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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1995
[ ] Transaction Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number 0-12648
MOLECULAR BIOSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3078632
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10030 Barnes Canyon Road, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 452-0681
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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. Yes _X_ 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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $95,854,303 as of June 14, 1995 (computed by reference to the
last sale price of a share of the registrant's Common Stock on that date as
reported on the New York Stock Exchange).
There were 12,171,975 shares outstanding of the registrant's Common Stock as
of June 14, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended March 31, 1995
are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual shareholders meeting to be
held September 7, 1995 are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
Molecular Biosystems, Inc. ("MBI" or "the Company") is primarily engaged in
the development and manufacture of proprietary diagnostic ultrasound imaging
agents. ALBUNEX-Registered Trademark-, the first intravascular agent for
enhanced echocardiogram contrast, has been approved and is being marketed in the
United States and Japan. A second generation intravascular product, FS069, and
an orally-administered ultrasound agent designed to enhance contrast in the
gastrointestinal system, are currently in clinical trials.
MBI's first commercial product ALBUNEX-Registered Trademark-, is the first
intravascular ultrasound imaging agent available in the U.S. and elsewhere,
where approved, throughout the world. In October 1993, ALBUNEX-Registered
Trademark- was approved for marketing in Japan and became the first imaging
agent available there. Approvals for ALBUNEX-Registered Trademark- followed in
Sweden in February of 1994, in the United Kingdom in July 1994, and in the
United States in August 1994. Finland approved the product in January 1995.
While in recent years the Company has also worked to develop contrast
agents for other imaging modalities such as magnetic resonance imaging (MRI) and
computed tomography (CT), the Company curtailed this activity in February 1995,
reducing its overall staff and expenses by approximately 25%. Among the
projects upon which active research was halted were dendrimer-(polymer-) based
MRI agents and flourine-containing compounds for CT agents. It continues work
on an iodinated triglyceride product for CT applications, and has instituted a
full-scale effort to develop collaborative or out-licensing arrangements for
some of the other non-ultrasound technologies.
The Company was incorporated in Delaware on April 14, 1980. Its principal
executive offices are located at 10030 Barnes Canyon Road, San Diego, California
92121, and its telephone number is (619) 452-0681.
ALBUNEX-Registered Trademark-
ALBUNEX-Registered Trademark- is an imaging agent for diagnostic ultrasound
based on the Company's proprietary technologies. It is capable of
transpulmonary passage after intravenous administration (i.e., it is able to
pass from the right side of the heart through the lungs and into the left side
of the heart). ALBUNEX-Registered Trademark- was designed to reflect sound
waves during sonography to allow clearer visualization of blood flow and the
borders of the hearts chambers. The Company believes that ALBUNEX-Registered
Trademark- has potential to enhance the contrast resolution of ultrasound
imaging generally and to expand the use of echocardiography (cardiovascular
ultrasound imaging).
ULTRASOUND IMAGING. Ultrasound is one of the least expensive and most
commonly used diagnostic imaging modalities. Ultrasound imaging is widely used
by cardiologists, radiologists and other physicians throughout the world. It
provides a safe and effective method for non-invasive tomographic (cross-
sectional) imaging of most major soft tissue structures in the body. Physicians
rely on ultrasound as a cost-effective method to evaluate heart disease, liver,
kidneys, gall bladder and pancreas, as well as fetal development and the
reproductive system itself.
Based on marketing analysis conducted by the Company in 1995 and published
reports, the Company believes that over 30 million ultrasound imaging
examinations are performed annually in the United States using an installed
equipment base of approximately 52,000 units, and that these examinations
include approximately ten million echocardiograms.
Ultrasound imaging relies on the transmission, reflection and reception of
high-frequency sound waves. As sound waves travel through the targeted area of
the body, signals are reflected by the various tissues and fluids encountered.
The intensity of these signals is proportional to the acoustic reflectivity of
the tissue or fluid encountered. These reflected signals, or echoes, are
detected by the ultrasound system and processed to display cross-sectional
anatomy in "real time."
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ECHOCARDIOGRAPHY. Echocardiography is used to obtain important diagnostic
information on heart structure and function. Among the direct clinical data
obtainable are chamber dimensions, valve performance and, in some instances,
heart wall motion. The Company believes that echocardiography offers advantages
over other cardiac imaging methods such as angiography, radioisotopic scans,
magnetic resonance imaging, and computed tomography. All of these other methods
are more costly, both in terms of the necessary equipment and the cost per test;
some of them involve radioactive tracer agents, radiopaque dyes or radiation;
some of them are more difficult to perform; and some of them are more invasive.
Echocardiography does not yet directly assist in the identification of the
primary problems of coronary artery disease and resulting cardiac ischemia (lack
of blood supply). Recently, as resolution capabilities have improved and
sophisticated digital data storage and analysis capabilities have been
developed, echocardiography applications have emerged that indirectly address
these problems. The Company anticipates that the number of echocardiograms
performed each year will continue to grow as these developments evolve.
While many patients do not require enhanced contrast in order for an
echocardiogram to exhibit an acceptable image of the heart, the Company believes
that approximately 10% of echocardiograms are diagnostically inconclusive
because of imaging difficulties. It is these patients who can potentially
benefit from the use of ALBUNEX-Registered Trademark-. In the rapidly changing
health-care environment the pressures to rein in cost have helped ultrasound
emerge as an alternative to more expensive imaging procedures. For these reasons
ultrasound use is growing against all modalities used in vascular imaging.
ALBUNEX-Registered Trademark-. ALBUNEX-Registered Trademark- is an
ultrasound imaging agent which when injected reflects ultrasound waves in the
blood approximately 100 times more strongly than blood alone. Its greater
reflectivity creates a contrast effect between the blood and surrounding tissue
which enhances the ability of ultrasound imaging to resolve subtle differences
in the density of the target tissue structures.
ALBUNEX-Registered Trademark- is made by the Company's patented sonication
process from human albumin, a naturally occurring protein found in blood.
During the sonication process, minute amounts of air are surrounded by albumin
to create air-filled microspheres. These microspheres function as ultrasound
wave reflectors because of the large acoustic density differential between the
air in the ALBUNEX-Registered Trademark- microsphere and the surrounding blood
and tissue. The Company's proprietary technologies permit control of the size
of the ALBUNEX-Registered Trademark- microspheres, which average four microns in
diameter -- smaller than red blood cells (which average eight microns in
diameter). This difference in size makes microvascular circulation of ALBUNEX-
Registered Trademark- possible.
Microvascular circulation makes ALBUNEX-Registered Trademark-, which is
injected intravenously and is thus minimally invasive, capable of transpulmonary
passage to enhance visualization of the left side of the heart. The left
ventricle of the heart is its main pumping chamber and is most often involved in
serious heart disease. The Company believes that the ability to view the
structure and functions of the left ventricle more clearly will enable important
cardiac performance characteristics to be determined more precisely and will
thereby improve diagnostic accuracy. The delivery of an intravenous contrast
agent to the left side of the heart is difficult because blood first flows
through the right side of the heart and then through the minute capillaries
(which act as a filter) of the lungs before reaching the left side of the heart.
Because the ALBUNEX-Registered Trademark- microspheres are smaller than red
blood cells, however, they are able to flow through the lungs intact. After
their passage through the left side of the heart, the ALBUNEX-Registered
Trademark- microspheres are metabolized harmlessly by the body. The Company
believes that an advantage of ALBUNEX-Registered Trademark- is that it permits
contrast-enhanced echocardiography of the left side of the heart by intravenous
injection rather than by more invasive means such as catheterization.
The Company believes that ALBUNEX-Registered Trademark- can also enhance
ultrasound imaging applications which rely on the physics principle, known as
the Doppler effect, that sound waves appear to change frequency with changes in
the velocity of the source relative to the observer. Doppler-shift
characteristics are used in ultrasound imaging to determine blood flow
velocities in principal arteries and veins as well as gross blood flow through
the chambers and valves of the heart. While the low acoustic density of blood,
and in particular red blood cells, aids in the transmission of sound waves,
blood does not possess significant acoustic reflectivity. The ability of
current
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ultrasound imaging to resolve Doppler-shift signals from small vasculature
(capillary) blood flow is thus limited because of the low acoustic reflectivity
of blood cells and the lower velocity of flow in such small vessels. The
Company believes that the higher acoustic reflectivity of ALBUNEX-Registered
Trademark- can improve the resolution of Doppler-shifted data from smaller
vasculature and enhance the effectiveness of these applications of ultrasound
imaging.
Imaging agents used at present are prepared mainly from substances designed
for other uses (e.g., saline and radiopaque dyes). Radiopaque dyes are
cumbersome to prepare, inconsistent in size, possess a short shelf life, and are
typically too large to flow in capillary circulation. The Company believes that
ALBUNEX-Registered Trademark- does not have these undesirable characteristics.
CLINICAL TRIALS AND REGULATORY APPROVALS. The Company has secured approval
in the United States for the initial indication (use) of ALBUNEX-Registered
Trademark-. The Company also has two additional products in clinical
development, FS069 a second generation organ perfusion agent, and ORALEX-TM-, an
orally-administered agent that facilitates imaging of internal organs.
Two types of product trials are required prior to receiving marketing
approval by the Food and Drug Administration. These are preclinical and
clinical trials.
In preclinical trials, potential compounds are tested IN VITRO (observable
in a test tube) and IN VIVO (within living animals) to obtain safety information
prior to administration in humans.
The clinical evaluation involves a three-phase process. Phase I, usually
consists of preliminary testing for safety and dose ranging with a small group
of subjects. Phase II involves further study to evaluate dose ranging and
efficacy for a particular indication and to identify possible side effects and
risks in a larger subject group. Phase III trials consist of additional testing
for efficacy and safety with a further expanded subject group at multiple test
sites.
Following the completion of the preclinical and clinical evaluation, an
Investigational Device Exemption ("IDE") (device application) or New Drug
Application ("NDA") (drug application) must be submitted to and approved by the
FDA in order to market the product in the United States. Similar applications
are required in foreign countries. There is no assurance that upon completion
of the clinical trials the results will be considered acceptable for FDA
approval. If and when approval is obtained to market a product, the FDA will
govern manufacturing and marketing activities.
In September 1990, following the completion of clinical trials, the Company
submitted a Premarket Approval Application ("PMA") to the FDA for approval of
ALBUNEX-Registered Trademark- as an imaging agent for two-dimensional
echocardiography to opacify the left ventricular chamber and enhance endocardial
(chamber border) definition. The Company's PMA was accepted for filing in
February 1991. After the FDA's Radiological Devices Advisory Panel
recommendation for approval and two additional amendments submitted to the FDA,
the Company received clearance for the marketing and sale of ALBUNEX-Registered
Trademark- in the United States on August 8, 1994.
The Company's European licensee, Hafslund Nycomed AS ("Nycomed"), completed
clinical trials in 1992, and in September, 1992, a subsidiary of the licensee
filed a new drug application for ALBUNEX-Registered Trademark- in the United
Kingdom as part of the European Community multistate approval procedure. This
procedure simplifies the approval process in other European Community countries
once approval has been obtained in one of the member countries. In February
1994, Nycomed announced the approval of ALBUNEX-Registered Trademark- (known as
Infoson-TM- in Europe) for marketing in Sweden, the first European country to
approve the product. In August 1994 ALBUNEX-Registered Trademark- received
regulatory approval in the United Kingdom. Approval in Finland followed in
January, 1995. Nycomed has filed applications for the remaining European
countries and anticipates filing other approval applications in selected
countries outside of the European Community. To date Hafslund Nycomed AS, is
continuing its market evaluation and testing in preparation for setting a
definite launch date.
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The Company's Japanese licensee, Shionogi & Co., Ltd., filed a new drug
application for ALBUNEX-Registered Trademark- with the Japanese Ministry of
Health in October 1991 following completion of clinical trials earlier in the
year. On October 1, 1993, the Central Pharmaceutical Affairs Council of the
Koseisho, Japan's Ministry of Health and Welfare, approved ALBUNEX-Registered
Trademark- for marketing in Japan. In November 1993, a National Health
Insurance ("NHI") price of approximately $75 per 5 ml vial was established. The
Company receives 30% of the NHI price as the transfer price for the product
shipped to Shionogi.
In June 1992, the Company and its American licensee, Mallinckrodt Medical,
Inc., filed a new drug submission with Canada's Health Protection Branch.
ALBUNEX-Registered Trademark- is classified as a medical device by the FDA.
It is classified as a drug in Europe, Japan and Canada. (See "Government
Regulation.")
ADDITIONAL APPLICATIONS. The Company intends to pursue human clinical
trials for further applications of ALBUNEX-Registered Trademark- in
cardiovascular ultrasound imaging. The Company is developing ALBUNEX-Registered
Trademark- as an intra-arterial agent to use with techniques that involve the
placement of a catheter directly into the arteries that supply blood to the
heart muscle. These techniques, broadly referred to as cardiac catheterization,
are routinely employed in diagnostic medicine. Contrast echocardiography of
this type may permit the more accurate mapping of myocardial perfusion, or blood
flow within the heart muscle. Preliminary animal and human studies indicate
that ALBUNEX-Registered Trademark- may provide reliable perfusion data using
these techniques. The Company has begun other clinical studies to support
additional cardiac indications for ALBUNEX-Registered Trademark-.
Contrast enhancement may also play a role in non-cardiac ultrasound
imaging. Ultrasound imaging is routinely used by radiologists, gynecologists
and vascular specialists. Additional clinical applications of ALBUNEX-
Registered Trademark- may be found in imaging major abdominal organs, including
the liver and kidneys, as well as the peripheral vasculature. Advances in newer
techniques, such as "deep Doppler" and transesophageal probes to monitor
perfusion during surgery, may expand the use of ultrasound imaging beyond its
present applications. The Company and Mallinckrodt Medical, Inc. are currently
conducting animal studies to identify additional promising uses of contrast-
enhanced ultrasound imaging. Its U.S. marketing partner Mallinckrodt is also
conducting ALBUNEX-Registered Trademark- Phase III clinical trials to
investigate its ability to detect fallopian tube patency, a common fertility
test for women with suspected blockage in their fallopian tubes.
The Company is actively pursuing a new generation (FS069) of albumin-based
ultrasound imaging agents, designated FS069. The Company has also developed
ORALEX-TM-, a non-ALBUNEX-Registered Trademark- based contrast agent for use in
abdominal ultrasound imaging that can be administered orally. (See "Additional
Considerations Regarding Products in Development," below.)
MANUFACTURING. The Company manufactures ALBUNEX-Registered Trademark- for
commercial sale in the United States and Japan in its San Diego Facility.
Pursuant to its license agreement with Hafslund Nycomed AS, ALBUNEX-Registered
Trademark- will be manufactured by Nycomed in Europe. The Company believes that
its current facilities will provide sufficient production capacity for ALBUNEX-
Registered Trademark- for the foreseeable future.
