Proportionate Share
of Shared Charges.
(v) Landlord's Enforcement Costs. Additional Rent
shall include any and all expenses incurred by Landlord, including
reasonable attorneys' fees, for the collection of monies due from
Tenant and the enforcement of Tenant's obligations under the
provisions of this Lease. In the event Minimum Annual Rent or
Additional Rent is not paid within fifteen (15) business days of
its due date, Landlord, at its sole option, may assess a late
charge equal to two percent (2%) of the amount of the delinquent
Basic Monthly Rent and Additional Rent as compensation for the
additional administrative costs incurred by Landlord as a result
of such late payment.
(c) Payment of Rent. Any Minimum Annual Rent or
Additional Rent which is not paid within ten (10) business days
after the same is due shall bear interest ("Penalty Rate") at one
percentage (1%) point above the prime rate of interest published
in the Wall Street Journal or a successor or similar financial
publication existing from time to time and adjusted each day the
prime rate is redetermined to reflect the change in said prime
rate of interest, from the due data until the date received by
- 12 -<PAGE>
Landlord. Any payments of Minimum Annual Rent or Additional Rent
by Tenant or acceptance by Landlord of a lesser amount than shall
be due from Tenant to Landlord shall be treated as a payment on
account. The acceptance by Landlord of a check for a lesser
amount with an endorsement or statement thereon, or upon any
letter accompanying such check, that such lesser amount is payment
in full, shall be given no affect, and Landlord may accept such
check without prejudice to any other rights or remedies which
Landlord may have against Tenant. If Landlord receives from
Tenant two (2) returned or "bounced" checks in any one Lease Year,
Landlord may require all future Rent by cashier's or certified
check.
5. Use.
(a) Use. Tenant shall use the Leased Premises for the
purposes specified in Section 1(a) 9) , and for no other purpose.
(b) Compliance With Laws, Fire Insurance, Condition of
Leased Premises. Tenant shall not do, or permit anything to be
done in the Leased Premises or on the Property, or bring or keep
anything therein, which will in any way invalidate or conflict
with fire insurance policies on the Property, including, but not
limited to all improvements, the Property's fixtures and personal
property kept therein, or obstruct or interfere with the rights of
the Landlord or of other tenants of the Property, or in any other
way injure or annoy Landlord or such other tenants, or subject
Landlord to any liability for injury to persons or damage to
property, or interfere with the good order of the Property as
determined by Landlord in its reasonable discretion. Tenant shall
refrain or discontinue said use immediately upon receipt of
written notice from Landlord requiring such action. Tenant, at
its expense, shall comply with all present and future laws, rules
or regulations of any federal, state or municipal authority, or
the Maryland Fire Underwriters Rating Bureau, or with any notice
from any public officer pursuant to law pertaining to Tenant's
occupancy or use of the Leased Premises, whether such notice shall
be served on Landlord or Tenant provided Tenant shall have no
obligation to make any structural changes to the Leased Premises.
Tenant agrees to indemnify, defend, and hold Landlord harmless
from all liability, damage, cost, and expense (including, without
limitation, court costs and reasonable attorneys fees) resulting
from any injury to persons or damage to property occurring in or
around the Leased Premises, occasioned by any act or omission of
Tenant, Tenant's agents, contractors, servants, employees,
invitees or licensees. Tenant agrees that any increases of fire
insurance premiums on the Leased Premises or contents caused by
the occupancy of Tenant and any expenses or costs incurred in
consequence of negligence or carelessness or the willful action of
Tenant, Tenant's employees, agents, contractors, servants,
invitees, or licensees shall be deemed Additional Rent and paid by
Tenant to Landlord as they accrue.
- 13 -<PAGE>
6. Common Areas.
(a) Common Areas Defined. In this Lease, "common
areas" means all areas, facilities and improvements provided, from
time to time, on the Property for the mutual convenience and use
of all tenants or other occupants of the Leased Premises and the
adjacent building, their respective agents, employees, and
invitees, and shall include, if provided, but are not limited to,
parking areas and facilities, access roads, driveways, retaining
walls, sidewalks, walkways, landscaped areas, and exterior
lighting facilities.
(b) Landlord's Control. Landlord shall, as between
Landlord and Tenant, at all times during the Lease Term have the
sole and exclusive control, management and direction of the common
areas, and may, at any time and from time to time during the Lease
Term, exclude and restrain any person from use or occupancy
thereof, excepting, however, Tenant and other tenants of Landlord
and bona fide invitees of either who make use of said areas in
accordance with the rules and regulations established by Landlord
from time to time with respect thereto. The rights of Tenant in
and to the common areas shall at all times be subject to the
rights of others to use the same in common with Tenant, and it
shall be the duty of Tenant to keep all of said areas free and
clear of any obstructions created or permitted by Tenant or
resulting from Tenant's operation. Landlord may at any time and
from time to time (i) close all or any portion of the common areas
to make repairs or changes, (ii) close all or any portion of the
common areas to such extent as may, in the opinion of Landlord, be
necessary to prevent a dedication thereof or the accrual of any
rights to any person or to the public therein, and (iii) do and
perform such other acts in and to said areas as, in the exercise
of good business judgment, Landlord shall determine to be
advisable with a view to the improvement of the convenience and
use thereof by tenants, their employees, agents, and invitees,
provided Landlord shall do so with a minimum of interference with
Tenant's use and enjoyment thereof. Landlord shall at all times
have the right and privilege of determining the nature and extent
of the common areas, and of making such changes, rearrangements,
additions or reductions therein and thereto from time to time
which in its opinion are deemed to be desirable and for the best
interest of all persons using the common areas or which are as a
result of any federal, state or local environmental protection or
other law, rule, regulation, guideline or order, provided Landlord
shall do so with a minimum of interference with Tenant's use and
enjoyment thereof. The purpose of the site plans attached hereto
as Exhibit A is to show the approximate locational relationship of
the Leased Premises to the adjacent building and to the common
areas as of the Rent Commencement Date. Nothing described in
Exhibit A shall limit or prevent Landlord from affecting any
change or alteration to the Property as described in this
paragraph, provided Landlord shall do so with a minimum of
interference with Tenant's use and enjoyment thereof. Nothing
contained in this Section shall give Landlord the right to impose
- 14 -<PAGE>
restrictions on the use and enjoyment of the common areas by
Tenant, or to make modifications to the common areas, in a way to
cause Tenant to be unable to use the Leased Premises and the
common areas in a reasonable manner for the purposes originally
contemplated by this Lease.
(c) Parking Spaces. During the Lease Term, Tenant
shall have the exclusive right to the use of [parking spaces] at
no additional cost.
7. Rules and Regulations. Tenant agrees to comply with and
observe any reasonable rules and regulations promulgated by
Landlord, which may be supplemented or amended from time to time
by Landlord. Tenant's failure to keep and observe said rules and
regulations shall constitute a breach of the terms of this Lease
in the same manner as if the same were contained herein as
covenants.
8. Utilities. Tenant shall be solely responsible for and
shall promptly pay any and all utility charges including but not
limited to electricity, water, fuel, gas, and telephone (including
equipment and installation charges) used in, consumed at, or
supplied to the Leased Premises. Tenant shall immediately
transfer all separately metered utility accounts for the Leased
Premises into its own name on the Rent Commencement Date. Tenant
shall pay to Landlord, as Additional Rent, its Proportionate Share
of any and all bills for utility charges which are not separately
metered in the or described in Section 4(b)(iv) hereof.
9. Landlord's Right of Entry. Landlord, and its agents,
shall have the right, upon prior notice to Tenant and during
reasonable business hours during the Lease Term (except in the
case of an emergency involving damage to person or property), to
enter upon the Leased Premises to examine the same, or to make
such repairs, alterations or improvements, as Landlord may deem
necessary or proper, or to remove any alteration or improvement
which is in violation of the provisions of this Lease, provided,
however, Landlord shall not adversely interfere with Tenant's
business operations in a material manner. Landlord reserves the
right to show the Leased Premises to prospective tenants or
brokers during the last ninety (90) days of the Lease Term, and to
show the Leased Premises to prospective purchasers and lenders at
all reasonable times, provided that reasonable prior verbal notice
is given to Tenant in each case and that Tenant's use and
occupancy of the Leased Premises shall not be materially
inconvenienced by any such action of Landlord.
10. Maintenance and Repair.
(a) Tenant's Responsibility. Tenant shall maintain the
Leased Premises in substantially the same good order and condition
as it is on the commencement of the Lease Term and shall return
the Leased Premises to Landlord in such condition at the
Expiration Date or at the earlier termination of this Lease,
- 15 -<PAGE>
ordinary wear and tear excepted. Except as obligations to repair
are expressly delegated to Landlord as described in Section 10(b)
below, Tenant shall be responsible for the full cost of all
maintenance and repairs of (i) the Leased Premises, including but
not limited to the doors, door jambs, windows, window casings and
sills, screens, floor coverings, walls (excluding load bearing
structures), and ceilings located in the Leased Premises and all
pipes, gutters, downspouts, wires, conduits and other equipment
and fixtures located in the Leased Premises. Tenant, at its
expense, shall perform routine maintenance and repair and
replacement of the plumbing, electrical, heating, ventilating and
air-conditioning systems, and all other systems and equipment,
serving the Leased Premises. Tenant will throughout the Lease Term
obtain and keep in force a maintenance contract with a qualified
service company to regularly inspect and perform maintenance
services to the heating, ventilating and air-conditioning system
serving the Leased Premises. Tenant, at its expense, shall
furnish Landlord with a copy of said maintenance contract, and of
renewals or replacements thereof, promptly after the effective
date thereof. All repairs and maintenance required to be
performed by Tenant at the Leased Premises shall be made or
performed within a reasonable period of time upon the occurrence
of the necessity therefor, and shall be made or performed in a
workmanlike or, using first class materials, by a contractor duly
licensed in the State of Maryland, and shall be made or performed
in accordance with (i) all applicable federal, state and county
governmental codes and regulations, and (ii) insurance
requirements. Tenant shall also be responsible for keeping all
sidewalks and parking areas on that portion of the Property
situated at 1500 E. Gude Drive free and clear of dirt, trash,
debris, ice, snow, and any other obstructions; provided, however,
that Landlord shall upon request promptly reimburse Tenant for the
cost of any such services less Tenant's Proportionate Share of
such services. Tenant shall be responsible for Tenant's
Proportionate Share of such services as pertain to 3 Taft Court
which shall be performed by the tenant at 3 Taft Court. Tenant
shall keep its trash and garbage in enclosed containers in a trash
holding area within the Leased Premises, and shall perform regular
trash removal from such trash holding area. Tenant shall also be
responsible for the performance of regular, periodic post control
services at the Leased Premises. All glass, both exterior and
interior, shall be maintained in the Leased Premises at the sole
risk of Tenant, and Tenant agrees to replace any glass promptly at
its sole expense in the event of breakage.
(b) Landlord's Responsibility. Except for any
structural alterations or improvements made by Tenant, Landlord
shall maintain in good order and repair the roof and the
structural portions of the foundation, floors, stairwells,
exterior walls, columns and other load bearing elements of the
Leased Premises.
- 16 -<PAGE>
11. Alterations or Improvements by Tenant. Except for
incidental painting and decoration of the interior of the Leased
Premises and other minor alterations and improvements which do not
affect the structure or utility systems of the Leased Premises,
Tenant shall not make any alterations, additions, or improvements,
structural or otherwise costing in excess of $50,000 (except
Tenant may make non-structural alterations in Lease Year one
costing up to $150,000 without Landlord's consent) (collectively,
"Alterations") in, on or to the Leased Premises, without the prior
written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. In connection with Landlord's
review of such proposed alterations or improvements prior to
giving its consent thereto, Landlord shall have the right to
require that Tenant supply plans, specifications, working drawings
and similar documents in reasonable detail which show the scope of
work to be performed within the Leased Premises. Landlord's
approval of the plans, specifications and working drawings for
Tenant's alterations and improvements shall create no liability on
the part of Landlord for their completeness, design sufficiency,
or compliance with all laws, rules, regulations or governmental
agencies or authorities. Any contractors employed by Tenant to
perform Tenant's work (i) shall be qualified to perform such work
and licensed in the State of Maryland and (ii) shall maintain any
insurance which may be reasonably required by Landlord, and (iii)
shall be bonded or otherwise reasonably satisfactory to Landlord.
Subject to paragraph 5(b) hereof, Tenant will defend, indemnify
and hold Landlord harmless from and against any and all expenses,
liens, claims or damages, including attorneys' fees, for injury to
person or property which may or might arise, directly or
indirectly, by reason of the making of any Alterations. If any
Alterations are effected without the prior written consent of
Landlord, Landlord may remove or correct the same and Tenant shall
be liable for any and all expenses of this work. All rights given
to Landlord herein shall be in addition to any other right or
remedy of Landlord contained in this Lease. Tenant shall be
obligated to make any and all Alterations and other improvements
to the Leased Premises required by applicable federal, state and
local law, in connection with the use of the Leased Premises by
Tenant during the Leased Term. Tenant hereby agrees that all
Alterations made in, to, or on the Leased Premises shall, unless
otherwise provided by written agreement or by the provisions of
Section 12 below, be the property of Landlord and shall remain
upon and be surrendered with the Leased Premises on the Expiration
Date or other termination of this Lease.
12. Surrender. Upon the Expiration Date or other
termination of the Lease Terms, Tenant shall quit and surrender
the Leased Premises to the Landlord in good order and condition,
ordinary wear and tear excepted, and Tenant shall remove all of
its personal property from the Leased Premises on or before the
Expiration Date or other termination of this Lease. Tenant's
obligation to observe or perform the covenants described in this
Section 12 shall survive the expiration or other termination of
this Lese. If Tenant does not remove Tenant's furniture, trade
fixtures and all other items of personal property of every kind
- 17 -<PAGE>
and description from the Leased Premises as specified herein, then
Landlord shall be permitted to remove, dispose or otherwise
discard such property without further payment or credit by
Landlord to Tenant. Notwithstanding anything to the contrary
contained in this Lease, Tenant shall have the right and the
obligation, at the end of the Lease Term, to remove all built-in
desks, cabinets, basins, emergency showers and other pieces of
equipment which are affixed to the Leased Premises by Tenant. In
connection with the removal of said equipment, Tenant shall be
obligated to stub pipes; bundle and cap wires; close ducts; repair
and replace (as appropriate) flooring coverings, repair, replace,
finish and repaint (as appropriate) walls, and perform all other
acts which are necessary for the Leased Premises to be returned to
Landlord in same good order and condition as exists of the Rent
Commencement Date.
13. Tenant Holding Over. If Tenant holds possession of the
Leased Premises after the Expiration Date or other termination of
this Lease, Landlord shall have the option, exercisable in writing
within thirty (30) days after the date of termination as
aforesaid, to treat Tenant as a trespasser, or as a tenant by the
month. If the Landlord fails to make such election then the
Tenant shall be deemed a tenant by the month, commencing with the
first day after the termination of the Lease at one hundred fifty
percent (150%) of the Basic Monthly Rent paid during the last
month of the Lease Term, and upon all the other terms of this
Lease, including the provisions of this Section. Said holdover
term shall terminate upon thirty (30) days notice from one party
to the other. Nothing contained herein shall be construed within
said thirty (30) days after the date of Lease termination as
aforesaid as a consent by Landlord to the occupancy or possession
of the Leased Premises by Tenant after the termination of the
Lease, and Landlord, upon said termination, if Landlord elects to
treat Tenant as a trespasser, shall be entitled to the benefit of
all general or public laws relating to the speedy recovery of the
possession of land and tenements held over by Tenant, whether now
or hereafter in force and effect. If Tenant fails to surrender
the Leased Premises upon the expiration or other termination of
this Lease despite demand to do so by Landlord, Tenant shall
indemnify, defend, and hold Landlord harmless from all injury,
loss, claims, expenses and liability, including without
limitation, any claim made by any succeeding tenant and any
attorneys' fees, founded on or resulting from such failure to
surrender.
14. Assignment and Subletting.
(a) Assignment by Tenant. Tenant shall not assign,
mortgage or encumber this Lease, or any right hereunder, nor
sublet the Leased Premises or any part thereof, nor permit the
Leased Premises to be used by others without the prior written
consent of Landlord, which consent shall not be unreasonably
withheld or delayed; provided that any such consent may be
conditional upon Tenant's agreement that, any monthly rent or
- 18 -<PAGE>
other payment accruing to Tenant as the result of any such
assignment, transfer or sublease, including any lump sum or
periodic payment in any manner relating to such assignment,
transfer or sublease, which is in excess of the Minimum Annual
Rent and Additional Rent then payable by Tenant under the Lease
shall be paid by Tenant to Landlord monthly as Additional Rent,
excluding any reasonable expenses incurred by Tenant in connection
with such assignment or subletting, e.g. legal fees and brokers'
commissions. Except as set forth herein, without prior written
consent of Landlord, this Lease and the interest of Tenant, or any
assignee of Tenant, shall not pass by operation of law, nor shall
it be subject to garnishment or sale under execution in any suit
or proceeding which may be brought against or by Tenant, or any
assignee of Tenant. No assignment of this Lease, sublease of all
or any portion of the Leased Premises, or collection of rent from
an assignee or subtenant (whether or not permitted by Landlord)
shall relieve Tenant of its obligations hereunder. Any
reasonable costs and expenses, including reasonable attorneys'
fees incurred by Landlord in connection with any proposed or
purported assignment, transfer or sublease shall be borne by
Tenant and shall be payable to Landlord as Additional Rent within
five (5) days of demand therefor.