The Company is also currently constructing an additional full-scale
manufacturing plant it its San Diego facility for the production of FS069, its
second generation ultrasound imaging agent. The Company believes that, if and
when approved by the FDA, the intermediate-scale manufacturing facility will
provide sufficient production capacity for market launch.
ORALEX-TM-, the Company's orally administered agent, is currently
manufactured in a pilot-scale plant in one of the Company's San Diego
facilities. The Company believes that this facility will be sufficient to
supply product for future clinical trials. If and when approved by the FDA,
ORALEX-TM- will require a larger commercial scale facility for market launch.
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MARKETING. The Company's strategy for marketing and distributing ALBUNEX-
Registered Trademark- has been to enter into exclusive licensing and
distribution agreements with companies having a substantial market position in
the fields of diagnostic imaging agents or cardiovascular pharmaceuticals.
Since December 1987, the Company has entered into agreements with Hafslund
Nycomed AS ("Nycomed") of Oslo, Norway, Mallinckrodt Medical, Inc.
("Mallinckrodt") of St. Louis, Missouri, and Shionogi & Co., Ltd. ("Shionogi"),
of Osaka, Japan.
Under the agreement with Nycomed, which was entered into in December 1987,
the Company granted Nycomed exclusive manufacturing, marketing and distribution
rights for ALBUNEX-Registered Trademark- (known as Infoson-TM- in Europe) in
Europe, Africa and the Middle East. Nycomed paid the Company a license fee of
$2 million and agreed to pay the Company a further $11 million for research and
development activities relating to ALBUNEX-Registered Trademark-. Nycomed paid
the Company a further $2 million when the agreement was amended in June 1989 to
include India in Nycomed's territory. The final payment of $733,000 was paid to
the Company under this agreement, following the FDA's August 1994 approval of
ALBUNEX-Registered Trademark- in the United States. Nycomed also agreed to pay
royalties to the Company based on Nycomed's sales of ALBUNEX-Registered
Trademark- at rates ranging from 3%-12%. Nycomed is responsible for
conducting clinical trials of ALBUNEX-Registered Trademark- in the countries in
its territory. The term of the agreement lasts for the life of the ALBUNEX-
Registered Trademark- patents. (See "PATENTS AND LICENSE AGREEMENTS.")
Under the agreement with Mallinckrodt, which was entered into in December
1988, the Company granted Mallinckrodt exclusive marketing and distribution
rights for ALBUNEX-Registered Trademark- in North and South America.
Mallinckrodt paid the Company $6 million and agreed to pay the Company a further
$21 million over the next several years conditioned on the Company's successful
completion of certain product development and regulatory milestones.
Mallinckrodt also agreed to pay the Company an amount equal to 100% of the net
product sales of ALBUNEX-Registered Trademark- in the United States during the
12 months following Mallinckrodt's release of ALBUNEX-Registered Trademark- to
its sales force, up to a maximum payment to the Company of $30 million. The
Company earned $345,000 through approximately the first five months of sales
under this provision. The Company has the right to manufacture and supply the
ALBUNEX-Registered Trademark- to be marketed and distributed by Mallinckrodt and
is entitled to payments equal to 40% of all net product sales. The Company is
responsible for conducting clinical trials of ALBUNEX-Registered Trademark- in
the United States for cardiac indications. Mallinckrodt is responsible for
conducting clinical trials of ALBUNEX-Registered Trademark- in the United States
for subsequent non-cardiac indications and is responsible for conducting all
clinical trials in the other countries in Mallinckrodt's territory.
Mallinckrodt also paid the Company approximately $3 million for 181,818
unregistered shares of the Company's Common Stock. The term of the agreement
lasts for the life of the ALBUNEX-Registered Trademark- patents and grants
Mallinckrodt exclusive rights for five years following the first commercial sale
of ALBUNEX-Registered Trademark- in the United States, after which the Company
has the right to co-market ALBUNEX-Registered Trademark- in North and South
America or to assign all of its rights to a third party. (See "PATENTS AND
LICENSE AGREEMENTS.") Mallinckrodt is required to market and distribute
ALBUNEX-Registered Trademark- under the trademark "ALBUNEX-Registered Trademark-
," or if it chooses to market and distribute ALBUNEX-Registered Trademark- under
a different name, it must grant the Company a license to use this other name if
the Company chooses to exercise or assign its co-marketing rights after the
expiration of Mallinckrodt's exclusive period. Also pursuant to its agreement
with Mallinckrodt, the Company undertook on behalf of itself and Mallinckrodt to
acquire license rights to a United States patent for certain related technology.
The Company acquired these rights in February 1991, and in connection therewith
the Company and Mallinckrodt agreed to pay royalties to the licensor of 0.8% and
1.2%, respectively, of U.S. net sales of ALBUNEX-Registered Trademark-.
Under the agreement with Shionogi, which was entered into in March 1989,
the Company granted Shionogi exclusive marketing and distribution rights for
ALBUNEX-Registered Trademark- in Japan, Taiwan and South Korea. Shionogi paid
the Company $10 million and agreed to pay a further $21 million (of which $13
million has been received as of June 1995) over the next several years
conditioned on Shionogi's successful completion of certain product development
and regulatory milestones. The Company has exercised its option to manufacture
the ALBUNEX-Registered Trademark- marketed and distributed by Shionogi.
Shionogi pays the Company $22.43 per 5 ml vial, which is 30% of the product
price set by the Japanese government on sales of ALBUNEX-Registered Trademark-
manufactured by the Company. The term of the agreement lasts for the life of
the ALBUNEX-Registered Trademark- patents and grants Shionogi exclusive rights
for six years following the initial approval to market ALBUNEX-Registered
Trademark- in Japan, after which the Company has the right to co-market ALBUNEX-
Registered Trademark- itself or to grant sublicenses to third parties.
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Sales of ALBUNEX-Registered Trademark- in Japan have been below the
Company's expectations. Shionogi and the Company have engaged in an intensive
cooperative study of the situation. Both companies believe that the lower-than-
expected sales were the result of the unique nature of the Japanese market.
Among the possible reasons for the initial slow Japanese launch was that the
packaging and transport of the product for Japan may have adversely affected the
early shipments. Changes in vial and packaging configuration and transportation
practices appear to have corrected the issue. However, to increase the
likelihood of improved sales performance in the future, Shionogi, with the
Company's concurrence, decided during the first quarter of Fiscal 1995 to
curtail promotional efforts and limit current Japanese sales to selected
accounts until these issues have been resolved. The Company has worked closely
with Shionogi to resolve any and all issues that the Japanese launch has raised.
A "relaunch" of ALBUNEX-Registered Trademark- is expected in fiscal 1996. (See
"PATENTS AND LICENSE AGREEMENTS.")
The Company believes that ALBUNEX-Registered Trademark- is a safe and
useful product for which a significant demand exists in the medical community.
The Company is disappointed by the initial sales in the United States and Japan,
as well as by the continuing delays in the European launch. In fact, ALBUNEX-
Registered Trademark- sales have been well below the Company's expectations.
While the Company believes that Mallinckrodt, Shionogi, and Nycomed continue to
have the greatest potential to successfully commercialize ALBUNEX-Registered
Trademark- in their respective markets, it is carefully reviewing their
performance and strategies.
PATENTS AND LICENSE AGREEMENTS. The use of ALBUNEX-Registered Trademark-
is protected by issued United States and foreign patents and is also the subject
of several pending patent applications.
In November 1986, the Company entered into a license agreement under which
it acquired the exclusive right to develop, use and sell any products derived
from the licensed ALBUNEX-Registered Trademark- patents and applications, and
any future related patents and applications. Also included in the agreement was
the right to sublicense these rights to others.
In June 1989, the license agreement was restructured. The Company paid the
licensor $4.5 million in addition to the license fee of $100,000 that it had
previously paid and also paid $2 million as a prepayment of royalties to be
earned on the first $66.7 million of sales of the licensed products in the
United States. In exchange, the rate of royalties based on sales of licensed
products was reduced from 6% to 3% of worldwide net sales by the Company (or of
U.S. sales by a sublicensee) and from 2 1/2% to 1 1/4% of net sales by any
sublicensees outside of the United States. In addition, the Company agreed to
pay $100,000 a year for five years to the medical school, university or research
institute with which the licensor is affiliated to support his further research
relating to ALBUNEX-Registered Trademark-. In December 1992, this support
obligation was converted to direct payments to the licensor in the same amount
for the next five years.
In the United States, a patent is enforceable for seventeen years from the
date of issuance and grants to the owner the right to exclude others from
practicing the patented invention. Since the licensing of the early ALBUNEX-
Registered Trademark- patents, the Company has filed several patent applications
of its own describing improvements over the original formulation and methods of
manufacturing commercial quantities of ALBUNEX-Registered Trademark-. The
Company currently has exclusive rights to five United States patents issued
between 1986 and 1990 with respect to the use of ALBUNEX-Registered Trademark-
as an end product and the continuous flow method for manufacturing of ALBUNEX-
Registered Trademark-. In addition to these United States patents, the Company
has sought worldwide patent protection by filing a number of corresponding
foreign patent applications, many of which have already issued.
SECOND GENERATION ULTRASOUND IMAGING AGENT
The Company is developing a "second generation" intravenously administered
ultrasound imaging agent that can directly depict myocardial perfusion in real
time. The agent consists of proprietary, proteinaceous microspheres (FS069)
that have been effective in depicting myocardial perfusion during
echocardiography in preclinical animal studies using standard ultrasound
instruments. Clinical and preclinical studies have resulted in very minimal
hemodynamic changes in the test subjects, an important preliminary indicator of
product safety. Additionally, very low doses have been administered to achieve
the perfusion effect, another potentially important safety factor.
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The Company has filed a U.S. patent application and will be seeking
worldwide patent protection for FS069. Preclinical studies for a myocardial
perfusion indication concluded in the end of 1994, at which time the Company
filed an application with the U.S. FDA to begin human clinical trials. (See
"Government Regulation.") The Company received clearance to begin Phase I
clinical trials in March of 1995 and in May of 1995 announced the successful
completion of Phase I trials. Phase II trials for FS069 are expected to begin
by early fall. Development efforts for the next year will also include the
preclinical evaluation of FS069 for Doppler enhancement and for radiology
applications such as liver and kidney sonography.
(See "Additional Considerations Regarding Products in Development," below.)
ORAL ULTRASOUND CONTRAST AGENT
The Company has developed ORALEX-TM-, a non-ALBUNEX-Registered Trademark-
based contrast agent for use in abdominal ultrasound imaging that can be
administered orally. It relies on the ability of certain substances to fill the
gastrointestinal tract and displace the air within. This results in improved
ultrasound visualization of anatomical structures in the upper gastrointestinal
tract and adjacent organs, such as the pancreas. In March 1995, the Company was
issued a U.S. patent for ORALEX-TM-, its abdominal ultrasound agent that
completed Phase I clinical trials in May of 1995. (See "Government Regulation.")
In May 1993 the Company entered into an exclusive license agreement with
Bracco S.p.A. of Milan, Italy, for the distribution rights to the Company's oral
ultrasound agent in Europe and the former Soviet Union. At that time Bracco
paid the Company a license fee of $2 million and undertook certain developmental
obligations in the territory. In March 1994 Bracco notified the Company that it
desired to rescind the agreement and demanded that MBI return the license fee.
The Company denied that Bracco was entitled to rescind the agreement or to the
return of any portion of the license fee, and notified Bracco that it regarded
Bracco's notice of rescission as a breach of contract. Negotiations to
terminate the license agreement on mutually agreeable terms have not been
successful, and the dispute has been submitted to binding arbitration. The
Company expects to prevail in any proceeding, but does not believe an
unfavorable ruling in an arbitration would have a material adverse impact on its
financial condition.
COMPUTERIZED TOMOGRAPHY CONTRAST AGENTS
Computerized tomography ("CT") is an advanced method of X-ray imaging that
can be used in conjunction with iodinated contrast agents which allows for the
enhanced detection of differences in tissue density. Certain types of cancer
would thus be visible using CT due to the difference in tissue density between
the cancerous mass and the surrounding tissue. Using CT, early detection of
cancer is facilitated.
Currently available CT contrast agents are limited in their usefulness in
detecting very small tumors due to their rapid diffusion into extracellular
spaces which reduces the ability to detect differences in tissue density. A new
variety of compounds has been discovered that are particularly useful for CT of
the liver. These polyiodinated triglycerides remain localized in the liver long
enough after their administration to allow for enhanced CT imaging. They appear
to have the additional advantage of being effective in smaller doses than other
CT agents.
The Company has entered into a license agreement with the University of
Michigan for several polyiodinated triglyceride contrast agents for use in CT
of the liver. This agreement grants to the Company exclusive worldwide rights
to the contrast agents which have been patented in the United States by the
University. In addition, the University has also filed a U.S. patent
application for a delivery vehicle for use in targeting these CT agents to the
liver. The Company, in association with the University of Michigan, had been
performing safety and efficacy studies in animals. The Company intends to retain
intellectual property rights on this program, and has instituted a full-scale
effort to develop collaborative or out-licensing arrangements.
(See "Additional Considerations Regarding Products in Development," below.)
8
<PAGE>
ADDITIONAL CONSIDERATIONS REGARDING PRODUCTS IN DEVELOPMENT
The foregoing discussion describes technologies at different stages of
development. ALBUNEX-Registered Trademark- for cardiac ultrasound is an example
of a technology that is well-developed and has received regulatory approval for
marketing in the United States. ALBUNEX-Registered Trademark- for cardiac
ultrasound has been approved for commercial sale in both Japan and Sweden, the
United Kingdom, Finland and is currently marketed in Japan by Shionogi.
However, each of the other technologies described above, including other
indications of ALBUNEX-Registered Trademark-, must be regarded as being at a
very early stage of development. Like all new technologies, their respective
prospects are subject to many uncertainties. Early test results may prove to
have been in error; new competitive products may obviate the need for the
Company's product; unexpected patent problems may appear; the Company's strategy
may dictate changes in the mix of products under development; large-scale
manufacturing may not prove to be feasible; later studies may reveal safety or
efficacy concerns not apparent earlier on; the Company's marketing partner(s)
may change its strategic focus; the technology may fall prey to regulatory
difficulties; and other unpredictable difficulties may arise.
While the Company believes that each of the early-stage technologies
described above has the potential to evolve into safe and useful medical
products, the Company continually evaluates each of them for
commercializability, and at this point cannot accurately predict the likelihood
or extent of successful product development. For example, in FY 1995 the
Company made the decision to focus its research and development activities
primarily on its ultrasound products in order to reduce its cash burn rate.