Notwithstanding anything herein to the contrary, Tenant
shall have the right, without Landlord's prior written consent, to
assign this Lease or sublet the Leased Premises to any parent
corporation of Tenant, or to any subsidiary of any parent
corporation of Tenant, subject to the following express
conditions:
(i) No such assignment or sublease shall be deemed to
release Tenant from continuing liability for all of
Tenant's covenants and obligations under this
Lease; and
(ii) Any assignee or subtenant must expressly assume in
writing all of the covenants and obligations of
Tenant under this Lease, joint and severally with
Tenant.
Further, the provisions of this Section shall not apply
to an assignment of this Lease (or to a sale or transfer of
Tenant's stock) resulting from a merger, consolidation, corporate
reorganization (other than pursuant to the bankruptcy laws), sale
of the assets or other transfer of stock of Tenant:
Further, any issuance by Tenant of its capital stock in
a public offering which is effected in compliance with the
registration requirements of the Securities Act of 1933, as
amended, and the rules and regulations thereunder, shall not be
deemed to be a change in control or an assignment of this Lease
requiring Landlord's consent.
- 19 -<PAGE>
(b) Assignment by Landlord. It is expressly understood
and agreed that this Lease and all rights of Landlord hereunder
shall be fully and freely assignable by Landlord without notice
to, or consent of, Tenant. In the event of the transfer and
assignment by Landlord of its interest in this Lease, Landlord
shall thereby be released from any responsibility for the
performance of obligations thereafter accruing hereunder, and
Tenant agrees to look solely to such successor in interest of the
Landlord for performance of such obligations. Nothing contained
herein shall prevent Tenant from looking to Landlord for the
performance of obligations of which Landlord has actual knowledge
and which predate the effective date of the transfer and
assignment by Landlord of its interest in this Lease. The term
"Landlord" as used in this Lease shall mean the owner of the
Leased Premises, at the time in question. In the event of a
transfer (whether voluntary or involuntary) by such owner of its
interest in the Leased Premises, such owner shall thereupon be
released and discharged from all covenants and obligations of the
Lease thereafter accruing, but such covenants and obligations
shall be binding during the Lease Term upon each new owner for the
duration of such Owner's ownership.
15. Bankruptcy.
(a) The following shall be Events of Bankruptcy under
this Lease: (1) Tenant becoming insolvent, as that term is defined
in Title 11 of the United States Code (the "Bankruptcy Code"), or
under the insolvency laws of any state, district, commonwealth or
territory of the United States (the "Insolvency Laws"); (2) the
appointment of a receiver or custodian for any or all of Tenant's
property or assets, or the institution of a foreclosure action
upon any of Tenant's real or personal property; (3) the filing of
a voluntary petition under the provisions of the Bankruptcy Code
or Insolvency Laws by Tenant; (4) the filing of an involuntary
petition against Tenant as the subject debtor under the Bankruptcy
Code or Insolvency Laws, which either (A) is not dismissed within
one hundred twenty (120) days of the date of filing, or (B)
results in the issuance of an order for relief against the debtor;
or (5) Tenant's making or consenting to an assignment for the
benefit of creditors or a common law composition of creditors.
(b) Upon occurrence of an Event of Bankruptcy, Landlord
shall have all rights and remedies available to Landlord pursuant
to Section 17; provided, however, that while a case in which
Tenant is the subject debtor under the Bankruptcy Code is pending,
Landlord shall not exercise its rights and remedies pursuant to
Section 19 so long as (1) the Bankruptcy Code prohibits the
exercise of such rights and remedies, and (2) Tenant or its
Trustee in Bankruptcy (hereinafter referred to as "Trustee") (I)
cures all defaults under this Lease, (ii) compensates Landlord for
monetary damages incurred as a result of such defaults, (iii)
provides adequate assurance of future performance on the part of
Tenant as debtor in possession or on the part of the assignee
- 20 -<PAGE>
tenant, and (iv) complies with all other requirements of the
Bankruptcy Code and this Lease.
16. Default. Each of the following shall be deemed a
default by Tenant and a material breach of this Lease:
(a) An Event of Bankruptcy as defined in Section 15;
(b) An assignment or encumbrance of Tenant's interest
in this Lease or the Leased Premises or a
subletting of any part of the Leased Premises in
violation of Section 14;
(c) A failure by Tenant to make any payment of Minimum
Annual Rent or Additional Rent within five (5) days
of receipt of written notice that such payment was
not received on its due date (provided that
Landlord shall not be obligated to provide Tenant
with such written notice more than twice during any
twelve month period during the lease Term, and
after receipt of such second notice, Tenant shall
be deemed in default, without further notice, if
any such payment is not received by Landlord on its
due date);
(d) Abandonment of the Leased Premises for more than
thirty (30) days; and
(e) A failure by Tenant in the performance of any other
term, covenant, agreement or condition of this
Lease on the part of Tenant to be performed after
thirty (30) days notice, or if such default cannot
reasonably be cured within said thirty (30) days
period and Tenant does not commence to diligently
pursue the same within said thirty (30) day period
ad to continue to diligently pursue the same until
remedied.
Landlord agrees that it shall not exercise any rights or remedies,
which are available to it pursuant to the terms of Section 17, as
a result of an event of default described in Section 16(b) or (d)
above, unless and until Landlord has provided Tenant with a period
of thirty (30) days after receipt of written notice thereof within
which to cure such default.
17. Landlord's Rights Upon Tenant's Default. Upon default
by Tenant of any of the terms or covenants of this Lease, Landlord
shall be entitled to remedy such default as follows:
(a) Landlord shall have the right, immediately or at
any time after said default, without further notice to Tenant
(unless otherwise provided herein), to enter the Leased Premises,
without terminating this Lease or being guilty of trespass, and do
any and all acts as Landlord may deem necessary, proper or
- 21 -<PAGE>
convenient to cure such default, for the account and at the
expense of Tenant, and Tenant agrees to pay to Landlord as
Additional Rent all damage and/or expense incurred by Landlord in
so doing, including interest at the Penalty Rate from the due date
until the date payment is received by Landlord. The making of
such payment or the taking of such action by Landlord shall not be
deemed to cure the default or to stop Landlord from the pursuit of
any remedy to which Landlord would otherwise be entitled.
(b) Landlord shall, following said default, have the
right to terminate this Lease and/or Tenant's right to possession
of the Leased Premises and remove Tenant, any occupant and any
property therefrom, without being guilty of trespass and without
relinquishing any rights of Landlord against Tenant. Landlord
shall be entitled to recover damages from Tenant in an amount
equal to the amount herein covenanted to be paid as Minimum Annual
Rent during the remainder of the Lease Term, said Minimum Annual
Rent for the full term then remaining having been fully
accelerated at the option of Landlord, together with (i) all
reasonable expenses of any proceedings (including, but not limited
to, legal expenses and attorney's fees) which may be necessary in
order for Landlord to recover possession of the Leased Premises,
(ii) the reasonable expenses of the re-renting of the Leased
Premises (including, but not limited to, any commissions paid to
any real estate agent, advertising expense and the costs of such
alterations, repairs, replacements and decoration or re-decoration
as Landlord, in its sole judgment reasonably exercised, considers
advisable and necessary for the purpose of re-renting the Leased
Premises), and (iii) interest computed at the Penalty Rate from
the due date until paid; provided, however, that said damages
shall be discounted to present value using a discount factor of
5%, and further that there shall be credited against the amount of
such damages all amounts received by Landlord from such re-renting
of the Leased Premises and such amounts shall be refunded to
Tenant. No act or thing done by Landlord shall be deemed to be an
acceptance of a surrender of the Leased Premises, unless Landlord
shall execute a written agreement of surrender with Tenant.
Tenant's liability hereunder shall not be terminated by the
execution of a new lease of the Leased Premises by Landlord. In
the event Landlord does not exercise its option to accelerate the
payment of Minimum Annual Rent as provided hereinabove, then
Tenant agrees to pay to Landlord, upon demand, the amount of
damages herein provided after the amount of such damages for any
month shall have been ascertained; provided, however, that any
expenses incurred by Landlord shall be deemed to be a part of the
damages for the month in which they were incurred. Separate
actions may be maintained each month or at other times by Landlord
against Tenant to recover the damages then due, without waiting
until the end of the term of this Lease to determine the aggregate
amount of such damages.
- 22 -<PAGE>
(c) Upon any default by Tenant to pay Minimum Annual
Rent or Additional Rent, Landlord shall have a lien upon the
property of Tenant in the Leased Premises for the amount of any
unpaid Minimum Annual Rent or Additional Rent.
(d) All rights and remedies provided to either Landlord
or Tenant herein as a result of a default by the other party shall
be cumulative, and none shall exclude any other right or remedy
allowed by law. For the purposes of any suit brought or based
hereon, this Lease shall be construed to be a divisible contract,
to the end that successive actions may be maintained on this Lease
as successive periodic sums mature hereunder.
18. Lender Requirements.
(a) Subordination. Tenant agrees that this Lease
(including without limitation the option to purchase contained
herein) is subject and subordinate to the lien of any existing
mortgage or deed of trust which is a lien upon the Property or any
part thereof on the Rent Commencement Date, and to all renewals,
modifications, consolidations, replacements and extensions
thereof, and to all advances made or hereafter to be made upon the
security thereof. Landlord agrees that it shall acquire from any
such existing mortgagee or holder of an existing deed of trust a
non-disturbance agreement in such lender's usual form for the
benefit of Tenant. Tenant agrees that this Lease (including
without limitation the option to purchase contained herein) is and
shall be subject and subordinate to the lien of any future
mortgages or deeds of trust which at any time during the Lease
Term may be made a lien upon the Property or any part thereof, and
to all advances made or hereafter to be made upon the security
thereof; provided that such subordination shall be effective only
upon the delivery to Tenant of a non-disturbance agreement in such
lender's usual form and reasonably satisfactory to Tenant for the
benefit of Tenant by such future mortgagee or holder of a deed of
trust. These subordination provisions shall be self-operative and
no further instrument of subordination shall be required. Tenant
agrees to execute and deliver, upon request, such further
instrument or instruments confirming this subordination as shall
be reasonably desired by Landlord or by any mortgagee or proposed
mortgagee. Tenant further agrees that, at the option of the
holder of any mortgage or of the trustee under any deed of trust,
this Lease may be made superior to said mortgage or deed of trust
by the insertion therein of a declaration that this Lease is
superior thereto, and to all renewals, modifications,
consolidations, replacements and extensions thereof.
(b) Attornment. In the event any proceedings are
brought for the foreclosure of, or in the event of exercise of the
power of sale under, any deed to secure a debt given by Landlord
and covering the Leased Premises, Tenant shall execute such
attornment agreement as shall be reasonably required by said
purchaser, pursuant to the terms of which Tenant recognizes such
- 23 -<PAGE>
purchaser as the owner and landlord under this Lease, and the
purchaser recognizes Tenant as the tenant under this Lease.
(c) Notice to Mortgagee Upon Landlord Default. Tenant
agrees to give any mortgagee by certified mail, return receipt
requested, a copy of any notice of default served upon Landlord,
provided that before such notice Tenant has been notified in
writing of the address of such mortgagee. Tenant further agrees
that if Landlord shall have failed to cure such default within the
time provided for in this Lease, then mortgagee shall have an
additional fifteen (15) days within which to cure such default;
provided, however, that if such default cannot be reasonably cured
within that time, then such mortgagee shall have such additional
time as may be necessary to cure such default so long as mortgagee
has commenced and is diligently pursuing the remedies necessary to
cure such default (including, without limitation, the commencement
of foreclosure proceedings, if necessary), in which event this
Lease shall not be terminated while such remedies are being so
diligently pursued. In the event of the sale of the Property or
the Leased Premises, by foreclosure or deed in lieu thereof, the
mortgagee or purchaser at such sale shall be responsible for the
return of any security deposit only to the extent that such
mortgagee or purchaser actually received the security deposit. In
addition, Tenant shall not pay any rental hereunder for more than
one (1) month in advance.
19. Estoppel Certificates. Landlord and Tenant agree, at
any time and from time to time, upon not less than five (5)
business days prior notice by the other, to execute, acknowledge
and deliver to the other a statement in writing (i) certifying
that this Lease is unmodified and in full force and effect (or if
there have been modifications the nature of same), (ii) stating
the dates to which the Minimum Annual Rent and Additional Rent
have been paid by Tenant, (iii) stating whether or not to the best
knowledge of either Landlord or Tenant, the other is in default in
the performance of any covenant, agreement or condition contained
in this Lease, and, if so, specifying each such default of which
either Landlord or Tenant may have knowledge, (iv) stating he
address to which notices to either Landlord or Tenant should be
sent, and (v) certifying such other materials as may be requested
by Tenant or Landlord. Any such statement delivered pursuant
hereto may be relied upon by an owner of the Property, any
prospective purchaser of the Property or the Leasehold Interest,
any mortgagee or prospective mortgagee of the Property or the
Leasehold Interest, or of Landlord's or Tenant's interest therein,
or any prospective assignee of any such mortgage or the Leasehold
Interest.
20. Damage by Fire or Other Casualty.
(a) Restoration. If the Leased Premises shall be
damaged by fire or other casualty but such damage does not render
the Leased Premises wholly unfit for Tenant's business operations
as shall be determined by Landlord and Tenant in their reasonable
- 24 -<PAGE>
business judgment, Landlord, at Landlord's expense, shall promptly
restore the Leased Premises, and Tenant, at Tenant's sole expense,
shall promptly restore all leasehold improvements installed in the
Leased Premises by Tenant or at Tenant's request and its own
furniture, furnishings, trade fixtures and equipment. No penalty
shall accrue for reasonable delay which may arise by reason of
adjustment of insurance on the part of Landlord, or on account of
labor problems, or any other cause beyond Landlord's reasonable
control. Minimum Annual Rent and Additional Rent shall abate
proportionately (based on the proportion of the number of square
feet rendered untenantable to the total number of square feet of
the Leased Premises), from the date of the damage or destruction
until the date the Landlord has substantially completed such
restoration. Notwithstanding anything stated to the contrary
herein, in the event that such damage shall occur during the last
year of the Lease term, Landlord shall not be required to restore
the Leased Premises nor shall Tenant be required to restore the
Leasehold Improvements, furnishings, furniture, fixtures or
equipment.
(b) Termination. If the Leased Premises are
substantially damaged or are rendered substantially untenantable
by fire or other casualty during the Lease Term to such an extent
that it is rendered substantially unusable by Tenant for the
purposes originally contemplated by this Lease or access is
denied, Landlord shall restore or repair the same unless expressly
not required to do so under Section 20(c). If such damage occurs,
however, at any time during the Lease Term, and (i) Landlord's
architect certifies that the Leased Premises cannot be repaired
within one hundred twenty (120) working days of normal working
hours, said period commencing on the casualty date, or (ii)
Landlord shall decide to demolish the Leased Premises or not to
rebuild it, then Landlord or Tenant may, within ninety (90) days
after such fire or other casualty, terminate this Lease by giving
Tenant notice of such decision, and thereupon the Lease Term shall
expire by lapse of time upon the third day after such notice is
given, and Tenant shall thereupon vacate the Leased Premises and
surrender the same to Landlord. In the event that damage to the
Leased Premises is not repaired sufficiently within one hundred
eighty (180) days after such fire or other casualty so that Tenant
can commence to refixture the Leased Premises for the use thereof
as originally contemplated by this Lease, then Tenant shall have
the right to terminate this Lease by giving Landlord written
notice thereof within thirty days of the end of such period, and
thereupon the Lease Term shall expire by lapse of time upon the
thirty days after such notice is given, and Tenant shall thereupon
vacate the Leased Premises and surrender the same to Landlord.
Upon the termination of this Lease under the conditions
hereinbefore provided, Tenant's liability for Minimum Annual Rent
3~and Additional Rent shall cease as of the day following the
casualty.
- 25 -<PAGE>
(c) Lender's Approval. Notwithstanding anything to the
contrary in this Section or in any other provision of this Lease,
any obligation (under this Lease or otherwise) of Landlord to
restore all or any portion of the Leased Premises shall be subject
to Landlord's receipt of approval of the same by the mortgagee(s)
of Landlord (and any other approvals required by applicable laws),
as well as receipt from any such mortgagee(s) of such fire and
other hazard insurance policy proceeds as may have been assigned
to any such mortgagee; it being agreed that if Landlord has not
received such approval(s) and proceeds within one hundred and
eighty (180) days after any such casualty, then Landlord shall
have the option to terminate this Lease, at any time thereafter,
by notice to Tenant. Landlord shall diligently pursue the receipt
of all approvals and insurance policy proceeds which are described
in this Section 20(c).