In evaluating the Company's prospects, the investor should keep in mind the
risk inherent in ventures required to invest substantial capital in research and
development of products with long development cycles, such as biomedicals. The
Company makes no representation that any particular imaging agent currently in
development will become a final, FDA-approved product.
GOVERNMENT REGULATION
The diagnostic products which the Company is developing on the basis of its
proprietary technologies are subject to substantial regulation by the FDA and
comparable agencies in foreign countries.
In the case of new drugs and certain diagnostic products, the process of
obtaining FDA approval of a new product involves many steps. Test results on
animals to determine efficacy, safety and potential toxicity are submitted to
the FDA as part of an investigational new drug application or an application for
investigational device exemption before clinical trials on humans can begin.
After completion of clinical trials, a New Drug Application ("NDA") in the case
of drugs, or a PMA in the case of products that are not classified by the FDA as
drugs, must be submitted to the FDA. After receiving the NDA or PMA and all
additional information submitted during the review process, the FDA decides
whether and under what conditions it will permit the product to be sold. If the
FDA approves the sale of a product, FDA regulations apply to the manufacturing
and marketing of the product. The FDA may also require post-marketing testing
and surveillance programs. The process of obtaining FDA approval of a new
product typically takes a number of years and requires substantial funding.
In September 1987, the FDA agreed to review ALBUNEX-Registered Trademark-
as a Class III medical device. There is no assurance that the FDA will continue
to classify ALBUNEX-Registered Trademark- or FS069, the Company's second
generation product, as a medical device rather than a drug.
Regulations regarding the handling and disposal of radioactive substances
are also applicable to some of the Company's activities.
9
<PAGE>
COMPETITION
Competition in the fields of diagnostic imaging, biotechnology and
biomedicine is intense. The principal methods of competition include product
safety and efficacy, marketing and price. There are a substantial number of
specialized companies in these fields engaged in research, development, testing
and commercialization of products and processes similar to one or more of the
products and processes that the Company has developed or expects to develop from
its technologies. Many of these companies have capital resources, research and
development staffs and marketing and distribution capacities substantially
larger than those of the Company. Many of these companies also have more
extensive experience in testing and applying for regulatory approval. There are
also a number of specialized biomedical research companies in various stages of
formation, and it is reasonable to expect more entrants into the field.
EMPLOYEES
As of June 8, 1995, the Company had 143 employees, including seven
officers.
In May 1995, Vincent A. Frank, the Company's President, resigned in order
to concentrate on his continued mediacl treatment for a brain tumor.
ITEM 2. PROPERTIES
Currently, the Company's corporate offices and laboratory, manufacturing
and warehouse facilities occupy a total of 75,000 square feet in San Diego,
California. The Company owns a 44,000 square foot building purchased in 1989
and leases two additional facilities under agreements expiring in April 1996 and
September 2002, with renewal provisions of eighteen to twenty-four months at the
end of the lease terms. During fiscal year 1995 the Company leased an
additional 3,000 square feet of laboratory facilities in Midland, Michigan. The
Company vacated the premises in February 1995 when the lease expired.
In December 1993, the Company purchased two unimproved buildings and the
underlying land in San Diego, California which it originally planned would
replace currently leased facilities and allow for planned expansion of the
Company's research and development facilities and administrative offices. (See
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources.")
ITEM 3. LEGAL PROCEEDINGS
In June of 1994, the United States District Court for the Southern District
of California granted final approval to an agreement settling a class action
complaint against the Company, certain of its officers and all of the members of
its Board of Directors (Sherman v. Widder, et at., No. TS 92-1827-IEG (M)
alleging violations of the Securities Exchange Act of 1934 and California
securities laws. The Company agreed to pay $3 million in cash, and shares of
MBI's common stock worth $1.5 million (172,414 shares valued as of March 31,
1995), into a settlement fund which has been distributed to qualifying class
members. Pursuant to the settlement order, the distribution of cash and stock
was administered by counsel for the plaintiff class. Included in accrued
liabilities at March 31, 1995 and 1994, is a liability of $1.5 million for the
issuance of this common stock. All distributions under this settlement
agreement have been concluded.
In May 1993 the Company entered into an exclusive license agreement with
Bracco S.p.A. of Milan, Italy, for the distribution rights in Europe and the
former Soviet Union to the Company's proprietary oral ultrasound agent for
imaging the gastrointestinal tract. At that time Bracco paid the Company a
license fee of $2 million and undertook certain developmental obligations in the
territory. In March 1994, Bracco notified the Company that it desired to
rescind the agreement and demanded that MBI return the license fee. The Company
denied that Bracco was entitled to rescind the agreement or to the return of any
portion of the license fee, and notified Bracco that it regarded Bracco's notice
of rescission as a breach of contract. In January 1995, Bracco filed a demand
for arbitration claiming return of the $2 million license fee, in addition to
other monetary relief. MBI has filed a
10
<PAGE>
response denying the material allegations of Bracco's demand, and has also filed
a counterdemand asking for damages in the amount of at least $5.5 million and
other monetary relief, claiming that Bracco's purported rescission was in bad
faith and resulted from its acquisition of the exclusive licensee of a competing
agent. MBI also claims that the purported rescission was wrongful and a breach
of the exclusive license. The Company believes that it will prevail on Bracco's
claims. The Company stresses, however, that the course of arbitration cannot be
predicted. In any event, the Company does not believe an unfavorable ruling in
arbitration would have a material adverse impact on its financial condition.
In December 1992, the Company entered into an exclusive license with
Dendritech, Inc., of Midland, Michigan to develop and commercialize imaging
agents using dendrimer technology. In March 1995, Dendritech, notified the
Company that it is claiming that the Company has materially breached the license
agreement, justifying termination of the Dendritech License if the claimed
breaches are not cured. (The claimed breaches are in connection with MBI's
restructuring and downsizing, described under "General" above.) MBI and
Dendritech have agreed in prnciple on Dendritech's repurchase of this
technology. The terms of Dendritech's repurchase will not have a material
impact on MBI's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information concerning the names, ages and titles of the
Company's executive officers and certain significant employees is included in
accordance with General Instruction G(3) of Form 10-K:
Name Age Title
---- --- -----
Kenneth J. Widder, M.D. 42 Chairman of the Board and
Chief Executive Officer
James L. Barnhart, Ph.D. 52 Vice President - Research
and Development and
Chief Operating Officer
Steven Lawson 43 Vice President - Legal Affairs and
General Counsel
Gerard A. Wills 38 Vice President - Finance
and Chief Financial Officer
Richard M. Stern 45 Vice President - Marketing
Allan H. Mizoguchi, Ph.D. 50 Vice President - Clinical and
Regulatory Affairs
Kenneth R. Derry 47 Vice President - Operations
Dr. Widder has served as the Company's Chairman of the Board and Chief
Executive Officer since July 1981.
Dr. Barnhart joined the Company in February 1988 as its Director of
Research and Development and was appointed Vice President - Research and
Development in October 1992. In 1994, in conjunction with a medical leave of
absence taken by Vincent A. Frank, the Company appointed Dr. Barnhart Chief
Operating Officer. From 1979
11
<PAGE>
until joining the Company, Dr. Barnhart was an Associate Adjunct Professor at
the Department of Radiology at the University of California, San Diego School of
Medicine in La Jolla, California.
Mr. Lawson joined the Company in January 1992 as its Vice President - Legal
Affairs and General Counsel. From 1981 until joining the Company, Mr. Lawson
was a partner with the law firm of Johnson and Colmar in Chicago, Illinois.
From 1977 through 1981, Mr. Lawson was associated with the Chicago law firm of
Kirkland & Ellis.
Mr. Wills joined the Company in February 1993 as its Controller and served
as its Executive Director - Finance and Chief Financial Officer from August 1994
until January 1995 when he was promoted to Vice President - Finance and Chief
Financial Officer. From 1990 until joining the Company, Mr. Wills served as the
Corporate Manager of Finance for Maxwell Laboratories, Inc. From 1986 through
1990 Mr. Wills was employed with Intermark, Inc. where he last served as the
Corporate Controller.
Mr. Stern joined the Company in April 1988 as its Vice President -
Marketing. From 1984 until joining the Company, Mr. Stern held various
marketing management positions at GE Medical Systems, Inc., Rancho Cordoba,
California where he last served as Manager, Worldwide Cardiology Product
Marketing.
Dr. Mizoguchi joined the Company in June 1989 as its Director of Clinical
Trials and served as its Director of Clinical Research from April 1992 until
February 1994 when he was appointed Executive Director, Clinical Affairs and
Quality Assurance. In July 1994 he was appointed Vice President - Clinical and
Regulatory Affairs. From 1981 until 1989, Dr. Mizoguchi was employed by the
Sutter Corporation, Inc. where he last served as Vice President for Clinical
Research, Quality Assurance and Regulatory Affairs.
Mr. Derry joined the Company in June 1993 as its Director of Materials and
was appointed Director of Operations in March 1994 until November 1994 when he
was appointed Vice President - Operations. From 1984 until joining the Company,
Mr. Derry, held various operations management positions, including Director of
Manufacturing Systems and Director of Materials Management, at Hybritech, Inc.,
a division of Eli Lilly & Company, in San Diego, California.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information on page 36 of the annual shareholders report for the
year ended March 31, 1995 is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 18 of the annual shareholders report for
the year ended March 31, 1995 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 19 through 23 of the annual shareholders report for the year
ended March 31, 1995 are incorporated herein by reference.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial statements
included on pages 24 through 36 of the annual shareholders report for the year
ended March 31, 1995 are incorporated herein by reference.
Quarterly Results of Operations on page 35 of the annual shareholders
report for the year ended March 31, 1995 is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors is incorporated in this report by
reference to pages 2 through 3 of the Company's definitive proxy statement for
the 1995 Annual Meeting of Shareholders to be held on September 7, 1995 ("1995
Proxy Statement Information"). Information concerning executive officers is
included in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by reference
to pages 6 through 11 of the Company's 1995 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership is incorporated in this report by
reference to pages 4 through 5 of the Company's 1995 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
incorporated by reference to page 13 of the Company's 1995 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Index to Consolidated Financial Statements. The following
Consolidated Financial Statements of MOLECULAR BIOSYSTEMS, INC.
are filed as part of this Form 10-K and are included in the
Annual Report attached hereto as Exhibit 13.1 and incorporated
herein by reference:
Report of Independent Public Accountants
Consolidated Balance Sheets at March 31, 1995 and
1994
13
<PAGE>
Consolidated Statements of Operations for the years ended March
31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity for the years
ended March 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended March
31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(2) Index to Consolidated Financial Statement Schedules.
All schedules have been omitted because they are not applicable
or required, or the information required to be set forth therein
is included in the Consolidated Financial Statements or notes
thereto included in the Annual Report attached hereto as Exhibit
13.1.
(3) EXHIBITS -EXHIBITS MARKED WITH AN ASTERISK ARE FILED WITH THIS
REPORT; ALL OTHER EXHIBITS ARE INCORPORATED BY REFERENCE.
3.1 Certificate of Incorporation of the Company, as amended to date
(by amendments filed March 4, 1981, March 30, 1982, March 14,
1983, April 18, 1983, and November 20, 1987). (Incorporated by
reference from Exhibit 3.1 to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1988.)
3.2 Certificate of Incorporation of Syngene, Inc. as amended
September 20, and December 31, 1989. (Incorporated by reference
from Exhibit 3.2 to the Company's Annual Report of Form 10-K for
the fiscal year ended March 31, 1990.)
3.3 By-Laws of the Company, as amended and restated September 18,
1990. (Incorporated by reference from Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1991).
3.4 First Amendment, dated August 20, 1992 to the By-Laws of the
Company, as amended and restated September 18, 1990.
(Incorporated by reference from Exhibit 3.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1994.)
3.5 By-Laws of Syngene, Inc. (Incorporated by reference from Exhibit
3.4 to the Company's Annual Report on form 10-K for the fiscal
year ended March 31, 1990.)
10.1 Restated License Agreement dated June 1, 1989 between the Company
and Steven B. Feinstein, M.D., and related Research and Supply
Agreement dated June 1, 1989. (Incorporated by reference from
Exhibits 10.1 and 10.2 to the Company's Current Report on Form 8-
K filed on June 9, 1989.)
10.2 Amendment to Research Support and Supply Agreement dated December
15, 1992 between the Company and Steven B. Feinstein, M.D.
(Incorporated by reference from Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1993.)
14
<PAGE>
Exhibits (continued)
--------
10.3 License and Cooperative Development Agreement dated December 31,
1987 between the Company and Nycomed AS ("Nycomed"), and related
Investment Agreement dated December 31, 1987, Registration
Agreement dated December 31, 1987 and Common Stock Purchase
Warrant dated January 19, 1988. (Incorporated by reference from
Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1988.)
10.4 Amendment to License and Cooperative Development Agreement dated
June 9, 1989 between the Company and Nycomed. (Incorporated by
reference from Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1989.)
10.5 Distribution Agreement dated December 7, 1988 between the Company
and Mallinckrodt, Inc. and related Investment Agreement dated
December 7, 1988. (Incorporated by reference from Exhibit 10.9
to the Company's Annual Report on form 10-K for the fiscal year
ended March 31, 1989.)
10.6 Amendment Agreement dated November 7, 1989 to Distribution
Agreement dated December 7, 1988 between the Company and
Mallinckrodt, Inc. (Incorporated by reference from Exhibit 10.7
to the Company's Annual Report on form 10-K for the fiscal year
ended March 31, 1990).
10.7 Letter Agreement dated February 1, 1991 between the Company and
Mallinckrodt Medical, Inc. (Incorporated by reference from
Exhibit 10.8 to the Company's Annual Report of Form 10-K for the
fiscal year ended March 31, 1991.)
10.8 Letter Agreement dated February 18, 1991 between the Company and
Schering Aktiengesellschaft. (Incorporated by reference from
Exhibit 10.9 to the Company's Annual Report of Form 10-K for the
fiscal year ended March 31, 1991.)
10.9 License and Cooperative Development Agreement dated March 2, 1989
between the Company and Shionogi & Co., Ltd. (Incorporated by
reference from Exhibit 10.10 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1989.)
10.10 Exclusive License Agreement dated April 1, 1992 between the
Company and The Regents of the University of California.
(Incorporated by reference from Exhibit 10.30 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1992.)
10.11 License Agreement dated August 23, 1991 between the Johns Hopkins
University, Towson State University and the Company.
(Incorporated by reference from Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1992.)
10.12 License Agreement dated November 11, 1991 between the Company and
the Regents of the University of Michigan. (Incorporated by
reference from Exhibit 10.32 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1992.)
15
<PAGE>
Exhibits (continued)
--------
10.13 Exclusive License Agreement dated July 31, 1990 between the
Company and the Regents of the University of California, and
Amendment Agreement dated April 1, 1992. (Incorporated by
reference from Exhibit 10.33 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1992.)
10.14 Non-Exclusive Patent License Agreement dated September 14, 1992
between the Company and Isis Pharmaceuticals, Inc. (Incorporated
by reference from Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1992.)
10.15 Settlement Agreement and Mutual General Release dated August 28,
1992 between the Company and Gen-Probe Incorporated.
(Incorporated by reference from Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1992.)
10.16 License and Settlement Agreement dated May 19, 1994 between the
Company, Kenneth J. Widder and James L. Barnhart and IMARx
Pharmaceutical Corp. and Evan C. Unger. (Incorporated by
reference from Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1994.)
10.17 Stipulation of Settlement dated February 14, 1994 between
Robert Sherman, on behalf of himself and all others similarly
situated and Kenneth J. Widder, et. al. (Incorporated by
reference from Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1994.)
10.18 License Option Agreement dated January 29, 1993 between the
Company and Abbott Laboratories. (Incorporated by reference from
Exhibit 10.1 to the Company's Current Report on Form 8-K dated
January 29, 1993.)
10.19 License and Collaborative Research Agreement dated December 10,
1992 among the Company, Dendritech Inc. and Michigan Molecular
Institute. (Incorporated by reference from Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1993.)
10.20 Research Agreement dated May 1, 1993 between the Company and
Michigan Molecular Institute. (Incorporated by reference from
Exhibit 10.18 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1993.)
10.21 License and Distribution Agreement dated May 19, 1993 between the
Company and Bracco S.P.A., Milan, Italy. (Incorporated by
reference from Exhibit 10.19 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1993.)
10.22 Molecular Biosystems, Inc. Pre-1984 Nonstatutory Stock Option
Plan. (Incorporated by reference from Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1989.)
10.23 Molecular Biosystems, Inc. 1984 Incentive Stock Option Plan and
1984 Nonstatutory Stock Option Plan, as amended by First and
Second Amendments. (Incorporated by reference from Exhibit 10.15
to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1988.)
16
<PAGE>
Exhibits (continued)
--------
10.24 Third and Fourth Amendments to Molecular Biosystems, Inc. 1984
Incentive Stock Option Plan and 1984 Nonstatutory Stock Option
Plan. (Incorporated by reference from Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1989.)
10.25 Fifth Amendment to Molecular Biosystems, Inc. 1984 Incentive
Stock Option Plan and 1984 Nonstatutory Stock Option Plan.
(Incorporated by reference from Exhibit 10.15 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1990.)
10.26 Sixth and Seventh Amendments to Molecular Biosystems, Inc. 1984
Incentive Stock Option Plan and 1984 Nonstatutory Stock Option
Plan. (Incorporated by reference from Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1991.)
10.27 Eighth and Ninth Amendments to Molecular Biosystems, Inc. 1984
Incentive Stock Option Plan and 1984 Nonstatutory Stock Option
Plan. (Incorporated by reference from Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1993.)
10.28 Form of Stock Option Agreement used with the Company's 1984
Incentive Stock Option Plan and 1984 Nonstatutory Stock Option
Plan. (Incorporated by reference from Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1988.)
10.29 Employment Agreement dated March 19, 1981 between the Company and
Kenneth J. Widder, M.D., as amended to date (by amendments dated
May 3, 1983 and May 20, 1988). (Incorporated by reference from
Exhibit 10.17 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1988.)
10.30* Employment Agreement dated April 25, 1995 between the Company and
Kenneth J. Widder, M. D.
10.31 Employment Agreement dated March 30, 1981 between the Company and
Vincent A. Frank, as amended to date (by amendments dated May 3,
1983 and May 20, 1988). (Incorporated by reference from Exhibit
10.18 to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1988.)
10.32 Molecular Biosystems, Inc. 1993 Stock Option Plan. (Incorporated
by reference from Exhibit 4.2 to the Company's Registration
Statement No. 33-78572 on Form S-8, dated May 3, 1994, filed on
May 5, 1994.)
10.33 Form of Stock Option Agreement used with the Company's 1993 Stock
Option Plan. (Incorporated by reference from Exhibit 10.33 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1994.)
10.34 Molecular Biosystems, Inc. 1993 Outside Directors Stock Option
Plan. (Incorporated by reference from Exhibit 4.2 to the
Company's Registration Statement No. 33-78564 on Form S-8, dated
May 3, 1994, filed on May 5, 1994.)
17
<PAGE>
Exhibits (continued)
--------
10.35 Form of Stock Option Agreement used with the Company's 1993
Outside Directors Stock Option Plan. (Incorporated by reference
from Exhibit 10.35 to theCompany's Annual Report on Form 10-K for
the fiscal year ended March 31, 1994.)
10.36 Employment Agreement dated April 25, 1988 between the Company and
Richard M. Stern. (Incorporated by reference from Exhibit 10.23
to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1988.)
10.37 Employment Agreement dated January 1, 1992 between the Company
and Steven Lawson. (Incorporated by reference from Exhibit 10.22
to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1992.)
10.38 Employment Agreement dated October 1, 1992 between the Company
and James L. Barnhart, Ph.D. (Incorporated by reference from
Exhibit 10.34 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1993.)
10.39* Employment Agreement dated April 1, 1994 between the Company and
Gerard A. Wills.
10.40* Employment Agreement dated December 2, 1994 between the Company
and Kenneth R. Derry.
10.41* Employment Agreement dated August 1, 1994 between the Company and
Allan H. Mizoguchi.
10.42 Sublease dated February 6, 1992 between the Company and Sunward
Technologies, California. (Incorporated by reference from
Exhibit 10.27 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1992.)
10.43* Triple Net Lease dated June 19, 1995 between the Company and
Radnor/Collins/Sorrento Partnership.
10.44* First Amendment to Lease dated July 15, 1994 between the Company
and Principal Mutual life Insurance Company.
10.45 Office Lease dated September 9, 1991 between the Company and The
Principal Financial Group. (Incorporated by reference from
Exhibit 10.28 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1992.)
10.46 Sublease dated March 1, 1993 between the Company and Dow Chemical
Company. (Incorporated by reference from Exhibit 10.39 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1993.)
10.47 Promissory note dated December 31, 1993 between the Company and
James L. Barnhart.
10.48* Amendment to Promissory note dated December 31, 1994 between the
Company and James L. Barnhart.
18
<PAGE>
Exhibits (continued)
--------
10.49 Promissory note dated December 31, 1993 between the Company and
John W. Young.
10.50* Amendment to Promissory note dated December 8, 1994 between the
Company and John W. Young.
10.51 Promissory note dated December 31, 1993 between the Company and
Richard M. Stern.
10.52* Amendment to Promissory noted dated December 31, 1994 between the
Company and Richard M. Stern.
13* The Company's Annual Report to Shareholders for the fiscal year
ended March 31, 1995.
19 Documents not previously filed are marked with an asterisk (*).
24* Consent of Arthur Andersen LLP.
(b) REPORTS ON FORM 8-K DURING THE FOURTH QUARTER ENDED MARCH 31,
1995
A Current Report on Form 8-K dated February 22, 1995, was filed
on March 6, 1995, reporting that the Company intends to focus
future research and development activities exclusively on the
Company's contrast agents for ultrasound imaging.
19
<PAGE>
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, on June 20, 1995.
MOLECULAR BIOSYSTEMS, INC.
By /s/ Kenneth J. Widder, M.D.
------------------------------------
Kenneth J. Widder, M.D.
Chairman of the Board and
Chief Executive 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kenneth J. Widder, M.D. Chairman of the Board, Chief June 20, 1995
- --------------------------------- Executive Officer and Director
Kenneth J. Widder, M.D. (Principal Executive Officer)
/s/ Gerard A. Wills Vice President - Finance June 20, 1995
- --------------------------------- and Chief Financial Officer
Gerard A. Wills (Principal Financial and
Accounting Officer)
/s/ Robert W. Brightfelt Director June 20, 1995
- ---------------------------------
Robert W. Brightfelt
/s/ Charles C. Edwards, M.D. Director June 20, 1995
- ---------------------------------
Charles C. Edwards, M.D.
/s/ Gordon C. Luce Director June 16, 1995
- ---------------------------------
Gordon C. Luce
/s/ David Rubinfien Director June 27, 1995
- ---------------------------------
David Rubinfien
</TABLE>
20
<PAGE>
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit Description Page
- ------------------- ------------
3.1 Certificate of Incorporation of the Company, as amended
to date (by amendments filed March 4, 1981, March 30, 1982,
March 14, 1983, April 18, 1983, and November 20, 1987).
(Incorporated by reference from Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1988.)
3.2 Certificate of Incorporation of Syngene, Inc. as amended
September 20, and December 31, 1989. (Incorporated by
reference from Exhibit 3.2 to the Company's Annual Report
of Form 10-K for the fiscal year ended March 31, 1990.)
3.3 By-Laws of the Company, as amended and restated September 18,
1990. (Incorporated by reference from Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1991).
3.4 First Amendment, dated August 20, 1992 to the By-Laws of
the Company, as amended and restated September 18, 1990.
(Incorporated by reference from Exhibit 3.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1994.)
3.5 By-Laws of Syngene, Inc. (Incorporated by reference from
Exhibit 3.4 to the Company's Annual Report on form 10-K for
the fiscal year ended March 31, 1990.)
10.1 Restated License Agreement dated June 1, 1989 between the
Company and Steven B. Feinstein, M.D., and related Research
and Supply Agreement dated June 1, 1989. (Incorporated by
reference from Exhibits 10.1 and 10.2 to the Company's
Current Report on Form 8-K filed on June 9, 1989.)
10.2 Amendment to Research Support and Supply Agreement dated
December 15, 1992 between the Company and Steven B. Feinstein,
M.D. (Incorporated by reference from Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993.)
10.3 License and Cooperative Development Agreement dated
December 31, 1987 between the Company and Nycomed AS
("Nycomed"), and related Investment Agreement dated
December 31, 1987, Registration Agreement dated December 31,
1987 and Common Stock Purchase Warrant dated January 19,
1988. (Incorporated by reference from Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1988.)
10.4 Amendment to License and Cooperative Development Agreement
dated June 9, 1989 between the Company and Nycomed.
(Incorporated by reference from Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1989.)
21
<PAGE>
Sequentially
Numbered
Exhibit Description Page
- ------------------- ------------
10.5 Distribution Agreement dated December 7, 1988 between the
Company and Mallinckrodt, Inc. and related Investment
Agreement dated December 7, 1988. (Incorporated by
reference from Exhibit 10.9 to the Company's Annual Report
on form 10-K for the fiscal year ended March 31, 1989.)
10.6 Amendment Agreement dated November 7, 1989 to Distribution
Agreement dated December 7, 1988 between the Company and
Mallinckrodt, Inc. (Incorporated by reference from Exhibit
10.7 to the Company's Annual Report on form 10-K for the
fiscal year ended March 31, 1990).
10.7 Letter Agreement dated February 1, 1991 between the Company
and Mallinckrodt Medical, Inc. (Incorporated by reference
from Exhibit 10.8 to the Company's Annual Report of Form 10-K
for the fiscal year ended March 31, 1991.)
10.8 Letter Agreement dated February 18, 1991 between the Company
and Schering Aktiengesellschaft. (Incorporated by reference
from Exhibit 10.9 to the Company's Annual Report of Form 10-K
for the fiscal year ended March 31, 1991.)
10.9 License and Cooperative Development Agreement dated March 2,
1989 between the Company and Shionogi & Co., Ltd.
(Incorporated by reference from Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1989.)
10.10 Exclusive License Agreement dated April 1, 1992 between the
Company and The Regents of the University of California.
(Incorporated by reference from Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1992.)
10.11 License Agreement dated August 23, 1991 between the Johns
Hopkins University, Towson State University and the Company.
(Incorporated by reference from Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the fiscal year ended
March 31, 1992.)
10.12 License Agreement dated November 11, 1991 between the Company
and the Regents of the University of Michigan. (Incorporated
by reference from Exhibit 10.32 to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1992.)
10.13 Exclusive License Agreement dated July 31, 1990 between the
Company and the Regents of the University of California, and
Amendment Agreement dated April 1, 1992. (Incorporated by
reference from Exhibit 10.33 to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1992.)
10.14 Non-Exclusive Patent License Agreement dated September 14, 1992
between the Company and Isis Pharmaceuticals, Inc.
(Incorporated by reference from Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1992.)
22
<PAGE>
Sequentially
Numbered
Exhibit Description Page
- ------------------- ------------
10.15 Settlement Agreement and Mutual General Release dated
August 28, 1992 between the Company and Gen-Probe
Incorporated. (Incorporated by reference from Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992.)
10.16 License and Settlement Agreement dated May 19, 1994 between
the Company, Kenneth J. Widder and James L. Barnhart and
IMARx Pharmaceutical Corp. and Evan C. Unger.
(Incorporated by reference from Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1994.)
10.17 Stipulation of Settlement dated February 14, 1994 between
Robert Sherman, on behalf of himself and all others similarly
situated and Kenneth J. Widder, et. al. (Incorporated by
reference from Exhibit 10.17 to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1994.)
10.18 License Option Agreement dated January 29, 1993 between the
Company and Abbott Laboratories. (Incorporated by reference
from Exhibit 10.1 to the Company's Current Report on Form 8-K
dated January 29, 1993.)
10.19 License and Collaborative Research Agreement dated December 10,
1992 among the Company, Dendritech Inc. and Michigan Molecular
Institute. (Incorporated by reference from Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993.)
10.20 Research Agreement dated May 1, 1993 between the Company and
Michigan Molecular Institute. (Incorporated by reference from
Exhibit 10.18 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1993.)
10.21 License and Distribution Agreement dated May 19, 1993 between
the Company and Bracco S.P.A., Milan, Italy. (Incorporated
by reference from Exhibit 10.19 to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1993.)
10.22 Molecular Biosystems, Inc. Pre-1984 Nonstatutory Stock Option
Plan. (Incorporated by reference from Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1989.)
10.23 Molecular Biosystems, Inc. 1984 Incentive Stock Option Plan
and 1984 Nonstatutory Stock Option Plan, as amended by First
and Second Amendments. (Incorporated by reference from
Exhibit 10.15 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1988.)
10.24 Third and Fourth Amendments to Molecular Biosystems, Inc.
1984 Incentive Stock Option Plan and 1984 Nonstatutory Stock
Option Plan. (Incorporated by reference from Exhibit 10.13 to
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1989.)
23
<PAGE>
Sequentially
Numbered
Exhibit Description Page
- ------------------- ------------
10.25 Fifth Amendment to Molecular Biosystems, Inc. 1984
Incentive Stock Option Plan and 1984 Nonstatutory Stock
Option Plan. (Incorporated by reference from Exhibit 10.15
to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1990.)