21. Condemnation. In the event the whole or a "substantial
part" (as hereinafter defined) of the Leased Premises 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 said authority to
prevent such taking (collectively referred to herein as a
"taking"), this Lease shall terminate effective as of the date
possession is required to be surrendered to said authority, and
the Minimum Annual Rent and Additional Rent shall be apportioned
as of the date. For purposes of this Section, a "substantial
part" of the Leased Premises shall be considered to have been
taken if access to or fifty percent (50%) or more of the Leased
Premises or any material part which is necessary to continue
manufacturing in accordance with F.D.A. licensing requirements is
taken or condemned. Tenant shall not assert any claim against
Landlord or the taking authority for any compensation arising out
of or related to such taking and Landlord shall be entitled to
receive the entire amount of any award without deduction for any
estate or interest of Tenant; provided, however, that nothing
contained in this section shall be deemed to give Landlord any
interest in any award made to Tenant for the taking of personal
property and fixtures belonging to Tenant or for Tenant's moving
expenses, as long as such award is made in addition to and
separately stated from any award made to Landlord for the Leased
Premises and the Property. If less than fifty percent (50%) of
the Leased Premises is so taken, the Lease shall continue to be in
full force and effect, and the Minimum Annual Rent and Additional
Rent shall be adjusted (based on the ratio that the number of
square feet of rentable area taken from the Leased Premises bears
to the number of rentable square feet in the Leased Premises
immediately prior to such taking) as of the date possession is
required to be surrendered to said authority; provided, however,
Landlord shall have the right to determine that the Leased
Premises should be demolished and not rebuilt, in which event
Landlord may, within ninety (90) days after such decision, and
thereupon the Lease Term shall expire by lapse of time upon the
third day after such notice is given, and Tenant shall thereupon
vacate the Leased Premises and surrender the same to Landlord. In
- 26 -<PAGE>
the event that the Lease remains in full force and effect in
accordance with the terms described above, Landlord shall be
obligated to repair and restore the Leased Premises to usable
condition by Tenant, and such repair shall be a condition
precedent to the continued effectiveness of this Lease. Landlord
shall have no obligation to contest any taking.
22. Landlord's Liability. Landlord, or its agents, shall
not be liable for any injury or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain, or leaks from any part of the Leased
Premises, or from the pipes, conduits, appliances or plumbing
works, or by dampness or by any other cause of whatsoever nature,
unless caused by or due to the gross negligence of Landlord, its
agents, servants, or employees. All personal property and
equipment located in the Leased Premises shall be at the risk of
Tenant.
23. Tenant's and Landlord's Liability. Tenant shall
reimburse Landlord for all expense, damage or fines, incurred or
suffered by Landlord by reason of any breach, violation or
nonperformance by Tenant, or its agents, servants, or employees,
of any covenant or provision of this Lease or the Rules and
Regulations promulgated by Landlord hereunder from time to time,
or by reason of damage to persons or property caused by moving
property of or for Tenant in or out of the Property, or by the
installation or removal of furniture or other property of or for
Tenant, or by reason of or arising out of the carelessness,
negligence or improper conduct of Tenant, or its agents, servants,
employees, invitees or licensees in the use or occupancy of the
Leased Premises or the common areas of the Property. Landlord
shall reimburse Tenant for all expenses, damages or fines,
incurred or suffered by Tenant by reason of any breach, violation
or nonperformance by Landlord, or its agents, servants, or
employees, of any covenant or provision of this Lease, or by
reason of or arising out of the carelessness, negligence or
improper conduct of Landlord, or its agents, servants, employees,
invitees or licensees.
24. Indemnity.
(a) By Tenant. Tenant shall indemnify and defend
Landlord and its agents and employees and save them harmless from
and against any and all claims, actions, damages, liabilities and
expense in connection with loss of life, personal injury and/or
damage to property arising from or out of, the occupancy or use by
Tenant of the Leased Premises or any part thereof, or occasioned
wholly or in part by any act or omission of the Tenant, its
agents, contractors, employees, servants, invitees or licensees,
whether inside the Leased Premises or elsewhere in the Property.
(b) By Landlord. Landlord shall indemnify and defend
Tenant and its agents and employees to save them harmless from and
against any and all claims, actions, damages, liabilities and
expense in connection with loss of life, personal injury and/or
- 27 -<PAGE>
damage to property occasioned wholly or in part by any act or
omission of the Landlord, its agents, contractors, employees,
servants, invitees or licensees, whether inside the Leased
Premises or elsewhere in the Property.
25. Tenant's Insurance.
(a) Coverages. Tenant shall have issued, pay the
premiums therefor, and maintain in full force and effect during
the Lease Term and any option period:
(i) Comprehensive Liability. A commercial general
liability insurance policy or policies in
which the Landlord and Landlord's Mortgagee(s)
(and such additional persons and/or entities
as Landlord may request) and Tenant shall be
the insured, protecting the Landlord and
Landlord's mortgagee(s) (and such additional
persons and/or entities as Landlord may
request) and Tenant in the amount of at least
Three Million and No/100 Dollars
($3,000,000.00) combined, single limit
coverage for bodily injury, including death,
or property damage, which amount may be
increased from time to time by Landlord in its
reasonable determination;
(ii) All-Risk Casualty. All-risk casualty
insurance, naming Landlord (and such
additional persons and/or entities as Landlord
may request) and Tenant as insureds (as their
interests may appear); written at replacement
cost value and with replacement cost
endorsement, covering all leasehold
improvements installed in the Leased Premises
by Tenant or at Tenant's request and all of
Tenant's personal property in the Leased
Premises (including, without limitation,
inventory, trade fixtures, floor coverings,
furniture and other property removable by
Tenant under the provisions of this Lease).
(iii) Workers' Compensation. If and to the extent
required by law, workers' compensation and
employer's liability or similar insurance in
form and amounts required by law.
(b) Policy Requirements. Tenant's failure to provide
such insurance or failure to pay the premiums when due, shall be
deemed a default hereunder. Any monies expended by Landlord to
cure said default shall be deemed Additional Rent and shall be due
and owing with Tenant's next payment of Basic Monthly Rent. All
such policies shall contain only such reasonable deductible
amounts as may be provided in advance by Landlord and shall
- 28 -<PAGE>
contain a provision that Landlord shall receive not less than
thirty (30) days advance notice in writing from the insurance
company of any intention of the insurance company to cancel such
policy or policies. Tenant shall provide written evidence to
Landlord of its acquisition of such policies prior to the
commencement of this Lease and prior to any renewal date of such
policies. All policies shall be carried with a reputable
insurance company qualified to do business in the State of
Maryland and rated not lower than A-XII in the A.M. Best Rating
Guide.
(c) No Limitation of Liability. Neither the issuance
of any insurance policy required under this Lease nor the minimum
limits specified herein shall be deemed to limit or restrict in
any way Tenant's liability arising under or out of this Lease.
26. Waiver of Subrogation. Landlord and Tenant mutually
covenant and agree that each party, in connection with insurance
policies required to be furnished in accordance with the terms and
conditions of this Lease, or in connection with insurance policies
which they obtain insuring such insurable interest as Landlord or
Tenant may have in its own properties, whether personal or real,
shall expressly waive any right of subrogation on the part of the
insurer against the Landlord (and any mortgagee requested by
Landlord) or Tenant as the same may be applicable, which right to
the extent not prohibited or violative of any policy is hereby
expressly waived, and Landlord and Tenant each mutually waive all
right of recovery against each other, their agents, or employees
for any loss, damage or injury of any nature whatsoever to
property or person for which either party carries insurance or is
required by this Lease to carry insurance.
27. No Liens Permitted; Discharged. Tenant will not permit
to be created or to remain undischarged any lien, encumbrance or
charge (arising out of any work done or materials or supplies
furnished, or claimed to have been done or furnished, by any
contractor, mechanic, laborer or materialman or any mortgage,
conditional sale, security agreement or chattel mortgage, or
otherwise by or for Tenant) which might be or become a lien or
encumbrance or charge upon the Property or any part thereof or the
income therefrom. If any lien, or notice of lien on account of an
alleged debt of Tenant or any notice of contract by a party
engaged by Tenant or Tenant's contractor to work on the Leased
Premises shall be filed against the Property or any part thereof,
Tenant, within thirty (30) days after notice of the filing
thereof, will cause the same to be discharged of record by
payment, deposit, bond, order of a court of competent jurisdiction
or otherwise. If Tenant shall fail to cause such lien or notice
of lien to be discharged within the period aforesaid, then, in
addition to any other right or remedy, Landlord may, but shall not
be obligated to, discharge the same either by paying the amounts
claimed to be due or by procuring the discharge of such lien by
deposit or by bonding proceedings and in any such event Landlord
shall be entitled, if Landlord so elects, to compel the
- 29 -<PAGE>
prosecution of an action for the foreclosure of such lien by the
lienor and to pay the amount of the judgment in favor of the
lienor with interest, costs and allowances. Any amount so paid by
Landlord and all reasonable costs and expenses, including
attorneys' fees, incurred by Landlord in connection therewith,
shall constitute Additional Rent payable by Tenant under this
Lease and shall be paid by Tenant to Landlord on demand. Nothing
herein contained shall obligate Tenant to pay or discharge any
lien created by Landlord.
28. Signs, Awnings and Canopies. Tenant may place or suffer
to be placed or maintained on the exterior of the Leased Premises
any sign, awning or canopy, or other written matter of any kind,
provided that any such sign, awning, canopy or written matter is
in compliance with the applicable federal, state and/or country
regulations. Tenant further agrees to maintain in good condition
and repair at all times such sign, awning, canopy, decoration,
lettering, or written mater as may be approved.
29. Environmental Protection. Tenant and Tenant's employees
and agents shall not dispose of any oil, petroleum or chemical
liquids or solids, liquid or gaseous products or any hazardous
waste or hazardous substance including, without limitation,
asbestos (hereinafter collectively referred to as "hazardous
waste"), as those terms are used in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980,
or in any other federal, state or local law governing hazardous
substances, as such laws may be amended from time to time
(hereinafter collectively referred to as the "Act"), at, upon,
under or within the Leased Premises or the Property, or into the
plumbing or sewer or water system servicing the Leased Premises
and/or the Property, nor shall Tenant, its agents or employees
cause or permit the discharge, spillage, uncontrolled loss,
seepage or filtration of any hazardous waste at, upon, under or
within the Leased Premises of the Property or into the plumbing or
sewer or water system servicing the same. Notwithstanding the
foregoing, Landlord acknowledges that the use which Tenant
contemplates for the Leased Premises involves the use, storage,
and disposal of materials which are defined herein as hazardous
waste, and Tenant shall have the right to maintain such materials
on the Leased Premises so long as they are used, stored and
disposed of in accordance with the Act. Tenant shall comply in
all respects with the requirements of the Act and related
regulations, and shall notify Landlord immediately in the event of
its discovery of any hazardous waste at, upon, under or within the
Leased Premises or the Property which has not been used, stored or
disposed of in accordance with the Act. Tenant shall advise
Landlord, in writing, of the identities of hazardous wastes being
used and stored in the Leased Premises promptly upon written
request from Landlord, but in no event less frequently than once
every twelve (12) months. Tenant shall indemnify Landlord against
all costs, expenses, liabilities, losses, damages, injunctions,
suits, fines, penalties, claims, and demands, including reasonable
attorneys' fees, arising out of any violation of or default by
- 30 -<PAGE>
Tenant, and its employees and agents, in the covenants of this
Section. The provisions of this Section shall survive the
expiration of the Lease Term.
30. Notices. All notices to be given under this Lease shall
be in writing and either (i) hand-delivered, (ii) sent by Federal
Express (or other nationally recognized, overnight mail courier
service), (iii) or mailed by United States Certified or Registered
Mail, return receipt requested, postage prepaid. Notices should
be delivered as follows:
(a) To Landlord to the attention of President at the
business and mailing address stated on page 1 of
this Lease.
(b) To Tenant to the attention of President, at the
business and mailing address stated on page 1 of
this Lease.
With a copy to: Donovan, Leisure, Newton & Irvine
30 Rockefeller Plaza
New York, NY 10112
Attn: William J.T. Brown, Esq.
Any such notice shall be deemed to be received on the date it is
hand-delivered or delivered by Federal Express (or other
nationally recognized, overnight mail courier service), or on the
third day after the date on which it is deposited in the U.S.
mails. Landlord and Tenant shall each have the right to change
the person and/or address to which notices shall be delivered upon
notice thereof to the other parties sent pursuant to the
provisions of this paragraph.
31. Time. Except as expressly set forth herein to the
contrary, Landlord and Tenant acknowledge that time is of the
essence in the performance of any and all obligations, terms, and
provisions of this Lease.
32. Postponement of Performance. In the event that either
party hereto shall be delayed or hindered in or prevented from the
performance of any act required hereunder by reason of strikes,
labor troubles, inability to procure labor or materials, failure
of power, restrictive governmental laws or regulations, riots,
insurrection, war, acts of God, fire or other casualty or other
reason of a similar or dissimilar nature beyond the reasonable
control of the party delayed in performing work or doing acts
required under the terms of this Lease, then performance of such
act shall be excused for the period of the delay and the period
for the performance of any such act shall be extended for a period
equivalent to the period of such delay; provided, however that
nothing in this section shall excuse any delay in the payment of
Minimum Annual Rent or Additional Rent; and provided, further,
that delays or failures to perform resulting from lack of funds
- 31 -<PAGE>
shall not be deemed delays beyond the reasonable control of a
party. Nothing contained herein shall be construed to limit the
provisions concerning the abatement of Minimum Annual Rent and
Additional Rent resulting from fire and casualty damage or from
condemnation damage to the Leased Premises as more fully described
in Sections 20 and 21 hereof.
33. Brokers. Landlord and Tenant represent and warrant each
to the other that neither has authorized any broker, agent or
finder purporting to act on either's behalf in respect to this
Lease transaction, and each hereby agree to indemnify and hold
harmless one from the other from and against any cost, expense,
claims, liability or damage resulting from a breach of the
representation and warranty herein contained.
34. No Waiver. No waiver by Landlord or Tenant of any
breach of any of the terms, convenants, agreements, or conditions
of this Lease shall be deemed to constitute a waiver of any
succeeding breach thereof, or a waiver of any breach of any of the
other terms, convenants, agreements, and conditions herein
contained. No provision of this Lease shall be deemed to have
been waived by Landlord or Tenant, unless such waiver be in
writing signed by such party. No employee of Landlord or of
Landlord's agents shall have any authority to accept the keys of
the Leased Premises prior to termination of the Lease, and the
delivery of keys to any employee of Landlord or Landlord's agents
shall not operate as a termination of the Lease or a surrender of
the Leased Premises. The receipt by Landlord of any payment of
the Minimum Annual Rent or Additional Rent with knowledge of the
breach of any covenant of the Lease shall not be deemed a waiver
of such breach. The failure of Landlord to enforce any of the
Rules and Regulations, hereafter adopted, against Tenant or any
other tenant in the Property shall not be deemed a waiver of any
such Rules and Regulations.
35. Amendments. This Lease and the Exhibits attached
hereto, together with the terms and conditions of that certain
Stock Purchase Agreement between Landlord, Tenant and Cambridge
Biotech Corporation, debtor, contain the entire agreement between
the parties pertaining to the subject matter hereof, and any
agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment in whole or in part unless such
agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment
is sought.
36. Applicable Law. The laws of the State of Maryland shall
govern the validity, performance and enforcement of this Lease.
37. Transfer of the Property. In the event of the sale or
other transfer of landlord's right, title and interest in the
Leased Premises or the Property, Landlord shall transfer and
assign to such purchaser or transferee all amounts of pre-paid
Minimum Annual Rent and Additional Rent, and provided that the
- 32 -<PAGE>
purchaser or transferee shall assume all of the surviving
liabilities and obligations of Landlord hereunder accruing after
the consummation of such sale or transfer, Landlord thereupon
shall be released from all liability and obligations hereunder
derived from this Lease arising out of any act, occurrence or
omission relating to the Leased Premises or this Lease occurring
after the consummation of such sale or transfer. Tenant shall
have no right to terminate this Lease, to abate Minimum Annual
Rent or Additional Rent, nor to deduct from, nor set-off, nor
counterclaim against Minimum Annual Rent or Additional Rent
because of any sale or transfer (including, without limitation,
any sale-leaseback) by Landlord or its successors or assigns.
38. Option to Purchase. At any time during the term hereof,
provided that Tenant is not then in default hereof and provided
further that Tenant, or a permitted assignee (which is a related
party to Tenant pursuant to the provisions of Section 14 hereof)
shall then occupy the Leased Premises, Tenant shall have the
option to purchase the Property (subject only to the rights of the
tenant under the BTRL Lease as to Parcel 1) at the then Fair
Market Value (the "FMV") as of the date of the exercise of the
option (subject to the provisions of the next succeeding
paragraph). Tenant shall exercise this option by giving written
notice to Landlord, setting forth its determination of the FMV.
In the event Landlord does not agree with this determination, then
the FMV shall be determined by independent appraisal in the same
manner as is set forth in Section 3(b) hereof for determining Fair
Rental Value, provided that such appraisal shall take into account
the remaining terms of any leases then encumbering the Property,
including this Lease, without regard to the effect, if any, of any
merger or termination thereof which may result from the exercise
of this Option.