10.26 Sixth and Seventh Amendments to Molecular Biosystems, Inc.
1984 Incentive Stock Option Plan and 1984 Nonstatutory Stock
Option Plan. (Incorporated by reference from Exhibit 10.15 to
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1991.)
10.27 Eighth and Ninth Amendments to Molecular Biosystems, Inc.
1984 Incentive Stock Option Plan and 1984 Nonstatutory Stock
Option Plan. (Incorporated by reference from Exhibit 10.25 to
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993.)
10.28 Form of Stock Option Agreement used with the Company's 1984
Incentive Stock Option Plan and 1984 Nonstatutory Stock
Option Plan. (Incorporated by reference from Exhibit 10.16
to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1988.)
10.29 Employment Agreement dated March 19, 1981 between the Company
and Kenneth J. Widder, M.D., as amended to date (by amendments
dated May 3, 1983 and May 20, 1988). (Incorporated by
reference from Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1988.)
10.30* Employment Agreement dated April 25, 1995 between the Company
and Kenneth J. Widder, M. D.
10.31 Employment Agreement dated March 30, 1981 between the Company
and Vincent A. Frank, as amended to date (by amendments dated
May 3, 1983 and May 20, 1988). (Incorporated by reference
from Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1988.)
10.32 Molecular Biosystems, Inc. 1993 Stock Option Plan.
(Incorporated by reference from Exhibit 4.2 to the Company's
Registration Statement No. 33-78572 on Form S-8, dated May 3,
1994, filed on May 5, 1994.)
10.33 Form of Stock Option Agreement used with the Company's 1993
Stock Option Plan. (Incorporated by reference from Exhibit
10.33 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994.)
10.34 Molecular Biosystems, Inc. 1993 Outside Directors Stock
Option Plan. (Incorporated by reference from Exhibit 4.2 to
the Company's Registration Statement No. 33-78564 on Form S-8,
dated May 3, 1994, filed on May 5, 1994.)
24
<PAGE>
Sequentially
Numbered
Exhibit Description Page
- ------------------- ------------
10.35 Form of Stock Option Agreement used with the Company's 1993
Outside Directors Stock Option Plan. (Incorporated by
reference from Exhibit 10.35 to theCompany's Annual Report
on Form 10-K for the fiscal year ended March 31, 1994.)
10.36 Employment Agreement dated April 25, 1988 between the
Company and Richard M. Stern. (Incorporated by reference
from Exhibit 10.23 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1988.)
10.37 Employment Agreement dated January 1, 1992 between the
Company and Steven Lawson. (Incorporated by reference from
Exhibit 10.22 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1992.)
10.38 Employment Agreement dated October 1, 1992 between the Company
and James L. Barnhart, Ph.D. (Incorporated by reference from
Exhibit 10.34 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1993.)
10.39* Employment Agreement dated April 1, 1994 between the Company
and Gerard A. Wills.
10.40* Employment Agreement dated December 2, 1994 between the
Company and Kenneth R. Derry.
10.41* Employment Agreement dated August 1, 1994 between the Company
and Allan H. Mizoguchi.
10.42 Sublease dated February 6, 1992 between the Company and
Sunward Technologies, California. (Incorporated by reference
from Exhibit 10.27 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1992.)
10.43* Triple Net Lease dated June 19, 1995 between the Company and
Radnor/Collins/Sorrento Partnership.
10.44* First Amendment to Lease dated July 15, 1994 between the
Company and Principal Mutual life Insurance Company.
10.45 Office Lease dated September 9, 1991 between the Company and
The Principal Financial Group. (Incorporated by reference
from Exhibit 10.28 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1992.)
10.46 Sublease dated March 1, 1993 between the Company and Dow
Chemical Company. (Incorporated by reference from Exhibit
10.39 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1993.)
10.47 Promissory note dated December 31, 1993 between the Company
and James L. Barnhart.
25
<PAGE>
Sequentially
Numbered
Exhibit Description Page
- ------------------- ------------
10.48* Amendment to Promissory note dated December 31, 1994 between
the Company and James L. Barnhart.
10.49 Promissory note dated December 31, 1993 between the Company
and John W. Young.
10.50* Amendment to Promissory note dated December 8, 1994 between
the Company and John W. Young.
10.51 Promissory note dated December 31, 1993 between the Company
and Richard M. Stern.
10.52* Amendment to Promissory noted dated December 31, 1994 between
the Company and Richard M. Stern.
13* The Company's Annual Report to Shareholders for the fiscal
year ended March 31, 1995.
19 Documents not previously filed are marked with an asterisk (*).
24* Consent of Arthur Andersen LLP.
(b) REPORTS ON FORM 8-K DURING THE FOURTH QUARTER ENDED
MARCH 31, 1995
A Current Report on Form 8-K dated February 22, 1995, was
filed on March 6, 1995, reporting that the Company intends
to focus future research and development activities
exclusively on the Company's contrast agents for ultrasound
imaging.
26
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is entered into as of April 25, 1995 by Molecular
Biosystems, Inc., a Delaware corporation ("MBI"), and Kenneth J. Widder, M.D.
("Dr. Widder").
RECITALS
A. MBI is engaged in the development and commercial distribution of
proprietary diagnostic imaging contrast agents. Dr. Widder is an employee of
MBI currently serving as its Chairman of the Board and, as such, its Chief
Executive Officer.
B. MBI desires to continue to employ Dr. Widder, and Dr. Widder desires
to continue to work for MBI, on the terms of this Agreement.
Now, therefore, in consideration of their mutual promises, the parties
agree as follows:
1. DEFINITIONS. The following terms have these meanings:
(a) BOARD means MBI's Board of Directors.
(b) CHAIRMAN OF THE BOARD means MBI's Chairman of the Board and, as such,
CEO, having the powers and duties given to the office of Chairman of
the Board by MBI's by-laws, as they may be amended, or assigned to the
Chairman by the Board.
(c) CEO means MBI's chief executive officer.
(d) CEO PERIOD is defined in Paragraph 3(a)(i).
(e) CHANGE OF CONTROL means an event or the last of a series of related
events by which:
(i) any "person" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended) becomes the
direct or indirect beneficial owner of more than 50% of
MBI's outstanding stock (or of more than 50% of MBI's
outstanding voting stock, if and when MBI has more than one
class of stock outstanding); OR
(ii) a majority of the directors on the Board cease to consist of
(A) directors as of the date of this Agreement and (B)
directors whose nomination for election by MBI's
stockholders (or whose election by the Board, in case of a
vacancy filled by the Board) was approved by a resolution of
a majority of directors consisting of directors described in
clause (A) and this clause (B).
(f) COMPETITOR means any corporation, partnership, joint venture or other
entity which is
<PAGE>
engaged in the development or commercial distribution of diagnostic
imaging contrast agents anywhere in the world.
(g) CONSULTANT PERIOD is defined in Paragraph 3(a)(ii).
(h) DISABLED means, in reference to Dr. Widder, a physical or mental
condition as a result of injury, illness or disease which prevents Dr.
Widder from performing substantially all of his duties or from working
on a substantially full-time basis.
(i) INITIAL TERM is defined in Paragraph 3(a).
(j) NEW COO means the person hired (or promoted) after the date of this
Agreement to serve as MBI's President and, as such, its chief
operating officer.
(k) RENEWAL YEAR is defined in Paragraph 3(b).
(l) Section is the symbol for "section" and refers to sections of the
Internal Revenue Code of 1986, as amended.
(m) TERMINATION AMOUNT is defined in Paragraph 11(b).
(n) YEAR means the year beginning on April 1 and ending on the following
March 31.
2. DUTIES. Dr. Widder shall have the following duties during the term of
this Agreement:
(a) CEO PERIOD. During the CEO Period, Dr. Widder shall continue to serve
as Chairman of the Board and, as such, CEO. Recognizing that a person
of the calibre and experience of the person whom MBI hopes to hire as
the New COO will want to become CEO at some point (and will want
assurances to this effect when hired as COO), Dr. Widder shall work
with the New COO, when hired, to prepare him or her to assume the
duties of CEO. Dr. Widder shall devote his full business time and
efforts to the performance of his duties during the CEO Period.
(b) CONSULTANT PERIOD. During the Consultant Period, Dr. Widder shall
devote his efforts to (i) advising MBI in connection with the
identification, acquisition, development and commercial exploitation
of new technologies, (ii) advising MBI on strategic business issues as
requested by the new CEO or the Board and (iii) performing any other
tasks that the Board may assign consistent with Dr. Widder's status as
a founder of MBI and its former CEO. If the CEO Period expires on
March 31, 1998 without the New COO having been appointed the new CEO,
Dr. Widder shall continue to serve as CEO during the Consultant Period
for as long as the Board requests and he is willing to serve. Dr.
Widder shall devote such of his business time and efforts to the
performance of his duties during the Consultant Period as the Board
and Dr. Widder agree is appropriate under the circumstances.
-2-
<PAGE>
(c) DIRECTOR AND CHAIRMAN. During the Consultant Period, Dr. Widder shall
continue to serve as a director of MBI for as long as he is willing to
serve and is nominated for re-election by the Board and re-elected to
office by MBI's stockholders. While serving as a director, Dr. Widder
shall also continue to serve as Chairman of the Board if the Board
desires him to continue in this capacity (and if the Board amends
MBI's by-laws to separate the positions of Chairman of the Board and
CEO).
3. TERM. The term of this Agreement shall be as follows:
(a) INITIAL TERM. The initial term of this Agreement (the "Initial Term")
shall be six Years, beginning on April 1, 1995 and continuing through
March 31, 2001, and shall be divided into two period as follows:
(i) CEO PERIOD. The first period (the "CEO Period") shall begin
on April 1, 1995 and continue through the EARLIER of (A)
March 31, 1998 or, if and when the Board has concluded,
following consultation with Dr. Widder, that the New COO is
qualified and ready to assume all of the duties of CEO, (B)
the effective date of the Board's appointment of the New COO
as the new CEO.
(ii) CONSULTANT PERIOD. The second period (the "Consultant
Period") shall begin immediately following the expiration of
the CEO Period and continue through March 31, 2001.
(b) AUTOMATIC RENEWAL. This Agreement shall be automatically renewed for
successive terms of one Year (a "Renewal Year") starting April 1,
2001.
(c) DEATH PRIOR TO INITIAL TERM. In the event of Dr. Widder's death on or
after the date of this Agreement but prior to the start of the Initial
Term, the term of this Agreement shall be considered to have started
on the date of this Agreement.
This Agreement shall be subject to termination prior to expiration as provided
in Paragraph 10.
4. SALARY. MBI shall pay Dr. Widder a salary for his services under this
Agreement as follows:
(a) FIRST YEAR. For the first Year during the Initial Term, Dr. Widder's
salary shall be $240,000; and
(b) SUBSEQUENT YEARS. For each subsequent Year during the Initial Term,
and for each Renewal Year, if any, Dr. Widder's salary shall be an
amount determined by the by the Board's Compensation Committee and
reviewed by the full Board, subject to the limitation described in
Paragraph 4(c). The Compensation Committee's determination shall
taking into account the various factors typically taken into account
in determining the salaries of MBI's executive officers, as described
in the Compensation
-3-
<PAGE>
Committee's report on executive compensation included in MBI's annual
proxy statement.
(c) FIRST YEAR OF CONSULTANT PERIOD. For the first Year during the
Consultant Period (or for the first full Year during the Consultant
Period if the Consultant Period starts prior to April 1, 1998), Dr.
Widder's salary for the Year shall not be less than his salary for the
prior Year.
5. BONUSES AND STOCK OPTIONS. In addition to Dr. Widder's salary under
Paragraph 4, each Year MBI may pay Dr. Widder a cash bonus and award him stock
options in amounts and on terms determined by the Board's Compensation Committee
and reviewed by the full Board (in the case of any cash bonus). The
Compensation Committee's determination shall take into account the various
factors typically taken into account in determining cash bonuses and stock
option awards to MBI's executive officers, as described in the Compensation
Committee's report on executive compensation included in MBI's annual proxy
statement.
6. EARLY VESTING OF STOCK OPTIONS. All stock options under the Molecular
Biosystems, Inc. 1993 Stock Option Plan (or any other plan) which Dr. Widder
holds at the time shall become fully "vested" (I.E., immediately exercisable)
upon the first of the following events to occur: (i) the expiration of the CEO
Period; or (ii) prior to the expiration of the CEO Period, (A) the termination
of this Agreement pursuant to notice by MBI under Paragraphs 10(a) or 10(b), (B)
the termination of this Agreement pursuant to notice by Dr. Widder under
Paragraph 10(c) following a Change in Control or (C) Dr. Widder's death,
including his death on or after the date of this Agreement but prior to the
start of the Initial Term.
7. FRINGE BENEFITS. During the CEO Period, Dr. Widder shall be entitled
to participate in any fringe benefits and perquisites that MBI provides to its
senior executive officers in accordance with the plans, policies or informal
arrangements under which those benefits and perquisites are provided (but, in
any case, his fringe benefits and perquisites shall be no less favorable to him
than those provided to the New COO, when hired). During the Consultant Period,
Dr. Widder shall be entitled to the same fringe benefits and perquisites that
MBI provides to the new CEO.
8. EXPENSES. MBI shall pay for, or reimburse to Dr. Widder on submission
of appropriate supporting documentation, all travel, entertainment and other
business expenses that Dr. Widder reasonably incurs in performing his duties
under this Agreement.
9. DISABILITY. If Dr. Widder becomes Disabled, Dr. Widder's salary under
Paragraph 4 shall continue while he remains Disabled, up to a maximum of 180
days during any 270-day period, but shall be reduced by the amount of any short-
term or long-term disability benefits paid to him while Disabled under any group
disability insurance plan that MBI maintains (or any State of California plan to
which MBI contributes), except to the extent that those benefits are
attributable to premiums paid by Dr. Widder either directly to the insurer, by
reimbursement to MBI (other than through payroll deductions) or through payroll
deductions under MBI's cafeteria
-4-
<PAGE>
plan (or otherwise).
10. TERMINATION. This Agreement shall terminate prior to its expiration
on the occurrence of any one of the following events:
(a) on notice from MBI to Dr. Widder given at any time when Dr. Widder is
not Disabled;
(b) on notice from MBI to Dr. Widder given at any time when Dr. Widder is
Disabled and has been Disabled for at least 180 days during the 270-
day period ending on the date MBI's notice;
(c) on notice from Dr. Widder to MBI; or
(d) on Dr. Widder's death (including his death on or after the date of
this Agreement but prior to the start of the Initial Term).
The termination of this Agreement pursuant to Paragraphs 10(a), 10(b) or 10(c)
shall be effective as of the LATER of (i) the date specified in the terminating
party's notice of termination or (ii) 30 days from the date of the recipient's
receipt of the notice.
11. PAYMENTS ON TERMINATION. Upon the termination of this Agreement, MBI
shall make the following payments to Dr. Widder (or to his estate):
(a) ACCRUED SALARY. MBI shall pay Dr. Widder's salary under Paragraph 4
through the effective date of termination of this Agreement.
(b) TERMINATION PAYMENT. In the following circumstances (and only in the
following circumstances, and, in any case, subject to the limitations
in Paragraph 11(d)), MBI shall pay an amount (the "Termination
Amount") equal to three times the GREATEST of (i) Dr. Widder's salary
under Paragraph 4 on the effective date of termination of this
Agreement, (ii) Dr. Widder's salary under Paragraph 4 as of the date
60 days prior to the effective date of termination or (iii) Dr.
Widder's salary under Paragraph 4(a) for the first Year of the Initial
Term (I.E., $240,000):
(i) this Agreement terminates pursuant to notice by MBI under
Paragraphs 10(a) or 10(b);
(ii) this Agreement terminates pursuant to notice by Dr. Widder
under Paragraph 10(c) given at any time during the CEO
Period following a Change in Control;
(iii) this Agreement terminates pursuant to notice by Dr.
Widder under Paragraph 10(c) given at any time during the
Consultant Period or any Renewal Term; or
-5-
<PAGE>
(iv) this Agreement terminates pursuant to Paragraph 10(d) upon
Dr. Widder's death.
(c) MANNER OF PAYMENT. If the Termination Amount is payable under
Paragraph 10(b), MBI shall pay the Termination Amount in one of the
following two ways as MBI, in its discretion, determines:
(i) by payment in one lump sum no later than 30 days following
the effective date of termination of this Agreement; or
(ii) by (A) payment of one-half of the Termination Amount in a
lump sum no later than 30 days following the effective date
of termination of this Agreement and (B) payment of the
balance in 18 equal consecutive monthly installments payable
on the first day of the month beginning with the second
month following the month in which the effective date of
termination occurs, together with accrued interest on the
unpaid balance (from the effective date of termination) at a
fluctuating rate equal at all times to the rate that
Security Pacific National Bank announces as its prime or
equivalent rate of interest, which shall be payable with
each monthly installment of the unpaid balance of the
Termination Amount.
(d) LIMITATIONS. Payment of the Termination Amount shall be subject to
the following limitations:
(i) MBI shall not be required to pay the Termination Amount, or
to pay any remaining installments of the Termination Amount,
if Dr. Widder violates the restrictions in Paragraph 12
(regardless of whether those restrictions are enforceable
against Dr. Widder under applicable law or whether MBI seeks
to enforce them against him); and
(ii) If the Termination Amount is payable by reason of Dr.
Widder's termination of this Agreement under Paragraph 10(c)
during the CEO Period following a Change in Control, the
Termination Amount shall be reduced as necessary so that the
present value, as determined in accordance with Section
280G(d)(4), of the sum of (i) the Termination Amount and
(ii) all other payments, if any, that must be taken into
account for purposes of the computation under Section
280G(b)(2)(A)(ii) in respect of Dr. Widder, does not exceed
2.99 times Dr. Widder's base amount, as "base amount" is
defined in Section 280G(b)(3).
12. NON-COMPETITION. During the term of this Agreement, and for a period
of three years following the effective date of termination, Dr. Widder shall not
accept employment with a Competitor, or directly or indirectly acquire a
financial interest in or render consulting or other services of any kind to a
Competitor, unless he first receives a written waiver from MBI. These
restrictions shall not prohibit Dr. Widder from owning less than 1% of the
outstanding stock of any Competitor whose stock is listed on a national stock
exchange or from accepting employment with, acquiring a financial interest of
any magnitude in or rendering services of any kind to any
-6-
<PAGE>
Competitor which has acquired substantially all of MBI's assets or at least 50%
of its outstanding stock.
13. NOTICES. Any notice under this Agreement shall be effective only if
it is in writing and sent by certified or registered mail, overnight courier
service or personal delivery. Any notice to MBI shall be delivered or sent to
it at 10030 Barnes Canyon Road, San Diego, California 92121, and any notice to
Dr. Widder shall be sent to him at his home address as shown on MBI's payroll
records. A notice sent by certified or registered mail shall be considered to
have been given and received two business days after being deposited in the
mail. A notice sent by overnight courier service or personal delivery shall be
considered to have been given and received when actually received by the
intended recipient. A party may change its or his address for purposes of this
Agreement by giving notice of the change to the other party in accordance with
this Paragraph.
14. ASSIGNMENT. MBI shall not assign this Agreement without Dr. Widder's
consent. To the extent permitted by law, Dr. Widder's rights and benefits under
this Agreement shall not be subject to voluntary or involuntary assignment or
transfer.
15. ARBITRATION. In the event of any dispute between MBI and Dr. Widder
regarding the interpretation or application of any provision of this Agreement,
either MBI or Dr. Widder may unilaterally submit the dispute for binding
arbitration before the American Arbitration Association in San Diego, California
in accordance with its rules for commercial arbitration in effect at the time.
The award of the arbitrator or panel of arbitrators may include attorneys' to
the prevailing party, and judgment on the award may be entered in the United
States District Court for the Southern District of California or any other court
of competent jurisdiction.
16. SEVERABILITY. If any provision of this Agreement is held
unenforceable by a court of competent jurisdiction, that provision shall be
considered severable from this Agreement, and the remaining provisions of this
Agreement shall continue in force.
17. INTEGRATION. This Agreement represents the entire agreement between
MBI and Dr. Widder in respect of its subject matter, and supersedes any and all
prior agreements, understandings and promises by either party to the other
regarding its subject matter.
18. AMENDMENT. No amendment of this Agreement shall be effective unless
it is in writing, makes specific reference to this Agreement and is signed by
both MBI and Dr. Widder.
19. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California.
20. BINDING EFFECT. This Agreement shall be binding on, and shall inure
to the benefit of, the parties and their respective heirs, legal
representatives, successors and assigns.
21. PRIOR AGREEMENT. Dr. Widder's Employment Agreement dated March 30,
1981, as
-7-
<PAGE>
amended, shall terminate as of April 25, 1995, without the necessity of
any further action by either MBI or Dr. Widder.
22. ARBITRATION. Any controversy or claim arising out of or related to
this contract, or the breach thereof, shall be settled by final and binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association in effect at such time. Such arbitration to be
conducted in San Diego, California. Judgment upon the award rendered by the
Arbitrator or Arbitrators may be entered in any Court having jurisdiction.
23. ATTORNEY FEES. If any party to this agreement resorts to a legal
action or arbitration to enforce any provision of this agreement, including an
action for declaratory relief, the prevailing party shall be entitled to recover
reasonable attorney's fees in addition to any other relief to which he or it may
be entitled. This provision applies to the entire agreement.
In witness, the parties have signed this Agreement.
Molecular Biosystems, Inc.
By /s/ Charles C. Edwards 5/5/95
----------------------------------------
-------------------------------------
One of its Directors,
by authorization of the Board
/s/ Kenneth J. Widder
----------------------------------
Kenneth J. Widder, M.D.
-8-
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of August 1, 1994, between GERARD A. WILLS,
an individual ("Employee"), and MOLECULAR BIOSYSTEMS, INC., a Delaware
corporation ("the Company").
1. EMPLOYMENT. The Company hereby employs the Employee as its Chief
Financial Officer, to provide services at such times as shall be mutually agreed
upon between them. The Company shall be entitled to all of the benefits and
profits arising from or incident to the work, services and advice rendered by
the Employee relating to the work performed for the Company. The Employee shall
make all information available to the Company that relates to the Company's
business of which he has any knowledge and shall not use any such information or
the benefits of any such information for his personal profit or that of any
third party. The Employee agrees to use his best efforts to promote the
interests of the Company including, where appropriate, the publication of
articles in medical and scientific journals and the participation in medical and
scientific seminars and symposiums relating to the business and affairs of the
Company and/or his research efforts performed for and on behalf of the Company.
The Employee shall perform the duties of employment in a manner satisfactory to
the Company and shall devote his full working time to such duties.
2. DISCLOSURES. The Employee shall promptly disclose in writing to the
officials designated by the Company to receive such disclosures, complete
information concerning each and every invention, discovery, improvement, device,
design, apparatus, practice, process, method or product (hereinafter referred to
as "Inventions"), whether the Employee considers them patentable or not, made,
developed, perfected, devised, conceived or reduced to practice by him, either
solely or in collaboration with others, during the period of his employment by
the Company, and up to and including a period of twelve (12) months after
termination of his employment, whether or not during regular working hours,
relating either directly or indirectly to the business, products, practices or
techniques of the Company or to the Company's actual or demonstrably anticipated
research or development, or resulting from any work performed by him for the
Company or with the equipment, supplies, facilities or Confidential Information
of the Company.
3. CONFIDENTIALITY. The Employee recognizes that his employment with the
Company will involve contact with information of substantial value to the
Company, which is not old and generally known in the trade and which gives the
Company an advantage over its competitors who do not know or use it, including
but not limited to techniques, designs, drawings, processes, inventions,
developments, equipment, prototypes, sales and customer information, and
business and financial information, relating to the business, products,
practices or techniques of the Company
<PAGE>
(hereinafter referred to as "Confidential Information"). The Employee shall at
all times regard and preserve as confidential such Confidential Information
obtained by him from whatever source and shall not, either during his employment
or thereafter, publish or disclose any part of such Confidential Information in
any manner, or use the same except on behalf of the Company, without the prior
written consent of the Company. Further, the Employee shall, during his
employment and thereafter, refrain from any acts or omissions that would reduce
the value of such Confidential Information to the Company.
4. ASSIGNMENT OF RIGHTS. The Employee hereby agrees that any Inventions
made, developed, perfected, devised, conceived or reduced to practice by him
during the period of his employment by the Company, and any other Inventions
made, developed, perfected, devised, conceived or reduced to practice by him
during said period of twelve (12) months after termination of his employment if
based upon the Confidential Information of the Company, relating either directly
or indirectly to the business, products, practices or techniques of the Company
or to the Company's actual or demonstrably anticipated research or development,
or resulting from any work performed by him for the Company or with the
equipment, supplies, facilities or Confidential Information of the Company, are
the sole property of the Company, and hereby assigns and agrees to assign to the
Company, its successors and assigns, all of his right, title and interest in and
to said Inventions, and any patent applications or Letters Patent thereon.
NOTIFICATION
This Agreement does not apply to an invention for which no equipment,
supplies, facility, or trade secret information of the Company was used and
which was developed entirely on your own time, and (a) which does not relate (1)
to the business of the Company or (2) to the Company's actual or demonstrably
anticipated research or development, or (b) which does not result from any work
performed by you for the Company, as defined and provided by Section 2870 of the
California Labor Code.
5. COVENANT OF COOPERATION. The Employee shall, at any time during
employment or thereafter, upon request and without further compensation
therefor, but at no expense to him, do all lawful acts, including but not
limited to the execution of papers and oaths, the giving of testimony, and the
obtaining of evidence that in the opinion of the Company, its successors or
assigns, may be necessary or desirable for obtaining, sustaining, reissuing or
enforcing Letters Patent in the United States and throughout the world for said
Inventions, and for perfecting, recording or maintaining the title of the
Company, its successors and assigns, to said Inventions and to any patent
applications made
- 2 -
<PAGE>
and any Letters Patent granted for said Inventions in the United States and
throughout the world.
6. PATENT ENFORCEMENT. The Company shall have the sole discretion
whether to obtain, maintain, modify or enforce any domestic or foreign patent
for said Inventions assigned to the Company pursuant to this Agreement. The
Company is free to enter into any licensing or assignment agreement with any
third party or to use whatever means it deems best to develop, promote or market
said Inventions assigned to the Company pursuant to this Agreement or any
domestic or foreign patent thereof.
7. CLAIMS BY THIRD PARTY. As to any Inventions which were made,
developed, perfected, devised, conceived or reduced to practice by the Employee
during the period of his employment by the Company, and up to and including a
period of twelve (12) months after termination of his employment, but which are
claimed for any reason to belong to an entity or person other than the Company,
the Employee will promptly disclose the same in writing to the Company and shall
not disclose the same to others if the Company, within twenty (20) days
thereafter, shall claim ownership of such Inventions under the terms of this
Agreement. If the Company makes such a claim, the Employee agrees that any
controversy relating to such claim shall be settled and determined by binding
arbitration conducted in San Diego, California, in accordance with the rules of
the American Arbitration Association then existing. The cost of arbitration
shall be shared equally.
8. RECORDKEEPING. The Employee shall keep complete, accurate and
authentic accounts, notes, data and records of any and all of said Inventions in
the manner and form requested by the Company. Such accounts, notes, data and
records, including all copies thereof, shall be the property of the Company, and
upon its request, the Employee will promptly surrender the same to it, or if not
previously surrendered, the Employee will promptly surrender the same to the
Company at the conclusion of his employment.
9. RECORDS PROPERTY OF COMPANY. The Employee agrees that all accounts,
notes, data, sketches, drawings and other documents and records, and all
material and physical items of any kind, including all reproductions and copies
thereof, which relate in any way to the business, products, practices or
techniques of the Company or contain Confidential Information, made by him or
that come into his possession by reason of his employment are the property of
the Company and shall be promptly surrendered to the Company at the conclusion
of his employment.
10. INDUCEMENT. The Employee shall not disclose to the Company or induce
the Company to use an invention or confidential information belonging to any
third party.
- 3 -
<PAGE>
11. NO OTHER AGREEMENTS. The Employee warrants and represents that he has
no agreement with any other party that would preclude his compliance with his
obligations under this Agreement as set forth above.
12. TERM OF EMPLOYMENT. The term of employment hereunder shall begin on
the date hereof and end on the first to occur of (i) the Employee's death; (ii)
the date specified by the Employee in written notice to the Company given at
least fifteen (15) days in advance of such date; or (iii) the date specified by
the Company in a written notice to the Employee given at least (x) fifteen (15)
days in advance of such date if no "Change in Control" (as defined below) of the
Company shall have occurred on or before the date such notice is given, or (y)
one year in advance of such date if "Change in Control" of the Company shall
have occurred on or before the date such notice is given. For purposes of this
paragraph 12, a "Change in Control" shall mean any event by which (a) an
"Acquiring Person" (as defined below) has become such, or (b) "Continuing
Directors (as defined below) cease to comprise a majority of the members of the
board of directors of the Company (the "Board"). For purposes of this
definition:
(i) An "Acquiring Person" means any person or group (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder as in effect on the date of this
Agreement (the "Exchange Act")) who or which, together with all affiliates and
associates (as defined in Rule 12b-2 under the Exchange Act) becomes the
beneficial owner of shares of the Company having 50% or more of the total number
of votes that may be cast for the election of directors of the Company; and
(ii) "Continuing Director" means any member of the Board, while such
person is a member of the Board, who is not an Acquiring Person, or an affiliate
or associate of an Acquiring Person or a representative of an Acquiring Person
or of any such affiliate or associate and who (x) was a member of the Board
prior to the date of this Agreement, or (y) subsequently becomes a member of
such Board and whose nomination for election or election to the Board is
recommended or approved by resolution of a majority of the Continuing Directors
or who is included as a nominee in a proxy statement of the Company distributed
when a majority of the Board consists of Continuing Directors.