Landlord shall satisfy and discharge of record any mortgage
on the Property and deliver a warranty deed in the customary form,
subject only to such encumbrances as the Property is subject to on
the date hereof as set forth on Exhibit A, liens for taxes not yet
due and payable and such additional encumbrances (not including
mortgage or liens) as do not materially interfere with the use of
the Property as contemplated by this Lease, and Tenant shall pay
the consideration no later than sixty (60) days from the receipt
of the notice of option, or, in the event the appraisal process is
required, and within ten (10) days of such determination Tenant
confirms its intention to buy at the FMV as so determined, within
thirty (30) days from the date of determination of the FMV. In
the event the Property shall be encumbered by a mortgage(s) (the
"Mortgage") held by an institutional lender(s) which shall have a
balance in excess of the FMV (the "Excess Balance"), in order to
exercise the option Tenant shall pay in addition to the FMV an
amount equal to the lesser of (i) Excess Balance or (ii) the
amount by which 80% of FMV determined as of the date the Mortgage
was granted exceeds FMV at the time the option is exercised;
provided, however, that if any mortgage encumbering the Property
at the date hereof continues to encumber the Property at the date
- 33 -<PAGE>
of exercise of this option the sum of FMV and any amount paid
pursuant to subsection (i) or (ii) above shall in no event be less
than the amount necessary to discharge such mortgage (without
regard to any mortgage subsequently attaching). There shall not
be taken into account for the purposes of this calculation a
Mortgage which encumbers property in addition to the Property
unless Tenant shall have consented in writing to an allocation to
the Property of a portion of the Mortgage encumbering such
additional property.
39. Option on Additional Space. Tenant shall have the
option to lease the additional space currently leased to BTRL
contracts and Services, Inc. pursuant to a lease dated June 30,
1992 (the "BTRL Lease") upon the expiration or sooner termination
of the BTRL Lease, provided that Tenant shall give written notice
to Landlord of its election to exercise such option no later than
180 days prior to the expiration date of the BTRL Lease or within
sixty (60) days after written notice of the sooner termination of
the BTRL Lease, at a rental rate equal to the then-prevailing
square-foot rental rate under this Lease and otherwise on the
terms and conditions set forth herein. This Lease shall be
amended to add the space demised under the BTRL Lease upon the
exercise of the option.
40. Procedure to Require Purchase or Termination of Option.
If at any time during the term of this Lease, Landlord shall
receive a bona fide offer to purchase the Property from a third
party, which offer Landlord desires to accept, Landlord shall
promptly deliver to Tenant a copy of such offer. Tenant may,
within thirty (30) days after receipt of such offer, elect to
purchase the Property on the same terms and conditions as set
forth in such offer by delivery to Landlord of written notice of
said exercise. In the event Tenant does not so elect to purchase,
Landlord shall be free to sell the Property to the third party
offeror on terms and conditions which are substantially the same
as set forth in the offer, in no material respect less favorable
to the Landlord, and subject to the terms of this Lease except
that Tenant's Option to Purchase shall be extinguished. In the
event the third party sale is not consummated, the Option to
Purchase shall remain in effect.
41. Waiver of Counterclaim and Trial by Jury/Attorneys Fees.
Landlord and Tenant waive their right to trial by jury in any
action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or
property damage) on any matters whatsoever arising out of or in
any way connected with this Lease, the relationship of Landlord
and Tenant, Tenant's use of or occupancy of the Lease Premises,
and any emergency statutory or any other statutory remedy. Tenant
shall not interpose any counterclaim(s) or claim(s) for set-off,
recoupment or deduction of Minimum Annual Rent or Additional Rent
in a summary proceeding for nonpayment of Minimum Annual Rent or
Additional Rent, unless such counterclaim is mandatory in nature
and must be interposed in such summary proceeding against the
- 34 -<PAGE>
other to enforce the terms and conditions of this Lease, the
prevailing party shall be entitled to recover all reasonable
attorneys fees and costs incurred as a result thereof.
42. Separability. If any term or provision of this Lease or
the application thereof to any person or circumstances shall, to
any extent, be invalid or unenforceable, the remainder of this
Lease or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each other term
and provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
43. Corporate Authority. Concurrently with the execution of
this Lease, Tenant has delivered to Landlord a certified copy of a
resolution of Tenant's Board of Directors (or other evidence
reasonably satisfactory to Landlord) approving the leasing of the
Leased Premises by Tenant pursuant to the terms and conditions
contained herein, stating that this Lease if fully binding upon
Tenant, and authorizing the execution of this Lease by each person
signing this Lease on behalf of Tenant.
44. Interpretation.
(a) Captions. The captions, marginal references,
General Information sheet, and table of contents appearing in this
Lease are inserted only as a matter of convenience and in no way
amplify, define, limit, construe, or describe the scope or intent
of this Lease nor in any way affect this Lease.
(b) Gender. The Neuter, feminine or masculine pronoun
when used herein shall each include each of the other genders and
the use of the singular shall include the plural.
(c) Covenants. The parties hereto agree that all the
provisions of this Lease are to be construed as covenants and
agreements as though the words importing such covenants and
agreements were used in each separate provision hereof.
(d) Interpretation. The provisions of this Lease
although initially drawn by Landlord were negotiated between the
parties, and this Lease shall not be construed for or against
Landlord or Tenant, but this Lease shall be interpreted in
accordance with the general tenor of the language in an effort to
reach the intended result.
45. Landlord's Agreement re: Contract of Sale of the
Property. Landlord agrees that, during the Lease Term and prior
to its execution of any contract for the sale of the Property to a
prospective purchaser, it shall give written notice of the
existence of this Lease and Tenant's occupancy rights in and to
the Lease Premises (together with a copy of this Lease), to any
such prospective purchaser of the Property.
- 35 -<PAGE>
46. Reasonableness of Expenses. Wherever it is required by
the terms of this Lease that one party reimburse the other party
for costs and expenses incurred in connection with the performance
of an obligation or the exercise of a right described herein,
unless expressly stated otherwise, all costs and expenses for
which such reimbursement is sought shall be reasonable in amount
and nature, as determined in accordance with local standards of
commercial reasonableness in the District of Columbia metropolitan
area.
47. Limits of Landlord's Liability. In the event that any
mortgagee or holder of a deed of trust or other security interest
in the Property shall foreclose on the Property or accept a deed
in lieu of foreclosure as a result of the failure of Landlord to
pay any debt secured by the Property, then, thereafter, neither
the owner of the Property, as Landlord, nor its agents, employees
or officers, whether disclosed or undisclosed, shall have any
personal liability under any provision of this Lease, and if such
a subsequent owner of the Property, as Landlord, defaults in the
performance of any of its obligations hereunder or otherwise,
Tenant shall look solely to Landlord's equity, interest and rights
in the Property for satisfaction of Tenant's remedies on account
thereof.
48. Binding Effect. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto, and the
heirs, personal representatives, successors and assigns of said
parties.
49. Recording. Landlord and Tenant agree that, at the
request of either, each will execute a short form of this Lease in
form satisfactory for recording in the office of the Montgomery
County Clerk.
- 36 -<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed,
sealed, and delivered this Lease, or have caused same to be
executed, sealed and delivered by their duly authorized attorney-
in-fact, as of the day and year above written.
WITNESS/ATTEST: AQUILA BIOPHARMACEUTICALS, INC.
/s/ Marie-Elissa Boisvert By:_/s/ Alison Taunton-Rigby___
President
Date of Execution: October 22, 1996
WITNESS/ATTEST: BIOMERIEUX VITEK, INC.
/s/ Johannes Burlin __ By: /s/ Philippe Archinard___
President
Date of Execution: October 22, 1996
- 37 -<PAGE>
EXHIBIT A
DESCRIPTION OF PREMISES
1. Property as described in a Confirmatory Deed from Biotech
Research Laboratories, Inc. to CBC recorded September 7, 1990 in
Liber 9470 at folio 762 among the Land Records of Montgomery
County, Maryland commonly known as 3 and 3 Taft Court.
Subject to:
a. Ten (10) foot wide utility easement across the front of
the lot as shown on Plat recorded in Plat Book 102 at Plat 11503
among the Land Records of Montgomery County, Maryland.
b. Portion of a Twenty (20) foot utility easement along the
southwest line of the property as shown on Plat recorded in Plat
Book 102 at Plat 11503 among the Land Records of Montgomery
County, Maryland.
c. Portion of a Ten (10) foot utility easement on the
southeast line of the property as shown on Plat recorded in Plat
Book 102 at Plat 11503 among the Land Records of Montgomery
County, Maryland.
d. Portion of the "Fairway Easement", as shown along the
southeasterly line of the property as shown on Plat recorded in
Plat Book 102 at Plat 11503 among the Land Records of Montgomery
County, Maryland.
e. Twenty (20) foot slope grading easement along the front
of the property to terminate on completion and acceptance of all
public improvements by the proper Governmental Authority, as
dedicated by owner on Plat recorded in Plat Book 102 at Plat 11503
among the Land Records of Montgomery County, Maryland.
f. Right of Way to the Mayor and Council of Rockville,
recorded in Liber 6137 at Folio 845 among the Land Records of
Montgomery County, Maryland.
g. Lease Agreement between Cambridge Biotech Corporation, a
Delaware corporation, Landlord, and BTRL Contracts and Services,
Inc., a Massachusetts corporation, Tenant, dated June 30, 1992,
relating to building commonly known as 3 Taft Court.
2. Property as described in a Confirmatory Deed from Biotech
Research Laboratories, Inc. to CBC recorded September 7, 1990 in
Liber 9740 at Folio 758 among the Land Records of Montgomery
County, Maryland commonly known as 1500 East Gude Drive.
- A-1 -<PAGE>
Subject to:
a. Twenty-Five (25) foot access easement across Lot (9) to
benefit Lot (4) as shown on Plat recorded at Plat Book 114 at Plat
No. 13548 among the Land Records of Montgomery County, Maryland.
b. Thirty (30) foot Utility Easement as shown on Plat
recorded at Plat Book 114 at Plat No. 13548 among the Land Records
of Montgomery County, Maryland.
c. Right of Way to Chesapeake and Potomac Telephone Company
recorded in Liber 192 Folio 032.
d. Minimum Building Restriction Line per owner's dedication
on recorded plat.
e. Note on Plat, "The Access Easement for Lot 4 as recorded
in Liber 5489 at folio 570 and the Public Service Drive and
Utility Easement as recorded in Plat Book 100 at Plat 11185 are
abandoned by this plat, and the Easements shown hereon are created
by this Plat."
f. Effect of Note on Plat: "Upon dualization of Gude
Drive, left turns into this entrance will not be permitted."
g. Right of Way to Chesapeake and Potomac Telephone Company
recorded in Liber 248 Folio 054.
- A-2 -<PAGE>
- A-3 -
EXHIBIT 10.12
AQUILA BIOPHARMACEUTICALS, INC.
1996 STOCK AWARD AND OPTION PLAN
I. Purpose
This 1996 Stock Award and Option Plan is intended to be an
equity compensation plan which will advance the best interests of
Aquila Biopharmaceuticals, Inc. (the "Corporation") by providing
the Corporation's employees, officers, directors (if declared
eligible under Section 3), consultants and advisors with
additional incentives for performance which furthers the interest
and success of the Corporation.
II. Definitions
Whenever used in this Plan, the following terms will have the
indicated meanings:
Affiliate: Any person controlled by or under common control with
the Corporation or, as determined by the board, a person in which
the Corporation has a substantial direct or indirect equity
interest.
Award: Any award of Deferred Stock, Restricted Stock, Options,
Discounted Options, or Stock Appreciation Rights under this Plan.
Board. The Board of Directors of the Corporation.
Change of Control: Has the meaning specified in Section 17.2
hereof.
Code: The Internal Revenue Code of 1986, as amended, and any
successor statute.
Common Stock: The common stock of the Corporation, $0.01 par
value per share, or other class or kind of security as may be
applicable under Section 12.
Corporation: Aquila Biopharmaceuticals, Inc., a Delaware
corporation, and any successor to substantially all of its
business.
Committee: The body designated by the Board to administer this
Plan pursuant to Section 4.
Deferred Stock: Common Stock rights awarded pursuant to Section 6
of this Plan.
Discounted Options: Options granted pursuant to Section 1O of
this Plan.<PAGE>
Exchange Act: The Securities Exchange Act of 1934, as amended,
and any successor statute.
Exercise Value: Has the meaning specified in Section 9.2.
Fair Market Value:
(a) If the Corporation's Common Stock is publicly
traded (i) in the over-the-counter market and not on the
Nasdaq National Market nor on any national securities
exchange, the closing bid price of the Common Stock on the
trading day in question, as reported by Nasdaq or an
equivalent generally accepted reporting service, or (ii) on
the Nasdaq National Market or on a national securities
exchange, the closing sale price of the Common Stock on the
National Market or the principal national securities exchange
on which it is traded on the trading day in question. For
purposes of clause (i) above, if trading in the Common Stock
is not reported by Nasdaq, the bid price referred to in said
clause shall be the lowest bid price as reported in the "pink
sheets" published by National Quotation Bureau, Incorporated
or the NASD Electronic Bulletin Board. For purposes of
clause (ii) above, the closing price shall be the last
reported sale price on the trading day in question or, if no
reported sale took place on such day, the average of the
reported closing bid and asked prices on such day.
(b) If the Common Stock is not publicly traded, the
fair value of the Common Stock as determined in good faith by
the Board after taking into consideration all factors which
it deems appropriate, including without limitation recent
sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
Incentive Stock Option: Any Option granted under this Plan which
is intended to satisfy the requirements of an incentive stock
option as defined in Section 422 of the Internal Revenue Code of
1986, as amended.
Non-Employee Director: Has the meaning specified in Rule 16b-3.
Non-Qualified Option: Any Option granted under this Plan which is
not intended to be an Incentive Stock Option.
Option: An Option or options granted from time to time pursuant
to Section 8 of this Plan.
Parent Corporation: Has the meaning specified in Section 424(e)
of the Code.
Participant: Any person who becomes eligible to receive an Award
pursuant to the provisions of Section 3 of this Plan.<PAGE>
Plan: This 1996 Aquila Biopharmaceuticals, Inc. Stock Award and
Option Plan, as it may be amended from time to time.
Recipient: A Participant to whom an Award is made under the
provisions of this Plan.
Related Company: Any entity which is either (i) a Parent
Corporation or (ii) a Subsidiary Corporation.
Restricted Stock: Common Stock awarded pursuant to Section 7 of
this Plan.
Rule 16b-3: Rule 16b-3 under Section 16 of the Exchange Act, or
any successor rule promulgated by the Securities and Exchange
Commission pursuant thereto.
Stock Appreciation Rights or SAR: Rights awarded pursuant to
Section 9 of this Plan.
Subsidiary Corporation: Has the meaning specified in
Section 424(f) of the Code.
Ten Percent Stockholder: An individual who directly or indirectly
owns or possesses more than ten percent of the total combined
voting power of all classes of capital stock of the Corporation or
a Related Company.
III. Eligibility
A. Eligible Participants: The individuals who shall be
eligible to participate in the Plan shall be such employees,
officers, consultants and advisors of the Corporation, or of any
Related Company, as the Committee shall determine from time to
time; provided, however, that only employees of the Corporation or
of any Related Company shall be eligible to receive an Option
which is an Incentive Stock Option.
B. Eligibility of Directors: A director shall not be
eligible for selection as a person to whom an Award may be granted
under the Plan unless and until such director is expressly
declared eligible to participate in the Plan by action of the
Board or the Committee. Such initial declaration of eligibility
shall be prospective in nature and shall be for a period of
specific duration.
IV. Plan Administration
A. Administration: The Plan may be administered by a
committee of two or more Non-Employee Directors, but the fact that
one or more members of the Committee is not a Non-Employee
Director shall not affect the authority of the Committee to
administer this Plan, except as provided in Section 11 of this
Plan. The Board may, in its discretion, elect to administer the
Plan rather than delegating such task to the Committee, and, in<PAGE>
such case, references to the Committee herein shall be deemed to
include the Board acting in such capacity.
B. Administrative Powers: The Committee shall have the
power to interpret and administer the Plan and full authority to
act in selecting the Participants to whom awards will be granted,
in determining the type and amount of Award to be granted to each
such Participant, the terms and conditions of Awards granted under
the Plan, and the terms of agreements which will be entered into
with each Recipient. In determining individuals who are to
receive Awards, the Committee shall consider the individual's
position, responsibilities, service, accomplishments, present and
future value to the Corporation, the anticipated length of his
future service, and other relevant factors. The Committee shall
have the power to make regulations for carrying out the Plan and
to make changes in such regulations as it from time to time deems
proper. Any interpretation by the Committee of the terms and
provisions of the Plan and the administration thereof and all
action taken by the Committee, shall be final, binding and
conclusive on the Corporation, its stockholders, Affiliates, all
Participants, their respective legal representatives, successors
and assigns and upon all other persons claiming under or through
any of them.
C. Limitations on Liability: Members of the Committee
acting under the Plan shall be fully protected in relying in good
faith upon the advice of counsel and shall incur no liability
except for gross negligence or willful misconduct in the
performance of their duties.
V. Shares Subject to the Plan
A. Aggregate Number: Subject to adjustment as provided in
this Section 5 and in Section 12, the total number of shares of
Common Stock which shall be reserved by the Corporation and which
shall be available for issuance in the form of any stock based
Award (excluding Stock Appreciation Rights) under the Plan shall
be 2,000,000 shares of Common Stock in the aggregate. Shares of
Common Stock available for issuance under this Plan are available
for any stock based Award under this Plan. Shares of Common Stock
awarded under this Plan may consist, in whole or in part, of
authorized and unissued shares or of treasury shares. No more
than 2,000,000 Stock Appreciation Rights shall be available for
issuance under this Plan.