13. COMPENSATION. For all services rendered under this Agreement, the
Company shall pay the Employee an initial base annual salary of $100,000 per
year. This compensation shall be reviewed on or about every anniversary of
employment or at such other time as officer's salaries are reviewed generally,
and may be adjusted at the discretion of the management of the Company. In
addition to the Employee's base annual rate, the Company may
- 4 -
<PAGE>
provide such additional or other compensation, benefits, or job perquisites as
the Company may see fit to furnish. The Employee shall be entitled to fifteen
days vacation per fiscal year, which entitlement shall increase by an additional
day for each additional year the Employee is employed with the Company, to a
maximum of 20 days. The time when vacations may be taken shall be subject to
the prior approval of the Company's management. The Employee shall also be
entitled to all legal holidays which the Company may decide to observe.
14. EXPENSES. The Company shall pay or reimburse the Employee for
expenses incurred by him on behalf of the Company with its approval. Such
reimbursement shall be made upon presentation by the Employee to the Company of
itemized accounts or receipts satisfactory to the Company. The Employee's
obligations with respect to his performance hereunder are unconditional and are
not dependent upon such reimbursement. The Company reserves the right to charge
back to the Employee any expense reimbursement found to be non-tax deductible by
the Company or found to have been falsely or improperly claimed by him.
15. DISABILITY.
(a) If the Employee becomes totally disabled, this Agreement shall
continue in full force and effect except that the Employee's compensation shall
be fifty percent (50%) of his base gross salary for a period not to exceed six
(6) months. Such compensation shall be reduced by any disability insurance
benefits the Employee receives under any disability insurance policy, including
state funded disability insurance.
(b) Upon termination of such total disability, the Employee shall be
obligated to resume his services under this Agreement.
(c) If a period of total disability is followed by any subsequent
period(s) of total disability, the subsequent period(s) of total disability
shall be considered a continuation of previous periods of total disability
unless the Employee shall have engaged in services under this Agreement for a
continuous period of twelve (12) months following a period of total disability,
in which case, any subsequent period of total disability shall be considered a
new period of total disability under the same terms as stated above.
(d) If the Employee is partially disabled, his compensation during
the period of such disability shall be reduced in the ratio that the amount of
time absent from work bears to his full work schedule. If the Employee fails to
devote at least ninety percent (90%) of the time required by full schedule to
his employment the Employee will be deemed to be partially disabled, if the
Employee is determined to be disabled pursuant to para-
- 5 -
<PAGE>
graph 15(f) hereunder. Notwithstanding the foregoing, the amount payable under
this partial disability clause shall not be less than the amount which would
have been payable to the Employee during a six (6) month period if the Employee
had been fully disabled for that length of that time. If the Employee's partial
disability exceeds fifty percent (50%), the Employee shall be deemed to be
totally disabled and the appropriate provisions of this Agreement shall apply.
If the Company and the Employee are unable to agree as to the amount by which
the Employee is deficient in completing his assigned tasks and responsibilities
hereunder due to his partial disability, then a determination of such deficiency
shall be settled and determined by binding arbitration conducted in San Diego,
California in accordance with the rules of the American Arbitration Association
then existing. The cost of arbitration shall be shared equally by the parties.
(e) The Employee shall be deemed "disabled" if the Employee is:
(i) adjudicated incompetent by a court of competent
jurisdiction, or
(ii) affected by a mental or physical impairment that impedes the
performance of his services under this Agreement, such determination to be made
by a physician selected by the Company, but this element of the definition shall
not apply to pregnancy, for which the Company customarily offers an unpaid leave
of absence for a reasonable period of time.
(f) The Employee agrees to undergo a physical examination whenever
reasonably requested to do so by the Company.
16. EXCLUSIVITY. The Employee shall not, while employed by the Company,
engage in any other employment or business venture for his account or on behalf
of others that relates, directly or indirectly, to the business and affairs of
the Company without the prior written consent of the Company.
17. PROHIBITION AGAINST ASSIGNMENT. This Agreement and the rights,
interests and benefits hereunder shall not be assigned, transferred, pledged or
hypothecated in any way by the Employee or any executor, administrator, heir,
legatee, distributee or any other person claiming under the Employee by virtue
of this Agreement and shall not be subject to execution, attachment or similar
process. Any attempt to assign, transfer, pledge or hypothecate or otherwise
dispose of this Agreement or of such rights, interests and benefits contrary to
the foregoing provisions, or the levy of any attachment or similar process
thereon shall be null and void and without effect and shall relieve the Company
of any and all liability hereunder.
- 6 -
<PAGE>
18. NOTICE. Any and all notices, designations, consents, offers,
acceptances or any other communication provided for herein shall be given in
writing by registered or certified mail, return receipt requested, which shall
be addressed, in the case of the Company, to its office in San Diego,
California, and in the Employee's case to his known place of residence as
reflected on the Company's records.
19. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and contains all of the agreements between them with respect
to the subject matter hereof; this Agreement supersedes any and all other
agreements, either oral or in writing, between us with respect to the subject
matter hereof, including any earlier employment agreement.
20. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective heirs, legal representatives,
executors, administrators, and successors.
21. GOVERNING LAW. This Agreement shall be subject to and governed by the
laws of the State of California.
22. AMENDMENT OF AGREEMENT. No change or modification of this Agreement
shall be valid unless the same be in writing and signed by the parties. No
waiver of any provision of this Agreement shall be valid unless in writing and
signed by the person or party to be charged.
23. SEVERABILITY. If any portion or portions of this Agreement shall be,
for any reason, deemed to be invalid or unenforceable, the remaining portion or
portions shall nevertheless be valid, enforceable and carried into effect,
unless to do so would clearly violate the present legal and valid intention of
the parties.
24. BREACH. In the event the Employee breaches this Agreement and the
Company prevails in an action to enforce the terms of this Agreement, the
Employee agrees to pay to the Company all reasonable attorneys' fees and costs
incurred by the Company in prosecuting such action, and all damages suffered by
the Company as well as any gain or profit derived by the Employee as a result of
any such breach.
25. HEADINGS. The headings of this Agreement are inserted for convenience
only and are not to be considered in construction of the provisions hereof.
- 7 -
<PAGE>
26. WAIVER OF BREACH. The waiver by either of the parties hereto of any
breach of any provision hereof shall not be construed to be a waiver of any
succeeding breach of that provision or a waiver of any other provision of this
Agreement.
WHEREAS, the parties have executed this Agreement as of the date first
above written.
MOLECULAR BIOSYSTEMS, INC.
By: /s/ Kenneth J. Widder
-------------------------
Kenneth J. Widder, M.D.
Chief Executive Officer
By: /s/ Gerard A. Wills
-------------------------
Gerard A. Wills
- 8 -
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of December 2, 1994, between KENNETH R.
DERRY, an individual ("Employee"), and MOLECULAR BIOSYSTEMS, INC., a Delaware
corporation ("the Company").
1. EMPLOYMENT. The Company hereby employs the Employee as its Vice
President Operations, to provide services at such times as shall be mutually
agreed upon between them. The Company shall be entitled to all of the benefits
and profits arising from or incident to the work, services and advice rendered
by the Employee relating to the work performed for the Company. The Employee
shall make all information available to the Company that relates to the
Company's business of which he has any knowledge and shall not use any such
information or the benefits of any such information for his personal profit or
that of any third party. The Employee agrees to use his best efforts to promote
the interests of the Company including, where appropriate, the publication of
articles in medical and scientific journals and the participation in medical and
scientific seminars and symposiums relating to the business and affairs of the
Company and/or his research efforts performed for and on behalf of the Company.
The Employee shall perform the duties of employment in a manner satisfactory to
the Company and shall devote his full working time to such duties.
2. DISCLOSURES. The Employee shall promptly disclose in writing to the
officials designated by the Company to receive such disclosures, complete
information concerning each and every invention, discovery, improvement, device,
design, apparatus, practice, process, method or product (hereinafter referred to
as "Inventions"), whether the Employee considers them patentable or not, made,
developed, perfected, devised, conceived or reduced to practice by him, either
solely or in collaboration with others, during the period of his employment by
the Company, and up to and including a period of twelve (12) months after
termination of his employment, whether or not during regular working hours,
relating either directly or indirectly to the business, products, practices or
techniques of the Company or to the Company's actual or demonstrably anticipated
research or development, or resulting from any work performed by him for the
Company or with the equipment, supplies, facilities or Confidential Information
of the Company.
3. CONFIDENTIALITY. The Employee recognizes that his employment with the
Company will involve contact with information of substantial value to the
Company, which is not old and generally known in the trade and which gives the
Company an advantage over its competitors who do not know or use it, including
but not limited to techniques, designs, drawings, processes, inventions,
developments, equipment, prototypes, sales and customer information, and
business and financial information, relating to the business, products,
practices or techniques of the Company (hereinafter referred to as "Confidential
Information"). The
<PAGE>
Employee shall at all times regard and preserve as confidential such
Confidential Information obtained by him from whatever source and shall not,
either during his employment or thereafter, publish or disclose any part of such
Confidential Information in any manner, or use the same except on behalf of the
Company, without the prior written consent of the Company. Further, the
Employee shall, during his employment and thereafter, refrain from any acts or
omissions that would reduce the value of such Confidential Information to the
Company.
4. ASSIGNMENT OF RIGHTS. The Employee hereby agrees that any Inventions
made, developed, perfected, devised, conceived or reduced to practice by him
during the period of his employment by the Company, and any other Inventions
made, developed, perfected, devised, conceived or reduced to practice by him
during said period of twelve (12) months after termination of his employment if
based upon the Confidential Information of the Company, relating either directly
or indirectly to the business, products, practices or techniques of the Company
or to the Company's actual or demonstrably anticipated research or development,
or resulting from any work performed by him for the Company or with the
equipment, supplies, facilities or Confidential Information of the Company, are
the sole property of the Company, and hereby assigns and agrees to assign to the
Company, its successors and assigns, all of his right, title and interest in and
to said Inventions, and any patent applications or Letters Patent thereon.
NOTIFICATION
This Agreement does not apply to an invention for which no equipment,
supplies, facility, or trade secret information of the Company was used and
which was developed entirely on your own time, and (a) which does not relate (1)
to the business of the Company or (2) to the Company's actual or demonstrably
anticipated research or development, or (b) which does not result from any work
performed by you for the Company, as defined and provided by Section 2870 of the
California Labor Code.
5. COVENANT OF COOPERATION. The Employee shall, at any time during
employment or thereafter, upon request and without further compensation
therefor, but at no expense to him, do all lawful acts, including but not
limited to the execution of papers and oaths, the giving of testimony, and the
obtaining of evidence that in the opinion of the Company, its successors or
assigns, may be necessary or desirable for obtaining, sustaining, reissuing or
enforcing Letters Patent in the United States and throughout the world for said
Inventions, and for perfecting, recording or maintaining the title of the
Company, its successors and assigns, to said Inventions and to any patent
applications made and any Letters Patent granted for said Inventions in the
United States and throughout the world.
- 2 -
<PAGE>
6. PATENT ENFORCEMENT. The Company shall have the sole discretion
whether to obtain, maintain, modify or enforce any domestic or foreign patent
for said Inventions assigned to the Company pursuant to this Agreement. The
Company is free to enter into any licensing or assignment agreement with any
third party or to use whatever means it deems best to develop, promote or market
said Inventions assigned to the Company pursuant to this Agreement or any
domestic or foreign patent thereof.
7. CLAIMS BY THIRD PARTY. As to any Inventions which were made,
developed, perfected, devised, conceived or reduced to practice by the Employee
during the period of his employment by the Company, and up to and including a
period of twelve (12) months after termination of his employment, but which are
claimed for any reason to belong to an entity or person other than the Company,
the Employee will promptly disclose the same in writing to the Company and shall
not disclose the same to others if the Company, within twenty (20) days
thereafter, shall claim ownership of such Inventions under the terms of this
Agreement. If the Company makes such a claim, the Employee agrees that any
controversy relating to such claim shall be settled and determined by binding
arbitration conducted in San Diego, California, in accordance with the rules of
the American Arbitration Association then existing. The cost of arbitration
shall be shared equally.
8. RECORDKEEPING. The Employee shall keep complete, accurate and
authentic accounts, notes, data and records of any and all of said Inventions in
the manner and form requested by the Company. Such accounts, notes, data and
records, including all copies thereof, shall be the property of the Company, and
upon its request, the Employee will promptly surrender the same to it, or if not
previously surrendered, the Employee will promptly surrender the same to the
Company at the conclusion of his employment.
9. RECORDS PROPERTY OF COMPANY. The Employee agrees that all accounts,
notes, data, sketches, drawings and other documents and records, and all
material and physical items of any kind, including all reproductions and copies
thereof, which relate in any way to the business, products, practices or
techniques of the Company or contain Confidential Information, made by him or
that come into his possession by reason of his employment are the property of
the Company and shall be promptly surrendered to the Company at the conclusion
of his employment.
10. INDUCEMENT. The Employee shall not disclose to the Company or induce
the Company to use an invention or confidential information belonging to any
third party.
11. NO OTHER AGREEMENTS. The Employee warrants and represents that he has
no agreement with any other party that would
- 3 -
<PAGE>
preclude his compliance with his obligations under this Agreement as set forth
above.
12. TERM OF EMPLOYMENT. The term of employment hereunder shall begin on
the date hereof and end on the first to occur of (i) the Employee's death; (ii)
the date specified by the Employee in written notice to the Company given at
least fifteen (15) days in advance of such date; or (iii) the date specified by
the Company in a written notice to the Employee given at least (x) fifteen (15)
days in advance of such date if no "Change in Control" (as defined below) of the
Company shall have occurred on or before the date such notice is given, or (y)
one year in advance of such date if "Change in Control" of the Company shall
have occurred on or before the date such notice is given. For purposes of this
paragraph 12, a "Change in Control" shall mean any event by which (a) an
"Acquiring Person" (as defined below) has become such, or (b) "Continuing
Directors (as defined below) cease to comprise a majority of the members of the
board of directors of the Company (the "Board"). For purposes of this
definition:
(i) An "Acquiring Person" means any person or group (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder as in effect on the date of this
Agreement (the "Exchange Act")) who or which, together with all affiliates and
associates (as defined in Rule 12b-2 under the Exchange Act) becomes the
beneficial owner of shares of the Company having 50% or more of the total number
of votes that may be cast for the election of directors of the Company; and
(ii) "Continuing Director" means any member of the Board, while such
person is a member of the Board, who is not an Acquiring Person, or an affiliate
or associate of an Acquiring Person or a representative of an Acquiring Person
or of any such affiliate or associate and who (x) was a member of the Board
prior to the date of this Agreement, or (y) subsequently becomes a member of
such Board and whose nomination for election or election to the Board is
recommended or approved by resolution of a majority of the Continuing Directors
or who is included as a nominee in a proxy statement of the Company distributed
when a majority of the Board consists of Continuing Directors.