B. Adjustments: The number of shares of Common Stock
available under this Plan shall not be increased by the number of
shares subject to any Option or part thereof which shall have been
canceled as a result of the exercise of Stock Appreciation Rights
issued in tandem with such Option. In addition, the number of
shares and SARs available under this Plan shall be increased by
the number of shares or SARs with respect to which Awards are made
under this Plan by the assumption of or substitution for
outstanding grants of another company acquired<PAGE>
by the Corporation. If any shares subject to any Award granted
hereunder are forfeited or such Award otherwise terminates without
the issuance of such shares or of other consideration in lieu of
such shares, the shares subject to such Award, to the extent of
any such forfeiture or termination, shall again be available for
grant under this Plan except as provided in Section 9.3 with
respect to certain Stock Appreciation Rights. Notwithstanding
anything to the contrary in this Section 5.2, no more than the
aggregate number of shares and Stock Appreciation Rights provided
in Section 5.1 shall be available for issuance to under this Plan.
VI. Deferred Stock
The grant of Deferred Stock shall be upon the following rules
and conditions:
A. Deferred Stock Grants: Deferred Stock refers to the
grant of a present right to receive Common Stock at some future
date, subject to certain conditions or events. Deferred Stock
shall be evidenced by Deferred Stock agreements. Such agreements
shall conform to the requirements of the Plan and may contain such
other provisions (including, but not limited to, vesting and
forfeiture provisions or provisions for the protection of Deferred
Stock in the event of mergers, consolidations, dissolutions and
liquidation, affecting either the agreement or the stock issued
thereunder) as the Committee shall deem advisable at the time of
grant.
B. Crediting of Deferred Stock: Upon determination of the
number of shares of Deferred Stock to be granted to a Recipient,
the Committee shall direct that the same be credited to the
Recipient's account on the books of the Corporation, but that
issuance and delivery of the same shall be deferred until the date
or dates provided in Section 6.4 hereof. Prior to issuance and
delivery hereunder, the Recipient shall have no rights as a
stockholder with respect to any shares of Deferred Stock credited
to his or her account.
C. Payments Equivalent to Dividends: During the period
that shares of Deferred Stock remain credited to the account of a
Recipient and before their issuance and delivery, the Board may
determine that a Recipient shall have the right to receive
payments equivalent to dividends. In the event the Board
determines to pay the Recipient payments equivalent to dividends,
the Corporation shall pay to the Recipient as additional
compensation, on each date dividends on Common Stock are paid, a
sum of money equal to what would have been received if the shares
of Deferred Stock credited to the account of the Recipient had
been owned by him outright.
D. Delivery: Subject to the terms and conditions described
herein and contained in the Deferred Stock agreement, the shares
of Deferred Stock credited to the account of a<PAGE>
Recipient shall be issued and delivered to the Recipient in one or
more installments beginning with such date as the Committee may
determine. The Committee may, in its sole discretion, modify,
waive restrictions on, or accelerate the delivery of any shares of
Deferred Stock under such circumstances as it deems appropriate.
VII. Restricted Stock
The grant of Restricted Stock shall be upon the following
rules and conditions:
A. Restricted Stock Grants: Restricted Stock refers to
shares of Common Stock issued to the Recipient pursuant to a grant
hereunder which are subject to substantial restrictions on
transfer or are subject to forfeiture under certain circumstances.
The restrictions may lapse as a result of the passage of time, the
occurrence of certain events, or for other reasons. Restricted
Stock shall be evidenced by Restricted Stock agreements. Such
agreements shall conform to the requirements of the Plan and may
contain such other provisions (including, but not limited to,
forfeiture provisions for the protection of Restricted Stock in
the event of mergers, consolidations, dissolutions and
liquidation, affecting either the agreement or the stock issued
thereunder) as the Committee shall deem advisable at the time of
award of Restricted Stock grants.
B. Issuance of Restricted Stock: Upon determination of the
number of shares of Restricted Stock to be awarded to a Recipient,
the Committee shall direct that a certificate representing the
number of shares of Common Stock be issued to the Recipient as the
registered owner. The certificate representing such shares shall
either bear a legend as to restrictions on sale, transfer,
assignment, pledge or as to other encumbrances during the
restriction period, or be deposited by the Recipient, together
with a stock power endorsed in blank, with the Corporation.
C. Dividends and Voting Rights: During the restriction
period, the Recipient shall have the right to receive dividends
from, and to vote the shares of, Restricted Stock.
D. Delivery: The Restricted Stock agreement shall specify
the duration of the restriction period and the performance and/or
employment conditions under which the Restricted Stock may be
forfeited to the Corporation. At the end of the restricted period
the restrictions imposed hereunder shall lapse with respect to the
number of shares of Restricted Stock subject to that restriction
and the legend shall be removed or the shares delivered, as the
case may be, with respect to such number. The Committee may, in
its sole discretion, modify or accelerate the vesting of shares of
Restricted Stock.<PAGE>
VIII. Options
The Grant of Options shall be upon the following rules and
conditions:
A. Option Grants: Options shall be evidenced by Option
agreements. Such agreement shall conform to the requirements of
the Plan, and may contain such other provisions (including, but
not limited to, vesting provisions, restrictions upon the exercise
of the Option, or provisions for the protection of Options in the
event of mergers, consolidations, dissolutions, and liquidation
affecting either the agreement or the shares subject to such
Options) as the Committee shall deem advisable at the time of
grant.
B. Option Price: The price at which Common Stock may be
purchased upon exercise of an Option shall be determined by the
Committee, but shall not be less than the greater of the Fair
Market Value of such shares on the date the Option is granted or
the par value of such Common Stock. In the case of a Ten Percent
Stockholder, the price at which Common Stock may be purchased upon
the exercise of the Option intended to be an Incentive Stock
Option shall not be less than 110% of Fair Market Value of such
shares on the date of grant.
C. Terms of Options: The Option agreements shall specify
when an Option may be exercisable and the terms and conditions
applicable in the event of the Recipient's termination of
employment during the Option's term. In any case, no Incentive
Stock Option may be granted after 10 years from the Consummation
Date and the term of an Option which is an Incentive Stock Option
shall in no event be greater than 10 years. In the case of a Ten
Percent Stockholder, the term of an Incentive Stock Option shall
in no event be greater than 5 years.
D. Incentive Stock Options: Each provision of the Plan and
each Option agreement relating to an Option intended to be an
Incentive Stock Option shall be construed so that it will qualify
as an incentive stock option as defined in Section 422 of the Code
to the maximum extent possible. In no event may a Recipient be
granted Incentive Stock Options which do not comply with such
grant and vesting limitations as may be prescribed by the Code.
To the extent that the aggregate Fair Market Value of Common Stock
with respect to which Incentive Stock Options are exercisable for
the first time by any individual during any calendar year, under
all plans of the Corporation and any Parent or Subsidiary
Corporation, exceeds $100,000, such excess Options shall be
treated as Options which are not Incentive Stock Options.
E. Payment of Exercise Price: The exercise price of the
Option shall be paid as follows: (i) in full in cash at the time
of the exercise; (ii) with the consent of the Committee, in whole
or in part in Common Stock valued at Fair Market Value, whether<PAGE>
such Common Stock be (a) tendered by the Recipient or (b) withheld
by the Corporation pursuant to a request by the Recipient to have
part of the shares covered by the Option withheld in payment of
the exercise price; (iii) in whole or in part through the exercise
of an SAR; or (iv) by any other means determined by the Committee.
A Recipient shall have the rights of a stockholder with respect to
any shares subject to an Option from and after its exercise until
a certificate for such shares shall have been issued to him.
IX. Stock Appreciation Rights
The grant of Stock Appreciation Rights ("SARs") shall be
subject to the following rules and conditions:
A. Stock Appreciation Right Grants: Stock Appreciation
Rights are rights to receive a payment in cash, Common Stock,
Restricted Stock or Deferred Stock, as selected by the Committee.
These rights, which are determined by the appreciation in Common
Stock, shall be evidenced by Stock Appreciation Rights agreements.
Such agreements shall conform to the requirements of the Plan and
may contain such other provisions (including, but not limited to,
vesting and forfeiture provisions, or provisions for protection of
such SARs in the event of mergers, consolidations, dissolutions
and liquidation affecting either the agreement or the shares on
which the SARs are based) as the Committee shall deem advisable at
the time of grant. An SAR may be granted in tandem with all or a
portion of a related Option under the Plan ("Tandem SAR") or may
be granted separately ("Freestanding SAR"). A Tandem SAR may be
granted either at the time of the grant of the related Option or
at any time thereafter during the term of the related Option,
shall have a term equal to the remaining term of the related
Option, and shall be capable of being exercised only to the extent
that the related Option is capable of being exercised. In no
event shall a Freestanding SAR be exercisable within the first six
months of its grant, or in the case of a Tandem SAR within the
first six months of the grant of the related Option. In no event
shall the term of a Freestanding SAR exceed 5 years. The term of
a Freestanding SAR shall be set by the Committee at the time of
grant.
B. SAR Exercise Value: The Exercise Value of a Tandem SAR
shall be the exercise price under the related Option. The
Exercise Value of a Freestanding SAR shall not be less than 100%
of the Fair Market Value of the Common Stock, as determined by the
Committee, on the date of grant of the Freestanding SAP.
C. Exercise of SAR: A Tandem SAR and a Freestanding SAR
shall entitle the Recipient to receive a payment equal to the
excess of the Fair Market Value of the shares of Common Stock
covered by the SAR on the date of exercise over the exercise value
of the SAR. Notwithstanding the foregoing, at any time prior to
the exercise of the SAR, the Committee may unilaterally limit the
amount it will pay in excess of the Exercise Value on<PAGE>
account of the SAR. Such payment may be in cash, in shares of
Common Stock, Deferred Stock, Restricted Stock or any combination
as the Committee shall determine. As determined by the Committee
at the time of grant, a Tandem SAR may be issued either as an
irrevocable alternative to the exercise of the related Option, or
as a right to be automatically exercised in connection with the
exercise of the related Option. Upon exercise of a Tandem SAR
which is issued as an irrevocable alternative to the related
Option, the related Option shall be canceled automatically to the
extent of the number of shares covered by such exercise, and such
shares shall no longer be available for grant under this Plan.
Upon exercise of an Option with respect to which a Tandem SAR has
been issued as an irrevocable alternative to the Option, the
Tandem SAR shall be canceled automatically to the extent of the
number of shares covered by the exercise of the related Option and
such SARs shall no longer be available for grant under this Plan.
D. Terms of SAR: SARs shall be subject to the same terms
and conditions applicable to Options as stated in Section 8.3.
SARs shall also be subject to such other terms and conditions not
inconsistent with this Plan as shall be determined by the
Committee at the time of grant. Vesting of a Freestanding SAR
shall be determined by the Committee at the time of grant. Vesting
of a Tandem SAR shall be the same as the related Option.
X. Discounted Option
The grant of Discounted Options shall be subject to the
following rules and conditions:
A. Discounted Option Grant: Discounted Options shall be
evidenced by Discounted Option agreements. Such agreements shall
conform to the requirements of the plan, and may contain such
other provisions (including, but not limited to, vesting and
forfeiture provisions, restrictions upon the exercise of the
Discounted Option, or provisions for the protection of the
Discounted Option in the event of mergers, consolidations,
dissolutions and liquidation affecting either the agreements of
the shares subject to such Options) as the Committee shall deem
advisable at the time of grant. A Discounted Option can be
granted in order to allow a Participant to defer current
compensation (including director's fees) or as an additional
benefit to a Participant.
B. Discounted Option Price: The price at which Common
Stock may be purchased upon exercise of a Discounted Option shall
be a stated percentage of the Fair Market Value or as otherwise
determined by the Committee at the tine of grant. The price of a
Discounted Option at the discretion of the Committee, may include
a cost guarantee against a decline in the Fair Market Value of the
Shares subject to the Option where appropriate, or a provision
that the original discount shall be paid in cash, without
interest, if the Option expires unexercised.<PAGE>
C. Terms of Discounted Option: The Discounted Option
agreement shall specify when a Discounted Option may be
exercisable and the terms and conditions applicable in the event
of the termination of Recipient's employment or association with
the Corporation during the discounted Option term.
D. Payment of Discounted Option Exercise Price: The
exercise price of the Discounted Option shall be paid in full in
cash or, with the consent of the Committee, in whole or in part
with Common Stock valued at Fair Market Value. The Committee may
permit Common Stock used as payment to be (i) tendered by the
Recipient or (ii) withheld by the Corporation pursuant to an
election by the Recipient to have part of the shares covered by
the Option withheld in payment of the exercise price. A Recipient
shall have the rights of a stockholder with respect to any Shares
subject to a Discounted Option from and after its exercise until a
stock certificate for such shares shall have been received by him.
XI. Awards to Officers and Directors
A. General: Awards may be granted to officers or directors
of the Corporation only (i) if approved by the full Board, (ii) if
approved by, or only in accordance with the recommendations of a
committee of two or more Non-Employee Directors, (iii) if approved
by the stockholders of the Corporation before or after the grant
but not later than the date of the next annual meeting of
stockholders, or (iv) if the Award granted hereunder or received
upon exercise of any Award granted hereunder must by its terms be
held for at least six months from the date of grant.
B. Change of Rule: Notwithstanding Section 11.1, in the
event that Rule 16b-3 is further amended after August 15, 1996 the
Committee may, to the extent it determines appropriate, adopt any
different rules for administration of the Plan so that any Awards
to officers or directors will qualify for exemption under
Rule 16b-3.
XII. Adjustments Upon Changes in Capitalization
In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger,
consolidation or any other change in the corporate structure of
the Corporation affecting Common Stock, or a sale by the
Corporation of all or part of its assets, or any distribution to
stockholders other than a normal cash dividend, the Board shall
make appropriate adjustments in the number and kind of shares
authorized by the Plan and any adjustments to outstanding Awards
as it determines appropriate. No fractional shares of Common
Stock shall be issued pursuant to such an adjustment, however, and
the Fair Market Value of any fractional shares resulting from
adjustments pursuant to this section shall be paid in cash to the
Recipient.<PAGE>
XIII. Effective Date, Termination and Amendment
The Plan shall become effective on the Consummation Date
under the Plan of Reorganization of Cambridge Biotech Corporation
under Chapter 11 of the United States Bankruptcy Code confirmed by
the United States Bankruptcy Court for the District of
Massachusetts (Case No. 94-43054-JFQ). The Plan shall remain in
full force and effect until terminated by the Board, which shall
have the power to amend, suspend or terminate the Plan at any time
including, without limitation, the power to amend the Plan so as
to allow the Plan to conform to any exemption now available or to
become available under the provisions of the Rule or any
subsequent rule or regulation enacted in its place; provided, that
no such amendment shall be made without stockholder approval which
shall:
a. Increase (except as provided in Section 5 and
Section 12) the total number of shares available for issuance
pursuant to the Plan.
b. Change the class of person eligible to be
Recipients.
c. Decease the exercise price of Options stated in
Section 8 and Section 10 or the exercise value of the SARs
stated in Section 9.
d. Change the Plan in such a way as to require
stockholder approval of such change under Section 424 of the
Code.
XIV. Forfeiture
Awards may provide that they are forfeitable if the Recipient
terminates his or her employment with the Corporation or a Related
Company, for any reasons other than death or retirement, except
that the Committee shall have the authority to provide for their
continuation in whole or in part whenever in its judgment the
Committee shall determine that such continuation is in the best
interests of the Corporation. Awards may furthermore be forfeited
by a Recipient if the Committee determines that the Recipient is
at any time engaged in any activity harmful to the interest of, or
in competition with, the (Corporation or a Related Company or
accepts employment with a competitor.
XV. Non-Assignability
Awards of Incentive Stock Options may not be pledged,
assigned or transferred for any reason during the Recipient's
lifetime except pursuant to a qualified domestic relations order,
and any attempt to do so shall be void. The pledge, assignment or
transfer of any other Award may be restricted to the extent<PAGE>
determined by the Committee on a case-by-case basis in granting
any Award.
XVI. Beneficiary Upon Recipient's Death
In the event of the death of a Recipient, all of such
Recipient's interest in any Award shall pass to such Recipient's
personal representative, heir or distributee, which personal
representative, heir or distributee shall be subject to all of the
terms mad conditions of the Award.
XVII. Change of Control
A. Vesting: Notwithstanding any other provisions of the
Plan to the contrary, upon the occurrence of a Change of Control
(as defined below) the forfeitability provisions with respect to
any Awards, including Awards of Deferred Stock, Restricted Stock,
Options, Discounted Options or Stock Appreciation Rights, and any
restrictions on exercise of an Award resulting from termination of
employment, will lapse and such Awards shall be fully vested and
nonforfeitable. Upon the occurrence of a Change of Control, all
the restrictions on Restricted Stock shall lapse and be of no
effect and the Corporation shall deliver to the holder of such
shares certificates representing the number of shares and
securities on which restrictions have so lapsed, within 30 days of
the Change of Control. The replacement shares will only be
delivered upon tender by the holder of such certificates which may
have been previously delivered to the Recipient of Restricted
Stock bearing legends with respect to such restrictions.
B. Change of Control Defined: A "Change of Control" shall
be deemed to have occurred on the earlier of (i) the close of
business on the 10th day after the date of the first public
announcement (including a press release or a report filed pursuant
to Section 13(d) of the Exchange Act) by the Corporation or any
person that such person has become the owner of 20% or more of the
(Corporation's Voting Power or (ii) immediately prior to
consummation of a tender or exchange offer if, upon consummation
thereof, the person making such offer would become owner of 20% or
more of the Corporation's Voting Power. Notwithstanding the
foregoing, no person shall be considered to have become the owner
of 20% or more of the Voting Power merely as a result of
acquisitions of Common Stock by the Corporation which, by reducing
the number of shares outstanding, increased the proportionate
shares beneficially owned, directly or indirectly, by such person;
except that if such person becomes the owner of 20% or more of the
Voting Power in such manner, then the acquisition of any
additional shares by such person will be deemed to be a Change of
Control.
C. Other Definitions: For purposes of determining a Change
of Control, a "person" as used in this Section 17 shall not
include (i) the Corporation, (ii) any Affiliate of the
Corporation, (iii) any employee benefit plan of the Corporation<PAGE>
or of any Affiliate of the Corporation, or (iv) any entity or
person holding shares of Common Stock, organized, appointed or
established by the Corporation or any Affiliate for or pursuant to
the terms of any such plan.
For purposes of this Section 17, a Disinterested Director is
any person who is not (i) an employee of the Corporation or any
Affiliate, (ii) a person who owns 20% or more of the Voting Power
of the Corporation, or a representative or a nominee of such
person, or (iii) a person who becomes a member of the Board
subsequent to the date of this Plan, unless such person's
nomination is recommended or approved by a majority of directors
who are not described in (i) or (ii) above.
References herein to a person's Voting Power means the
beneficial ownership (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, by that person of securities
possessing the specified level of the combined voting power of all
the Corporation's then outstanding securities entitled to vote in
election of directors.
XVIII. General Provisions
A. No Employment: Nothing contained in the Plan or in any
Award granted pursuant to the Plan shall confer upon any Employee
any right with respect to continuance of employment by the
Corporation or an Affiliate, nor interfere in any way with the
right of the Corporation or an Affiliate to terminate the
employment of any employee at any time with or without assigning
any reason therefor.
B. Transfers: For purposes of this Plan, transfer of
employment between the Corporation and its Affiliates shall not be
deemed termination of employment.
C. Taxes: Appropriate provision may be made for all taxes
required to be withheld in connection with any Award, the exercise
thereof and the transfer of shares of Common Stock with respect of
any federal, state or local withholding taxes whether domestic or
foreign.
D. Business Days: If any day on or before which action
under the Plan must be taken falls on a Saturday, Sunday or legal
holiday, such action may be taken on the next succeeding day not a
Saturday, Sunday or legal holiday.
E. Foreign Participants: Without amending the Plan, Awards
may be granted to employees who are foreign nationals or employed
outside the United States or both, on such terms and conditions
different from those specified in the Plan as may, in the judgment
of the Committee, be necessary or desirable to further the purpose
of the Plan.<PAGE>
F. Governing Law: To the extent that federal laws (such as
the Exchange Act, the Code, or the Employee Retirement Income
Security Act of 1974) do not otherwise control, the Plan and all
determinations made and actions taken pursuant hereto shall be
governed by the law of Delaware and interpreted accordingly.
G. Amendment: The Committee may amend any outstanding
Awards to the extent it deems appropriate. Such amendment may be
unilateral by the Committee, except in the case of amendments
adverse to the Recipient, in which case the Recipient's consent is
required to any such amendment. The Committee may permit a
Recipient to exchange rights of any kind awarded hereunder for
other rights hereunder at any time. Incentive Stock Options
awarded hereunder may be converted to Non-Qualified Options upon
approval of the Committee. The Committee may grant Awards under
this plan to evidence the assumption by the Corporation of, and in
substitution for, outstanding grants from an acquired company.
Approved by the Board of Directors: October 28, 1996
EXHIBIT 10.13
AQUILA BIOPHARMACEUTICALS, INC.
1996 DIRECTORS STOCK AWARD AND OPTION PLAN
I. Purpose
This 1996 Stock Award and Option Plan is intended to be an
equity compensation plan which will advance the best interests of
Aquila Biopharmaceuticals, Inc. (the "Corporation") by providing
the Corporation's directors with additional incentives for
performance which furthers the interest and success of the
Corporation.
II. Definitions
Whenever used in this Plan, the following terms will have the
indicated meanings:
Affiliate: Any person controlled by or under common control with
the Corporation or, as determined by the board, a person in which
the Corporation has a substantial direct or indirect equity
interest.
Award: Any award of Deferred Stock, Restricted Stock, Options,
Discounted Options, or Stock Appreciation Rights under this Plan.
Board: The Board of Directors of the Corporation.
Change of Control: Has the meaning specified in Section 17.2
hereof.
Code: The Internal Revenue Code of 1986, as amended, and any
successor statute.
Common Stock: The common stock of the Corporation, $0.01 par
value per share, or other class or kind of security as may be
applicable under Section 12.
Corporation: Aquila Biopharmaceuticals, Inc., a Delaware
corporation, and any successor to substantially all of its
business.
Committee: The body designated by the Board to administer this
Plan pursuant to Section 4 hereof.
Deferred Stock: Common Stock rights awarded pursuant to Section 6
of this Plan.
Discounted Options: Options granted pursuant to Section 10 of
this Plan.<PAGE>
Effective Date: Has the meaning specified in Section 13 hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended,
and any successor statute.
Exercise Value: Has the meaning specified in Section 9.2 hereof.
Fair Market Value:
(a) If the Corporation's Common Stock is publicly
traded (i) in the over-the-counter market and not on the
Nasdaq National Market nor on any national securities
exchange, the closing bid price of the Common Stock on the
trading day in question, as reported by Nasdaq or an
equivalent generally accepted reporting service, or (ii) on
the Nasdaq National Market or on a national securities
exchange, the closing sale price of the Common Stock on the
National Market or the principal national securities exchange
on which it is traded on the trading day in question. For
purposes of clause (i) above, if trading in the Common Stock
is not reported by Nasdaq, the bid price referred to in said
clause shall be the lowest bid price as reported in the "pink
sheets" published by National Quotation Bureau, Incorporated
or the NASD Electronic Bulletin Board. For purposes of
clause (ii) above, the closing price shall be the last
reported sale price on the trading day in question or, if no
reported sale took place on such day, the average of the
reported closing bid and asked prices on such day.
(b) If the Common Stock is not publicly traded, the
fair value of the Common Stock as determined in good faith by
the Board after taking into consideration all factors which
it deems appropriate, including without limitation recent
sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
Incentive Stock Option: Any Option granted under this Plan which
is intended to satisfy the requirements of an incentive stock
option as defined in Section 422 of the Internal Revenue Code of
1986, as amended.
Non-Employee Director: Has the meaning specified in Rule 16b-3.
Non-Qualified Option: Any Option granted under this Plan which is
not intended to be an Incentive Stock Option.
Option: An Option or options granted from time to time pursuant
to Section 8 of this Plan.
Parent Corporation: Has the meaning specified in Section 424(e)
of the Code.<PAGE>
Participant: Any person who becomes eligible to receive an Award
pursuant to the provisions of Section 3 of this Plan.
Plan: This 1996 Aquila Biopharmaceuticals, Inc. Director Stock
Award and Option Plan, as it may be amended from time to time.
Recipient: A Participant to whom an Award is made under the
provisions of this Plan.
Related Company: Any entity which is either (i) a Parent
Corporation or (ii) a Subsidiary Corporation.
Restricted Stock: Common Stock awarded pursuant to Section 7 of
this Plan.
Rule 16b-3: Rule 16b-3 promulgated under Section 16 of the
Exchange Act, or any successor rule promulgated by the Securities
and Exchange Commission pursuant thereto.
Stock Appreciation Rights or SAR: Rights awarded pursuant to
Section 9 of this Plan.
Subsidiary Corporation. Has the meaning specified in Section
424(f) of the Code.
Ten Percent Stockholder: An individual who directly or indirectly
owns or possesses more than ten percent of the total combined
voting power of all classes of capital stock of the Corporation or
a Related Company.
III. Eligibility
A. Eligible Participants: The individuals who shall be
eligible to participate in the Plan shall be such directors of the
Corporation, or of any Related Company, as the Committee shall
determine from time to time; provided, however, that only
employees of the Corporation or of any Related Company shall be
eligible to receive an Option which is an Incentive Stock Option.
IV. Plan Administration
A. Administration: The Plan may be administered by a
committee of two or members of the Board of Directors who are
appointed by the Board. Each of the members of the Committee
shall be a Non-Employee Director. The Board may, in its
discretion, elect to administer the Plan rather than delegating
such task to the Committee, and, in such case, references to the
Committee herein shall be deemed to include the Board acting in
such capacity.
B. Administrative Powers: The Committee shall have the
power to interpret and administer the Plan and full authority to
act in selecting the Participants to whom awards will be granted,
in determining the type and amount of Award to be granted to each<PAGE>
such Participant, the terms and conditions of Awards granted under
the Plan and the terms of agreements which will be entered into
with each Recipient. In determining individuals who are to
receive Awards, the Committee shall consider the individual's
position, responsibilities, service, accomplishments, present and
future value to the Corporation, the anticipated length of his
future service, and other relevant factors. The Committee shall
have the power to make regulations for carrying out the Plan and
to make changes in such regulations as it from time to time deems
proper. Any interpretation by the Committee of the terms and
provisions of the Plan and the administration thereof and all
action taken by the Committee, shall be final, binding and
conclusive on the Corporation, its stockholders, Affiliates, all
Participants, their respective legal representatives, successors
and assigns and upon all other persons claiming under or through
any of them.
C. Limitations on Liability: Members of the Committee
acting under the Plan shall be fully protected in relying in good
faith upon the advice of counsel and shall incur no liability
except for gross negligence or willful misconduct in the
performance of their duties.
V. Shares Subject to the Plan
A. Aggregate Number: Subject to adjustment as provided in
this Section 5 and in Section 12, the total number of shares of
Common Stock which shall be reserved by the Corporation and which
shall be available for issuance in the form of any stock based
Award (excluding Stock Appreciation Rights) under the Plan shall
be 200,000 shares of Common Stock in the aggregate. Shares of
Common Stock available for issuance under this Plan are available
for any stock based Award under this Plan. Shares of Common Stock
awarded under this Plan may consist, in whole or in part, of
authorized and unissued shares or of treasury shares. No more
than 200,000 Stock Appreciation Rights shall be available for
issuance under this Plan.
B. Adjustments: The number of shares of Common Stock
available under this Plan shall not be increased by the number of
shares subject to any Option or part thereof which shall have been
canceled as a result of the exercise of Stock Appreciation Rights
issued in tandem with such Option. If any shares subject to any
Award granted hereunder are forfeited or such Award otherwise
terminates without the issuance of such shares or of other
consideration in lieu of such shares, the shares subject to such
Award, to the extent of any such forfeiture or termination, shall
again be available for grant under this Plan except as provided in
Section 9.3 with respect to certain Stock Appreciation Rights.
Notwithstanding anything to the contrary in this Section 5.2, no
more than the aggregate number of shares and Stock Appreciation
Rights provided in Section 5.1 shall be available for issuance to
under this Plan.<PAGE>
VI. Deferred Stock
The grant of Deferred Stock shall be upon the following rules
and conditions:
A. Deferred Stock Grants: Deferred Stock refers to the
grant of a present right to receive Common Stock at some future
date, subject to certain conditions or events. Deferred Stock
shall be evidenced by Deferred Stock agreements. Such agreements
shall conform to the requirements of the Plan and may contain such
other provisions (including, but not limited to, vesting and
forfeiture provisions or provisions for the protection of Deferred
Stock in the event of mergers, consolidations, dissolutions and
liquidation, affecting either the agreement or the stock issued
thereunder) as the Committee shall deem advisable at the time of
grant.
B. Crediting of Deferred Stock: Upon determination of the
number of shares of Deferred Stock to be granted to a Recipient,
the Committee shall direct that the same be credited to the
Recipient's account on the books of the Corporation, but that
issuance and delivery of the same shall be deferred until the date
or dates provided in Section 6.4 hereof. Prior to issuance and
delivery hereunder, the Recipient shall have no rights as a
stockholder with respect to any shares of Deferred Stock credited
to his or her account.
C. Payments Equivalent to Dividends: During the period
that shares of Deferred Stock remain credited to the account of a
Recipient and before their issuance and delivery, the Board may
determine that a Recipient shall have the right to receive
payments equivalent to dividends. In the event the Board
determines to pay the Recipient payments equivalent to dividends,
the Corporation shall pay to the Recipient as additional
compensation, on each date dividends on Common Stock are paid, a
sum of money equal to what would have been received if the shares
of Deferred Stock credited to the account of the Recipient had
been owned by him outright.
D. Delivery: Subject to the terms and conditions described
herein and contained in the Deferred Stock agreement, the shares
of Deferred Stock credited to the account of a Recipient shall be
issued and delivered to the Recipient in one or more installments
beginning with such date as the Committee may determine. The
Committee may, in its sole discretion, modify, waive restrictions
on, or accelerate the delivery of any shares of Deferred Stock
under such circumstances as it deems appropriate.
VII. Restricted Stock
The grant of Restricted Stock shall be upon the following
rules and conditions:<PAGE>
A. Restricted Stock Grants: Restricted Stock refers to
shares of Common Stock issued to the Recipient pursuant to a grant
hereunder which are subject to substantial restrictions on
transfer or are subject to forfeiture under certain circumstances.
The restrictions may lapse as a result of the passage of time, the
occurrence of certain events, or for other reasons. Restricted
Stock shall be evidenced by Restricted Stock agreements. Such
agreements shall conform to the requirements of the Plan and may
contain such other provisions (including, but not limited to,
forfeiture provisions for the protection of Restricted Stock in
the event of mergers, consolidations, dissolutions, and
liquidation, affecting either the agreement or the stock issued
thereunder) as the Committee shall deem advisable at the time of
award of Restricted Stock grants.
B. Issuance of Restricted Stock: Upon determination of the
number of shares of Restricted Stock to be awarded to a Recipient,
the Committee shall direct that a certificate representing the
number of shares of Common Stock be issued to the Recipient as the
registered owner. The certificate representing such shares shall
either bear a legend as to restrictions on sale, transfer,
assignment, pledge or as to other encumbrances during the
restriction period, or be deposited by the Recipient, together
with a stock power endorsed in blank, with the Corporation.
C. Dividends and Voting Rights: During the restriction
period, the Recipient shall have the right to receive dividends
from, and to vote the shares of, Restricted Stock.
D. Delivery: The Restricted Stock agreement shall specify
the duration of the restriction period and the performance and/or
employment conditions under which the Restricted Stock may be
forfeited to the Corporation. At the end of the restricted period
the restrictions imposed hereunder shall lapse with respect to the
number of shares of Restricted Stock subject to that restriction
and the legend shall be removed or the shares delivered, as the
case may be, with respect to such number. The Committee may, in
its sole discretion, modify or accelerate the vesting of shares of
Restricted Stock.
VIII. Options
The Grant of Options shall be upon the following rules and
conditions:
A. Option Grants: Options shall be evidenced by Option
agreements. Such agreement shall conform to the requirements of
the Plan, and may contain such other provisions (including, but
not limited to, vesting provisions, restrictions upon the exercise
of the Option, or provisions for the protection of Options in the
event of mergers, consolidations, dissolutions, and liquidation
affecting either the agreement or the shares<PAGE>
subject to such Options) as the Committee shall deem advisable at
the time of grant.
B. Option Price: The price at which Common Stock may be
purchased upon exercise of an Option shall be determined by the
Committee, but shall not be less than the greater of the Fair
Market Value of such shares on the date the Option is granted or
the par value of such Common Stock. In the case of a Ten Percent
Stockholder, the price at which Common Stock may be purchased upon
the exercise of the Option intended to be an Incentive Stock
Option shall not be less than 11O% of Fair Market Value of such
shares on the date of grant.
C. Terms of Options: The Option agreements shall specify
when an Option may be exercisable and the terms and conditions
applicable in the event of the Recipient's termination of
employment during the Option's term. In any case, no Incentive
Stock Option may be granted after 10 years from the Consummation
Date and the term of an Option which is an Incentive Stock Option
shall in no event be greater than 10 years. In the case of a Ten
Percent Stockholder, the term of an Incentive Stock Option shall
in no event be greater than 5 years.
D. Incentive Stock Options: Each provision of the Plan and
each Option agreement relating to an Option intended to be an
Incentive Stock Option shall be construed so that it will qualify
as an incentive stock option as defined in Section 422 of the Code
to the maximum extent possible. In no event may a Recipient be
granted Incentive Stock Options which do not comply with such
grant and vesting limitations as may be prescribed by the Code.
To the extent that the aggregate Fair Market Value of Common Stock
with respect to which Incentive Stock Options are exercisable for
the first time by any individual during any calendar year, under
all plans of the Corporation and any Parent or Subsidiary
Corporation, exceeds $100,000, such excess Options shall be
treated as Options which are not Incentive Stock Options.
E. Payment of Exercise Price: The exercise price of the
Option shall be paid as follows: (i) in full in cash at the time
of the exercise; (ii) with the consent of the Committee, in whole
or in part in Common Stock valued at Fair Market Value, whether
such Common Stock be (a) tendered by the Recipient or (b) withheld
by the Corporation pursuant to a request by the Recipient, to have
part of the shares covered by the Option withheld in payment of
the exercise price; (iii) in whole or in part through the exercise
of an SAR; or (iv) by any other means determined by the Committee.
A Recipient shall have the rights of a stockholder with respect to
any shares subject to an Option from and after its exercise until
a certificate for such shares shall have been issued to him.<PAGE>
IX. Stock Appreciation Rights
The grant of Stock Appreciation Rights ("SARs") shall be
subject to the following rules and conditions:
A. Stock Appreciation Right Grants: Stock Appreciation
Rights are rights to receive a payment in cash, Common Stock,
Restricted Stock or Deferred Stock, as selected by the Committee.
These rights, which are determined by the appreciation in Common
Stock, shall be evidenced by Stock Appreciation Rights agreements.
Such agreements shall conform to the requirements of the Plan and
may contain such other provisions (including, but not limited to,
vesting and forfeiture provisions, or provisions for protection of
such SARs in the event of mergers, consolidations, dissolutions
and liquidation affecting either the agreement or the shares on
which the SARs are based) as the Committee shall deem advisable at
the time of grant. An SAR may be granted in tandem with all or a
portion of a related Option under the Plan ("Tandem SAR") or may
be granted separately ("Freestanding SAR"). A Tandem SAR may be
granted either at the time of the grant of the related Option or
at any time thereafter during the term of the related Option,
shall have a term equal to the remaining term of the related
Option, and shall be capable of being exercised only to the extent
that the related Option is capable of being exercised. In no
event shall a Freestanding SAR be exercisable within the first six
months of its grant, or in the case of a Tandem SAR within the
first six months of the grant of the related Option. In no event
shall the term of a Freestanding SAR exceed 5 years. The term of
a Freestanding SAR shall be set by the Committee at the time of
grant.
B. SAR Exercise Value: The Exercise Value of a Tandem SAR
shall be the exercise price under the related Option. The
Exercise Value of a Freestanding SAR shall not be less than 100%
of the Fair Market Value of the Common Stock, as determined by the
Committee, on the date of grant of the Freestanding SAR.
C. Exercise of SAR: A Tandem SAR and a Freestanding SAR
shall entitle the Recipient to receive a payment equal to the
excess of the Fair Market Value of the shares of Common Stock
covered by the SAR on the date of exercise over the exercise value
of the SAR. Notwithstanding the foregoing, at any time prior to
the exercise of the SAR, the Committee may unilaterally limit the
amount it will pay in excess of the Exercise Value on account of
the SAR. Such payment may be in cash, in shares of Common Stock,
Deferred Stock, Restricted Stock or any combination as the
Committee shall determine. As determined by the Committee at the
time of grant, a Tandem SAR may be issued either as an irrevocable
alternative to the exercise of the related Option, or as a right
to be automatically exercised in connection with the exercise of
the related Option. Upon exercise of a Tandem SAR which is issued
as an irrevocable alternative to the related Option, the related
Option shall be canceled automatically to the extent of the number
of shares covered by such exercise, and such<PAGE>
shares shall no longer be available for grant under this Plan.
Upon exercise of a Option with respect to which a Tandem SAR has
been issued as an irrevocable alternative to the Option. The
Tandem SAR shall be canceled automatically to the extent of the
number of shares covered by the exercise of the related Option and
such SARs shall no longer be available for grant under this Plan.
D. Terms of SAR: SARs shall be subject to the same terms
and conditions applicable to Options as stated in Section 8.3.
SARs shall also be subject to such other terms and conditions not
inconsistent with this Plan as shall be determined by the
Committee at the time of grant. Vesting of a Freestanding SAR
shall be determined by the Committee at the time of grant. Vesting
of a Tandem SAR shall be the same as the related Option.
X. Discounted Options
The grant of Discounted Options shall be subject to the
following rules and conditions:
A. Discounted Option Grant: Discounted Options shall be
evidenced by Discounted Option agreements. Such agreements shall
conform to the requirements of the plan, and may contain such
other provisions (including, but not limited to, vesting and
forfeiture provisions, restrictions upon the exercise of the
Discounted Option, or provisions for the protection of the
Discounted Option in the event of mergers, consolidations,
dissolutions and liquidation affecting either the agreements of
the shares subject to such Options) as the Committee shall deem
advisable at the time of grant. A Discounted Option can be
granted in order to allow a Participant to defer current
compensation (including director's fees) or as an additional
benefit to a Participant.
B. Discounted Option Price: The price at which Common
Stock may be purchased upon exercise of a Discounted Option shall
be a stated percentage of the Fair Market Value or as otherwise
determined by the Committee at the time of grant. The price of a
Discounted Option, at the discretion of the Committee, may include
a cost guarantee against a decline in the Fair Market Value of the
Shares subject to the Option where appropriate, or a provision
that the original discount shall be paid in cash, without
interest, if the Option expires unexercised.
C. Terms of Discounted Option: The Discounted Option
agreement shall specify when a Discounted Option may be
exercisable and the terms and conditions applicable in the event
of the termination of Recipient's employment or association with
the Corporation during the discounted Option term.
D. Payment of Discounted Option Exercise Price: The
exercise price of the Discounted Option shall be paid in full in
cash or, with the consent of the Committee, in whole or in part<PAGE>
with Common Stock valued at Fair Market Value. The Committee may
permit Common Stock used as payment to be (i) tendered by the
Recipient or (ii) withheld by the Corporation pursuant to an
election by the Recipient to have part of the shares covered by
the Option withheld in payment of the exercise price. A Recipient
shall have the rights of a stockholder with respect to any Shares
subject to a Discounted Option from and after its exercise until a
stock certificate for such shares shall have been received by him.
XI. Additional Restrictions on Grants to Directors
A. Formula Grants: As of the Effective Date of this Plan,
each director of the Corporation who is not an employee of the
Corporation shall be granted Options under this Plan with respect
to 10,000 shares of the Corporation's Common Stock, one-fourth
vesting on that date and an additional one-fourth on the next
three anniversary dates of the Effective Date of this Plan. In
addition, on the first trading day of each July after the
Effective Date of this Plan, each such director shall be granted
Options with respect to up to 2,500 shares of the Corporation's
Common Stock. Directors who are not employees of the Corporation
and who are elected to such office for the first time subsequent
to the Effective Date shall be granted Options for 10,000 shares
of the Corporation's Common Stock as of the date the Recipient's
initial service as a director becomes effective, which options
shall vest one-fourth on the initial date of service and one-
fourth on each anniversary date thereof. Options granted pursuant
to this Section 1 1. I shall have an exercise price which is equal
to the Fair Market Value of the Corporation's Common Stock on the
date of grant. Such grants may contain such other terms and
provisions as may otherwise be permissible under the provisions of
this Plan and as the Committee shall deem advisable at the time of
grant.
B. Other Grants: Awards may be granted to officers or
directors of the Corporation only (i) if approved by the full
Board, (ii) if approved by, or only in accordance with the
recommendations of a committee of two or more Non-Employee
Directors, (iii) if approved by the stockholders of the
Corporation before or after the grant but not later than the date
of the next annual meeting of stockholders, or (iv) if the Award
granted hereunder or received upon exercise of any Award granted
hereunder must by its terms be held for at least six months from
the date of grant.
C. Change of Rule: Notwithstanding Section 11.1, in the
event that Rule 16b-3 is further amended after August 15, 1996 the
Committee may, to the extent it determines appropriate, adopt any
different rules for administration of the Plan so that any Awards
to officers or directors will qualify for exemption under
Rule 16b-3.<PAGE>
XII. Adjustments Upon Changes in Capitalization
In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger,
consolidation or any other change in the corporate structure of
the Corporation affecting Common Stock, or a sale by the
Corporation of all or part of its assets, or any distribution to
stockholders other than a normal cash dividend, the Board shall
make appropriate adjustments in the number and kind of shares
authorized by the Plan and any adjustments to outstanding Awards
as it determines appropriate. No fractional shares of Common
Stock shall be issued pursuant to such an adjustment, however, and
the Fair Market Value of any fractional shares resulting from
adjustments pursuant to this section shall be paid in cash to the
Recipient.
XIII. Effective Date, Termination and Amendment
The Plan shall become effective on the Consummation Date
under the Plan of Reorganization of Cambridge Biotech Corporation
under Chapter 11 of the United States Bankruptcy Code confirmed by
the United States Bankruptcy Court for the District of
Massachusetts (Case No. 94-43054-JFQ). The Plan shall remain in
full force and effect until terminated by the Board, which shall
have the power to amend, suspend or terminate the Plan at any time
including, without limitation, the power to amend the Plan so as
to allow the Plan to conform to any exemption now available or to
become available under the provisions of the Rule or any
subsequent rule or regulation enacted in its place; provided that
no such amendment shall be made without stockholder approval which
shall:
a. Increase (except as provided in Section 5 and
Section 12) the total number of shares available for issuance
pursuant to the Plan.
b. Change the class of person eligible to be
Recipients.
c. Decease the exercise price of Options stated in
Section 8 and Section 10 or the exercise value of the SARs
stated in Section 9.
d. Change the Plan in such a way as to require
stockholder approval of such change under Section 424 of the
Code.
XIV. Forfeiture
Awards may provide that they are forfeitable if the Recipient
terminates his or her employment with the Corporation or a Related
Company, for any reasons other than death or retirement, except
that the Committee shall have the authority to<PAGE>
provide for their continuation in whole or in part whenever in its
judgment the Committee shall determine that such continuation is
in the best interests of the Corporation. Awards may furthermore
be forfeited by a Recipient if the Committee determines that the
Recipient is at any time engaged in any activity harmful to the
interest of, or in competition with, the Corporation or a Related
Company or accepts employment with a competitor.
XV. Non-Assignability
Awards of Incentive Stock Options may not be pledged,
assigned or transferred for any reason during the Recipient's
lifetime other than pursuant to a qualified domestic relations
order and any attempt to do so shall be void. The pledge,
assignment or transfer of any Award may be restricted to the
extent determined by the Committee on a case by case basis in
granting any Award.
XVI. Beneficiary Upon Recipient's Death
In the event of the death of a Recipient, all of such
Recipient's interest in any Award shall pass to such Recipient's
personal representative, heir or distributee, which personal
representative, heir or distributee shall be subject to all of the
terms and conditions of the Award.
XVII. Change of Control
A. Vesting: Notwithstanding any other provisions of the
Plan to the contrary, upon the occurrence of a Change of control
(as defined below) the forfeitability provisions with respect to
any Awards, including Awards of Deferred Stock, Restricted Stock,
Options, Discounted Options or Stock Appreciation Rights, and any
restrictions on exercise of an Award resulting from termination of
employment, will lapse and such Awards shall be fully vested and
nonforfeitable. Upon the occurrence of a Change of Control, all
the restrictions on Restricted Stock shall lapse and be of no
effect and the Corporation shall deliver to the holder of such
shares certificates representing the number of shares and
securities on which restrictions have so lapsed, within 30 days of
the Change of Control. The replacement shares will only be
delivered upon tender by the holder of such certificates which may
have been previously delivered to the Recipient of Restricted
Stock bearing legends with respect to such restrictions.
B. Change of Control Defined: A "Change of Control" shall
be deemed to have occurred on the earlier of (i) the close of
business on the 10th day after the date of the first public
announcement (including a press release or a report filed pursuant
to Section 13(d) of the Exchange Act) by the Corporation or any
person that such person has become the owner of 20% or more of the
Corporation's Voting Power or (ii) immediately prior to
consummation of a tender or exchange offer if upon<PAGE>
consummation thereof, the person making such offer would become
owner of 20% or more of the Corporation's Voting Power.
Notwithstanding the foregoing, no person shall be considered to
have become the owner of 20% or more of the Voting Power merely as
a result of acquisitions of Common Stock by the Corporation which,
by reducing the number of shares outstanding, increased the
proportionate shares beneficially owned, directly or indirectly,
by such person; except that if such person becomes the owner of
20% or more of the Voting Power in such manner, then the
acquisition of any additional shares by such person will be deemed
to be a Change of Control.
C. Other Definitions: For purposes of determining a Change
of Control, a "person" as used in this Section 17 shall not
include (i) the Corporation, (ii) any Affiliate of the
Corporation, (iii) any employee benefit plan of the Corporation or
of any Affiliate of the corporation, or (iv) any entity or person
holding shares of Common Stock, organized, appointed or
established by the Corporation or any Affiliate for or pursuant to
the terms of any such plan.
For purposes of this Section 17, a Disinterested Director is
any person who is not (i) an employee of the Corporation or any
Affiliate, (ii) a person who owns 20% or more of the Voting Power
of the Corporation, or a representative or a nominee of such
persons, or (iii) a person who becomes a member of the Board
subsequent to the date of this Plan, unless such person's
nomination is recommended or approved by a majority of directors
who are not described in (i), (ii), or (iii) above.
References herein to a person's Voting Power means the
beneficial ownership (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, by that person of securities
possessing the specified level of the combined voting power of all
the Corporation's then outstanding securities entitled to vote in
election of directors.
XVIII. General Provisions
A. No Employment: Nothing contained in the Plan or in any
Award granted pursuant to the Plan shall confer upon any Employee
any right with respect to continuance of employment by the
Corporation or an Affiliate, nor interfere in any way with the
right of the Corporation or an Affiliate to terminate the
employment of any employee at any time with or without assigning
any reason therefor.
B. Transfers: For purposes of this Plan, transfer of
employment between the Corporation and its Affiliates shall not be
deemed termination of employment.
C. Taxes: Appropriate provision may be made for all taxes
required to be withheld in connection with any Award, the exercise
thereof and the transfer of shares of Common Stock with<PAGE>
respect of any federal, state or local withholding taxes whether
domestic or foreign.
D. Business Days: If any day on or before which action
under the Plan must be taken falls on a Saturday, Sunday or legal
holiday, such action may be taken on the next succeeding day not a
Saturday, Sunday or legal holiday.
E. Foreign Participants: Without amending the Plan, Awards
may be granted to employees who are foreign nationals or employed
outside the United States or both, on such terms and conditions
different from those specified in the Plan as may, in the judgment
of the Committee, be necessary or desirable to further the purpose
of the Plan.
F. Governing Law: To the extent that federal laws (such as
the Exchange Act, the Code, or the Employee Retirement Income
Security Act of 1974) do not otherwise control, the Plan and all
determinations made and actions taken pursuant hereto shall be
governed by the law of Delaware and interpreted accordingly.
G. Amendment: The Committee may amend any outstanding
Awards to the extent it deems appropriate. Such amendment may be
unilateral by the Committee, except in the case of amendments
adverse to the Recipient, in which case the Recipient's consent is
required to any such amendment. The Committee may permit a
Recipient to exchange rights of any kind awarded hereunder for
other rights hereunder at any time. Incentive Stock Options
awarded hereunder may be converted to Non-Qualified Options upon
approval of the Committee. The Committee may grant Awards under
this plan to evidence the assumption by the Corporation of, and in
substitution for, outstanding grants from an acquired company.
Approved by Board of Directors: October 28, 1996
EXHIBIT 10.14
AQUILA BIOPHARMACEUTICALS, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
I. Purposes
The purposes of this Aquila Biopharmaceuticals, Inc. 1996
Employee Stock Purchase Plan (the "Plan") are to provide an
incentive for Eligible Employees to continue devoting their best
efforts to the success of the Corporation, and to afford Eligible
Employees an opportunity to obtain a proprietary interest in the
continued growth and prosperity of the Corporation through
ownership of its Common Stock acquired in a convenient fashion.
II. Definitions
Whenever used in this Plan, the following terms will have the
indicated meanings:
Alternative Offering Price: 85% of the Fair Market Value of
Shares on the last day of the Purchase Period.
Corporation: Aquila Biopharmaceuticals, Inc. and such of its
subsidiaries existing as of the date of adoption of this Plan or
thereafter acquired (corporations in respect of which Aquila
Biopharmaceuticals, Inc. owns, directly or indirectly, at least
51% of the total issues and outstanding voting capital stock) as
may be designated from time to time by its Board of Directors.
Board of Directors: the Board of Directors of the Corporation.
Code: the Internal Revenue Code of 1986, as amended.
Committee: the Compensation Commission of the Board of Directors
of the Corporation, or such other committee of the Board,
including the Board, which may succeed to all or substantially all
of the duties and regulations of the Compensation Committee.
Compensation: the Eligible Employee's base salary in effect at
the Date of Offering.
Consummation Date: the Consummation Date under the Plan of
Reorganization of Cambridge Biotech Corporation under Chapter 11
of the United States Bankruptcy Code confirmed by the United
States Bankruptcy Court for the District of Massachusetts
(Case No. 94-43054-JFQ).
Date of Offering: that day which has been specified by the
Committee for any offering made under the Plan and which occurs
within the first fifteen (15) days of each January after the
Consummation Date during the term of the Plan.<PAGE>
Eligible Employee: any person (including any director) employed
by the Corporation on a Date of Offering during the term of the
Plan except:
(a) any employee who, immediately after the grant of an
option hereunder, would own (within the meaning of Section 424(d)
of the Code) Shares (including shares which such employee may
purchase under outstanding options) possessing 5% or more of the
total combined voting power or value of all classes of the capital
stock of the Corporation or a subsidiary of the Corporation;
(b) any employee whose customary employment is 20 hours
or less per week; or
(c) any employee whose customary employment is for not
more than five months in any calendar year.
Fair Market Value. If the Shares are publicly traded (i) in the
over-the-counter market and not on the Nasdaq National Market nor
on any national securities exchange, the closing bid price of the
Common Stock on the trading day in question, as reported by Nasdaq
or an equivalent generally accepted reporting service, or (ii) in
the Nasdaq National Market or on a national securities exchange,
then the closing sale price of the Common Stock in the National
Market System or on the principal stock exchange on which it is
listed on the trading day in question, as the case may be. For
purposes of clause (i) above, if trading in the Common Stock is
not reported by Nasdaq, the bid price referred to in said clause
shall be the lowest bid price as reported in the "pink sheets"
published by National Quotation Bureau, Incorporated or the NASD
Electronic Bulletin Board. The closing price referred to in
clause (ii) above shall be the last reported sale price or, in
case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices, in either case in the
Nasdaq National Market or on the national securities exchange on
which the Common Stock is then listed. If the Common Stock is not
publicly traded, the fair value of the Common Stock as determined
by the Board after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and
offer prices of the Common Stock in private transactions
negotiated at arm's length.
Offering Price: 85% of the Fair Market Value of Shares on a Date
of Offering.
Purchase Period: the period commencing on the Date of Offering
and ending twelve (12) months after the Date of Offering.
Shares: shares of Common Stock, $.01 par value per share, of the
Corporation.<PAGE>
III. Scope of Plan
Options to purchase Shares may be granted by the Corporation
to Eligible Employees during the ten-year period commencing on the
Consummation Date, but not more than 200,000 Shares shall be
purchased pursuant to such options. All employees granted options
pursuant to the Plan shall have the same rights and privileges.
The Shares delivered by the Corporation pursuant to the Plan may
be treasury shares, newly issued shares, or both.
IV. Offerings
Subject to the terms and conditions of the Plan the Board of
Directors shall make an offering on a specified date during the
first 15 days of January of each year after the Consummation Date
to Eligible Employees to purchase Shares under the Plan; provided,
however, that the Board of Directors may, in its discretion
determine to make no offering in any given year. The terms and
conditions for each such offering shall specify the Date of
Offering, the Offering Price, and the number of Shares that may be
purchased thereunder. During the Purchase Period, payroll
deductions shall be made From the Compensation of Eligible
Employees accepting an option under an offering hereunder.
V. Number of Shares Each Eligible Employee May Purchase
A. Subject to the provisions of the Plan, and as to any
offering made hereunder, each Eligible Employee shall be offered
an option to purchase that number of whole Shares which has on the
Date of Offering an aggregate purchase price (determined on the
basis of the Fair Market Value on the Date of Offering) equal to
any whole percentage of his or her Compensation up to a maximum of
5%, i.e., 1%, 2%, 3%, 4% or 5%. However, the number of shares
covered by the option may not be more than twice the number of
shares calculated by dividing (i) the amount estimated to be in
his or her contribution account on the last day of the Payment
Period (based upon payroll deduction amounts declared on the Date
of Offering) by (ii) the fair market value of the New Common Stock
on the Date of Offering. In the event such an option would
involve the purchase of a fractional Share, the number of Shares
which may be purchased shall be increased to the next whole
number.
B. If Eligible Employees elect, in any one offering, to
accept options to an extent which would result (if options were
granted on that basis) in the granting of options for that
offering to purchase more than the aggregate number of Shares
specified by the Board of Directors for that offering, the
Committee shall adjust such options on a pro rata basis so that
the aggregate number of Shares subject to purchase under that
offering does not exceed such specified number of Shares.
C. No Eligible Employee may be granted an option to
purchase Shares which would permit his total rights to purchase<PAGE>
Shares of the Corporation's capital stock under all employee stock
purchase plans of the Corporation and its subsidiaries to accrue
at a rate which exceeds $25,000 of fair market value of such stock
(determined as of the date of grant of such option) for each
calendar year during which any such option granted to such
individual is outstanding at any time.
VI. Method of Participation
A. The Committee shall give notice to Eligible Employees of
each offering of options to purchase Shares pursuant to the Plan
and the terms and conditions for each offering. Such notice shall
specify the number of Shares which may be covered by the option to
be offered to each Eligible Employee, the Offering Price, and such
other information as the Committee may determine.
B. Each Eligible Employee who desires to accept all or any
part of the option to Purchase Shares under an offering shall
signify his election to do so in the form and manner prescribed by
the Committee. Each such Eligible Employee shall also authorize
the Corporation, in the form and manner prescribed by the
Committee, to make payroll deductions to cover the aggregate
purchase price of those Shares in respect of which he has elected
to accept an option. Such election and authorization shall
continue in effect unless and until such Eligible Employee
withdraws from the Plan or terminates his employment with the
Corporation, as hereinafter provided.
C. The Corporation shall thereafter provide each Eligible
Employee accepting an option under each offering a notice
indicating the number of Shares covered by such option, the
Offering Price, and any pro rata reduction in accordance with
Paragraph 5.2.
D. Each Eligible Employee who does not wish to accept any
part of an option to purchase Shares under an offering shall so
signify in the form and manner prescribed by the Committee. Such
election not to accept any part of such option shall be
irrevocable for such offering.
VII. Payroll Deductions
A. The aggregate purchase price for those Shares as to
which each Eligible Employee has elected to accept the option
offered to him shall be deducted from his compensation during the
Purchase Period specified in the offering through weekly or bi-
weekly payroll deductions, as applicable, in substantially equal
installments. Such payroll deductions shall commence with the
first applicable payroll period beginning in the month after the
applicable Date of Offering, and shall continue until the last day
of the Purchase Period.
B. In the event the payroll deductions of an Eligible
Employee participating in the Plan are temporarily discontinued<PAGE>
because of leave of absence, lay-off, temporary disability, or
other similar reason, then the number of Shares subject to
purchase under his option shall be automatically reduced to that
number of whole Shares which his aggregate payroll deductions
actually made within the Purchase Period is sufficient to
purchase. The balance of such payroll deductions, if any, shall
be refunded to the Eligible Employee in cash, without interest.
Notwithstanding the foregoing, however, such Eligible Employee
may, prior to the conclusion of the Purchase Period, make a
payment to the Corporation in one lump sum of an amount equal to
the amount which was not subject to payroll deductions by reason
of the temporary discontinuance thereof and in that event, such
Eligible Employee shall then be entitled to purchase the total
number of Shares for which he has accepted an option.
VIII. Right to Withdraw
A. An Eligible Employee who has accepted an option to
purchase Shares may, at any time prior to his last regular payroll
deduction thereunder, direct the Corporation to make no further
deductions from his Compensation with respect to such option, or
may cancel the entire option. Upon either of such actions, all
payroll deductions with respect to such option shall cease. If
the employee has directed that payroll deductions be discontinued,
any sums theretofore deducted in respect of the offering shall be
retained by the Corporation until the end of the Purchase Period,
at which time there shall be issued to the employee the number of
whole Shares which can be purchased with the sum deducted and any
remaining balance of the sum shall be paid to him in cash, without
interest. If the employee has canceled his option, the
Corporation shall refund in cash, without interest, all amounts
credited to the account of such employee with respect to the
applicable offering.
B. Notification of an Eligible Employee's election to
terminate deductions, or to cancel an option, shall be made by the
filing of an appropriate notice to such effect with the Committee.
IX. Termination of Employment
A. In the event the employment of an Eligible Employee who
has accepted an option to purchase Shares is terminated prior to
his final payroll deduction hereunder because of death, total and
permanent disability, or retirement at or after age 65 or earlier
with the consent of the Corporation, he or his legal
representative, as applicable, may either:
(1) cancel his option, in which event the Corporation
shall refund in cash, without interest, all amounts credited to
his account under all offerings in which he is participating under
the Plan; or
(2) elect to receive at the conclusion of each
applicable Purchase Price that number of whole Shares which his<PAGE>
payroll deductions actually made are sufficient to purchase, plus
the balance of such payroll deductions, if any, in cash, without
interest.
B. The election of an Eligible Employee or his legal
representative, as applicable, pursuant to Paragraph 9.1 above,
shall be made within three months after the event causing the
termination of employment and within 27 months after the Date of
Offering. Notification of the election shall be filed with the
Committee, in the event no notification has been filed within the
prescribed period, the Corporation shall act in accordance with
the Paragraph 9.1(a) above.
C. In the event the employment of an Eligible Employee who
has accepted an option to purchase Shares is terminated for any
reason other than those specified in Paragraph 9.1, the
Corporation shall refund in cash, without interest, all amounts
credited to his account under all offerings in which he is
participating under the Plan.
X. Exercise of Option and Purchase of Shares
A. As of the last day of the Purchase Period of each
offering the Committee shall determine the Alternative Offering
Price. Unless an Eligible Employee who has accepted an option
under the offering has subsequently withdrawn from the offering
pursuant, to Paragraph 8 hereof, his option shall be deemed to
have been exercised as of the last day of the applicable Purchase
Period and become on such date an irrevocable obligation to
purchase Shares in accordance with the provisions of the Plan.
The number of whole Shares so purchased by each such Eligible
Employee shall be determined by dividing the amount accumulated in
his account by payroll deductions during the Purchase Period by
the lower of either the Offering Price or the Alternative Offering
Price rounded down to a whole number of Shares. As soon as
practicable thereafter, certificates for the number of whole
Shares, determined as aforesaid, purchased by each Eligible
Employee shall be issued to him. Any balance remaining in the
account of an Eligible Employee shall be refunded to him, without
interest.
B. In the event that, with respect to any offering
hereunder, the Alternative Offering Price is lower than the
Offering Price to such an extent that Eligible Employees
participating in the offering become entitled to purchase more
Shares than were originally subscribed for by all Eligible
Employees accepting options under such offering, the Committee
shall apportion the aggregate Shares available for purchase under
the offering among Eligible Employees participating in the
offering on a pro rata basis in accordance with the number of
Shares actually subscribed for by each such Eligible Employee, and
any amount remaining in the accounts of Eligible Employees shall
be refunded in cash, without interest.<PAGE>
XI. Rights as a Stockholder
An Eligible Employee who has accepted an option to purchase
Shares under the Plan shall not be entitled to any of the rights
or privileges of a shareholder of the Corporation, including the
right to receive any dividends which may be declared by the
Corporation until such time as he has actually paid the purchase
price for such Shares and certificates have been issued to him in
accordance with Paragraph 10 hereof.
XII. Rights Not Transferable
An Eligible Employee's rights under the Plan are exercisable,
during his lifetime, only by him and may not be sold, pledged,
assigned, or transferred in any manner other than by will or the
laws of descent and distribution. Any attempt to sell, pledge,
assign, or transfer such rights shall be void and shall
automatically cause the option held by the Eligible Employee to be
terminated. In such event, the Corporation shall refund in cash,
without interest, all amounts credited to the account of such
Eligible Employee in all offerings under the Plan.
XIII. Administration of the Plan
A. The Plan shall be administered by the Committee, which
is authorized to make such uniform rules as may be necessary to
carry out its provisions. The Committee shall determine any
questions arising in the administration, interpretation, and
application of the Plan, which may be made on a uniform or a case
by case basis, as the Committee determines appropriate and all
such determinations shall be conclusive and binding on all
parties.
B. If any option granted under the Plan shall lapse or
terminate, the number of Shares as to which such option shall have
lapsed or terminated shall become available for sale under the
Plan.
XIV. Adjustment Upon Changes in Capitalization
In the event of any change in the Shares of the Corporation
by reason of stock dividends, split-ups, corporate separations,
recapitalizations, mergers, consolidations, combinations,
exchanges of Shares and the like, the aggregate number and class
of Shares available under the Plan and the number and class of
Shares under option but not yet issued under the Plan shall be
adjusted appropriately, provided, however, that no adjustment
shall be made which would result in a modification of the options
granted hereunder and thereby disqualify the Plan as an employee
stock purchase plan under the provisions of Section 423 of the
Code.<PAGE>
XV. Registration of Certificates
Stock certificates may be registered in the name of the
Eligible Employee, or, if he so designates, in his name jointly
with his spouse, with right of survivorship.
XVI. Amendment of Plan
The Board of Directors may at any time amend the Plan in any
respect except that, without the approval of a majority of the
Shares of me Corporation's capital stock then issued and
outstanding and entitled to vote, no amendment shall be made which
would require the approval of stockholders under the terms of the
Code in order for the Plan to continue to qualify as an employee
stock purchase plan under Section 423 thereof, or any successor
provision.
XVII. Termination of the Plan
A. The Plan and all rights of Eligible Employees in any
offering hereunder shall terminate at the earliest of: (i) the
conclusion of the last Purchase Period authorized herein; or
(ii) the day that Eligible Employees participating in offerings
under the Plan become entitled to purchase a number of Shares
equal to or greater than the number of Shares remaining available
for purchase; or (iii) such earlier date as it may be terminated
at the discretion of the Board of Directors.
B. Upon termination of the Plan, Shares shall be issued to
Eligible Employees, and cash, if any, remaining in the accounts of
the Eligible Employees shall be refunded to them as if the Plan
were terminated at the end of a Purchase Period.
XVIII. Governmental Regulations and List
All rights granted or to be granted to Eligible Employees
under the Plan are expressly subject to all applicable laws and
regulations and to the approval of all governmental authorities
required in connection with the authorization, issuance, sale, or
transfer of the Shares reserved for the Plan including, without
limitation, (i) there being a current registration statement of
the Corporation covering the offer of Shares purchasable under
options on the last day of the Purchase Period applicable to such
options, and if a registration statement shall not than be
effective the term of such options and the Purchase Price shall be
extended until the first business day after the effective date of
such registration statement, or post-effective amendment thereto,
or (ii) there being an exemption from such registration.
XIX. Miscellaneous
A. The Plan shall not become effective unless and until it
has been approved in the manner prescribed by law.<PAGE>
B. The Plan shall not be deemed to constitute a contract of
employment between the Corporation and any Eligible Employee, nor
shall it interfere with the right of the Corporation to terminate
any Eligible Employee and treat him without regard to the effect
which such treatment might have upon him under the Plan.
C. No option shall be granted hereunder, nor shall the Plan
be interpreted in such a manner, which could cause the Plan or any
options issued hereunder to fail to qualify under Section 423 of
the Code.
D. The Plan shall be construed and its provisions enforced
and administered in accordance with the laws of the State of
Delaware.
XX. Effective Date
The effective date of the Plan shall be the Consummation
Date.
Approved by the Board of Directors: October 28, 1996
Aquila Biopharmaceuticals, Inc.
Exhibit 11
Statement of Computation of Earnings Per Share
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
PRIMARY
-------
Net income/(loss) for primary
earnings per common share $5,959,530 ($4,941,546) ($22,276,266)
========== ============ =============
Weighted average number of common
shares outstanding during the
year 3,717,441 3,442,305 3,416,100
Add - common stock equivalents
(determined using the
"treasury stock" method)
representing shares deemed
outstanding from the assumed
exercise of stock options
reduced by the number of
shares purchased with the
proceeds (determined using
average market price during
the year) 85,806 0 0
Weighted average number of shares
used in calculation of primary ---------- ------------ -------------
earnings per share 3,803,247 3,442,305 3,416,100
========== ============ =============
Primary earnings per share $1.57 ($1.44) ($6.52)
========== ============ =============
FULLY DILUTED
-------------
Net income/(loss) for fully diluted
earnings per common share $5,959,530 ($4,941,546) ($22,276,266)
========== ============ =============
Weighted average number of shares
used in calculating primary
earnings per common share 3,803,247 3,442,305 3,416,100
Add (deduct) incremental shares
representing:
Shares issuable upon exercise
of stock options included
in primary calculation
above (85,806) 0 0
Shares issuable upon exercise
of stock options based upon
using the higher of average
market price during the
year or year end market
price 86,220 0 0
Weighted average number of shares
used in calculation of fully ---------- ------------ -------------
diluted earnings per share 3,803,661 3,442,305 3,416,100
========== ============ =============
Fully diluted earnings per share $1.57 ($1.44) ($6.52)
========== ============ =============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Statements
of Operations, Balance Sheets, Statement of Cash Flows and Statement of
Sharholders' Equity, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,112,091
<SECURITIES> 8,562,730
<RECEIVABLES> 1,724,177
<ALLOWANCES> (178,565)
<INVENTORY> 451,074
<CURRENT-ASSETS> 21,270,741
<PP&E> 17,739,664
<DEPRECIATION> (13,431,207)
<TOTAL-ASSETS> 26,312,350
<CURRENT-LIABILITIES> 5,114,469
<BONDS> 4,055,564
0
0
<COMMON> 50,000
<OTHER-SE> 16,867,317
<TOTAL-LIABILITY-AND-EQUITY> 26,312,350
<SALES> 1,397,597
<TOTAL-REVENUES> 6,573,112
<CGS> 1,879,206
<TOTAL-COSTS> 6,718,322
<OTHER-EXPENSES> 7,136,240
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 113,771
<INCOME-PRETAX> (1,110,146)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,110,146)
<DISCONTINUED> 9,109,493
<EXTRAORDINARY> (2,039,816)
<CHANGES> 0
<NET-INCOME> 5,959,531
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.57
</TABLE>