13. COMPENSATION. For all services rendered under this Agreement, the
Company shall pay the Employee an initial base annual salary of $105,000 per
year. This compensation shall be reviewed on or about every anniversary of
employment or at such other time as officer's salaries are reviewed generally,
and may be adjusted at the discretion of the management of the Company. In
addition to the Employee's base annual rate, the Company may provide such
additional or other compensation, benefits, or job perquisites as the Company
may see fit to furnish. The Employee
- 4 -
<PAGE>
shall be entitled to fifteen days vacation per fiscal year, which entitlement
shall increase by an additional day for each additional year the Employee is
employed with the Company, to a maximum of 20 days. The time when vacations may
be taken shall be subject to the prior approval of the Company's management.
The Employee shall also be entitled to all legal holidays which the Company may
decide to observe.
14. EXPENSES. The Company shall pay or reimburse the Employee for
expenses incurred by him on behalf of the Company with its approval. Such
reimbursement shall be made upon presentation by the Employee to the Company of
itemized accounts or receipts satisfactory to the Company. The Employee's
obligations with respect to his performance hereunder are unconditional and are
not dependent upon such reimbursement. The Company reserves the right to charge
back to the Employee any expense reimbursement found to be non-tax deductible by
the Company or found to have been falsely or improperly claimed by him.
15. DISABILITY.
(a) If the Employee becomes totally disabled, this Agreement shall
continue in full force and effect except that the Employee's compensation shall
be fifty percent (50%) of his base gross salary for a period not to exceed six
(6) months. Such compensation shall be reduced by any disability insurance
benefits the Employee receives under any disability insurance policy, including
state funded disability insurance.
(b) Upon termination of such total disability, the Employee shall be
obligated to resume his services under this Agreement.
(c) If a period of total disability is followed by any subsequent
period(s) of total disability, the subsequent period(s) of total disability
shall be considered a continuation of previous periods of total disability
unless the Employee shall have engaged in services under this Agreement for a
continuous period of twelve (12) months following a period of total disability,
in which case, any subsequent period of total disability shall be considered a
new period of total disability under the same terms as stated above.
(d) If the Employee is partially disabled, his compensation during
the period of such disability shall be reduced in the ratio that the amount of
time absent from work bears to his full work schedule. If the Employee fails to
devote at least ninety percent (90%) of the time required by full schedule to
his employment the Employee will be deemed to be partially disabled, if the
Employee is determined to be disabled pursuant to paragraph 15(f) hereunder.
Notwithstanding the foregoing, the amount payable under this partial disability
clause shall not be less
- 5 -
<PAGE>
than the amount which would have been payable to the Employee during a six (6)
month period if the Employee had been fully disabled for that length of that
time. If the Employee's partial disability exceeds fifty percent (50%), the
Employee shall be deemed to be totally disabled and the appropriate provisions
of this Agreement shall apply. If the Company and the Employee are unable to
agree as to the amount by which the Employee is deficient in completing his
assigned tasks and responsibilities hereunder due to his partial disability,
then a determination of such deficiency shall be settled and determined by
binding arbitration conducted in San Diego, California in accordance with the
rules of the American Arbitration Association then existing. The cost of
arbitration shall be shared equally by the parties.
(e) The Employee shall be deemed "disabled" if the Employee is:
(i) adjudicated incompetent by a court of competent
jurisdiction, or
(ii) affected by a mental or physical impairment that impedes the
performance of his services under this Agreement, such determination to be made
by a physician selected by the Company, but this element of the definition shall
not apply to pregnancy, for which the Company customarily offers an unpaid leave
of absence for a reasonable period of time.
(f) The Employee agrees to undergo a physical examination whenever
reasonably requested to do so by the Company.
16. EXCLUSIVITY. The Employee shall not, while employed by the Company,
engage in any other employment or business venture for his account or on behalf
of others that relates, directly or indirectly, to the business and affairs of
the Company without the prior written consent of the Company.
17. PROHIBITION AGAINST ASSIGNMENT. This Agreement and the rights,
interests and benefits hereunder shall not be assigned, transferred, pledged or
hypothecated in any way by the Employee or any executor, administrator, heir,
legatee, distributee or any other person claiming under the Employee by virtue
of this Agreement and shall not be subject to execution, attachment or similar
process. Any attempt to assign, transfer, pledge or hypothecate or otherwise
dispose of this Agreement or of such rights, interests and benefits contrary to
the foregoing provisions, or the levy of any attachment or similar process
thereon shall be null and void and without effect and shall relieve the Company
of any and all liability hereunder.
18. NOTICE. Any and all notices, designations, consents, offers,
acceptances or any other communication provided for herein shall be given in
writing by registered or certified mail,
- 6 -
<PAGE>
return receipt requested, which shall be addressed, in the case of the Company,
to its office in San Diego, California, and in the Employee's case to his known
place of residence as reflected on the Company's records.
19. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and contains all of the agreements between them with respect
to the subject matter hereof; this Agreement supersedes any and all other
agreements, either oral or in writing, between us with respect to the subject
matter hereof, including any earlier employment agreement.
20. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective heirs, legal representatives,
executors, administrators, and successors.
21. GOVERNING LAW. This Agreement shall be subject to and governed by the
laws of the State of California.
22. AMENDMENT OF AGREEMENT. No change or modification of this Agreement
shall be valid unless the same be in writing and signed by the parties. No
waiver of any provision of this Agreement shall be valid unless in writing and
signed by the person or party to be charged.
23. SEVERABILITY. If any portion or portions of this Agreement shall be,
for any reason, deemed to be invalid or unenforceable, the remaining portion or
portions shall nevertheless be valid, enforceable and carried into effect,
unless to do so would clearly violate the present legal and valid intention of
the parties.
24. BREACH. In the event the Employee breaches this Agreement and the
Company prevails in an action to enforce the terms of this Agreement, the
Employee agrees to pay to the Company all reasonable attorneys' fees and costs
incurred by the Company in prosecuting such action, and all damages suffered by
the Company as well as any gain or profit derived by the Employee as a result of
any such breach.
25. HEADINGS. The headings of this Agreement are inserted for convenience
only and are not to be considered in construction of the provisions hereof.
- 7 -
<PAGE>
26. WAIVER OF BREACH. The waiver by either of the parties hereto of any
breach of any provision hereof shall not be construed to be a waiver of any
succeeding breach of that provision or a waiver of any other provision of this
Agreement.
WHEREAS, the parties have executed this Agreement as of the date first
above written.
MOLECULAR BIOSYSTEMS, INC.
By: /s/ Kenneth J. Widder
-------------------------
Kenneth J. Widder, M.D.
Chief Executive Officer
By: /s/ Kenneth R. Derry
-------------------------
Kenneth R. Derry
- 8 -
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of August 1, 1994, between ALLAN H.
MIZOGUCHI, an individual ("Employee"), and MOLECULAR BIOSYSTEMS, INC., a
Delaware corporation ("the Company").
1. EMPLOYMENT. The Company hereby employs the Employee as its Vice
President, Clinical and Regulatory Affairs, to provide services at such times as
shall be mutually agreed upon between them. The Company shall be entitled to
all of the benefits and profits arising from or incident to the work, services
and advice rendered by the Employee relating to the work performed for the
Company. The Employee shall make all information available to the Company that
relates to the Company's business of which he has any knowledge and shall not
use any such information or the benefits of any such information for his
personal profit or that of any third party. The Employee agrees to use his best
efforts to promote the interests of the Company including, where appropriate,
the publication of articles in medical and scientific journals and the
participation in medical and scientific seminars and symposiums relating to the
business and affairs of the Company and/or his research efforts performed for
and on behalf of the Company. The Employee shall perform the duties of
employment in a manner satisfactory to the Company and shall devote his full
working time to such duties.
2. DISCLOSURES. The Employee shall promptly disclose in writing to the
officials designated by the Company to receive such disclosures, complete
information concerning each and every invention, discovery, improvement, device,
design, apparatus, practice, process, method or product (hereinafter referred to
as "Inventions"), whether the Employee considers them patentable or not, made,
developed, perfected, devised, conceived or reduced to practice by him, either
solely or in collaboration with others, during the period of his employment by
the Company, and up to and including a period of twelve (12) months after
termination of his employment, whether or not during regular working hours,
relating either directly or indirectly to the business, products, practices or
techniques of the Company or to the Company's actual or demonstrably anticipated
research or development, or resulting from any work performed by him for the
Company or with the equipment, supplies, facilities or Confidential Information
of the Company.
3. CONFIDENTIALITY. The Employee recognizes that his employment with the
Company will involve contact with information of substantial value to the
Company, which is not old and generally known in the trade and which gives the
Company an advantage over its competitors who do not know or use it, including
but not limited to techniques, designs, drawings, processes, inventions,
developments, equipment, prototypes, sales and customer information, and
business and financial information, relating to the business, products,
practices or techniques of the Company
<PAGE>
(hereinafter referred to as "Confidential Information"). The Employee shall at
all times regard and preserve as confidential such Confidential Information
obtained by him from whatever source and shall not, either during his employment
or thereafter, publish or disclose any part of such Confidential Information in
any manner, or use the same except on behalf of the Company, without the prior
written consent of the Company. Further, the Employee shall, during his
employment and thereafter, refrain from any acts or omissions that would reduce
the value of such Confidential Information to the Company.
4. ASSIGNMENT OF RIGHTS. The Employee hereby agrees that any Inventions
made, developed, perfected, devised, conceived or reduced to practice by him
during the period of his employment by the Company, and any other Inventions
made, developed, perfected, devised, conceived or reduced to practice by him
during said period of twelve (12) months after termination of his employment if
based upon the Confidential Information of the Company, relating either directly
or indirectly to the business, products, practices or techniques of the Company
or to the Company's actual or demonstrably anticipated research or development,
or resulting from any work performed by him for the Company or with the
equipment, supplies, facilities or Confidential Information of the Company, are
the sole property of the Company, and hereby assigns and agrees to assign to the
Company, its successors and assigns, all of his right, title and interest in and
to said Inventions, and any patent applications or Letters Patent thereon.
NOTIFICATION
This Agreement does not apply to an invention for which no equipment,
supplies, facility, or trade secret information of the Company was used and
which was developed entirely on your own time, and (a) which does not relate (1)
to the business of the Company or (2) to the Company's actual or demonstrably
anticipated research or development, or (b) which does not result from any work
performed by you for the Company, as defined and provided by Section 2870 of the
California Labor Code.
5. COVENANT OF COOPERATION. The Employee shall, at any time during
employment or thereafter, upon request and without further compensation
therefor, but at no expense to him, do all lawful acts, including but not
limited to the execution of papers and oaths, the giving of testimony, and the
obtaining of evidence that in the opinion of the Company, its successors or
assigns, may be necessary or desirable for obtaining, sustaining, reissuing or
enforcing Letters Patent in the United States and throughout the world for said
Inventions, and for perfecting, recording or maintaining the title of the
Company, its successors and assigns, to said Inventions and to any patent
applications made
- 2 -
<PAGE>
and any Letters Patent granted for said Inventions in the United States and
throughout the world.
6. PATENT ENFORCEMENT. The Company shall have the sole discretion
whether to obtain, maintain, modify or enforce any domestic or foreign patent
for said Inventions assigned to the Company pursuant to this Agreement. The
Company is free to enter into any licensing or assignment agreement with any
third party or to use whatever means it deems best to develop, promote or market
said Inventions assigned to the Company pursuant to this Agreement or any
domestic or foreign patent thereof.
7. CLAIMS BY THIRD PARTY. As to any Inventions which were made,
developed, perfected, devised, conceived or reduced to practice by the Employee
during the period of his employment by the Company, and up to and including a
period of twelve (12) months after termination of his employment, but which are
claimed for any reason to belong to an entity or person other than the Company,
the Employee will promptly disclose the same in writing to the Company and shall
not disclose the same to others if the Company, within twenty (20) days
thereafter, shall claim ownership of such Inventions under the terms of this
Agreement. If the Company makes such a claim, the Employee agrees that any
controversy relating to such claim shall be settled and determined by binding
arbitration conducted in San Diego, California, in accordance with the rules of
the American Arbitration Association then existing. The cost of arbitration
shall be shared equally.
8. RECORDKEEPING. The Employee shall keep complete, accurate and
authentic accounts, notes, data and records of any and all of said Inventions in
the manner and form requested by the Company. Such accounts, notes, data and
records, including all copies thereof, shall be the property of the Company, and
upon its request, the Employee will promptly surrender the same to it, or if not
previously surrendered, the Employee will promptly surrender the same to the
Company at the conclusion of his employment.
9. RECORDS PROPERTY OF COMPANY. The Employee agrees that all accounts,
notes, data, sketches, drawings and other documents and records, and all
material and physical items of any kind, including all reproductions and copies
thereof, which relate in any way to the business, products, practices or
techniques of the Company or contain Confidential Information, made by him or
that come into his possession by reason of his employment are the property of
the Company and shall be promptly surrendered to the Company at the conclusion
of his employment.
10. INDUCEMENT. The Employee shall not disclose to the Company or induce
the Company to use an invention or confidential information belonging to any
third party.
- 3 -
<PAGE>
11. NO OTHER AGREEMENTS. The Employee warrants and represents that he has
no agreement with any other party that would preclude his compliance with his
obligations under this Agreement as set forth above.
12. TERM OF EMPLOYMENT. The term of employment hereunder shall begin on
the date hereof and end on the first to occur of (i) the Employee's death; (ii)
the date specified by the Employee in written notice to the Company given at
least fifteen (15) days in advance of such date; or (iii) the date specified by
the Company in a written notice to the Employee given at least (x) fifteen (15)
days in advance of such date if no "Change in Control" (as defined below) of the
Company shall have occurred on or before the date such notice is given, or (y)
one year in advance of such date if "Change in Control" of the Company shall
have occurred on or before the date such notice is given. For purposes of this
paragraph 12, a "Change in Control" shall mean any event by which (a) an
"Acquiring Person" (as defined below) has become such, or (b) "Continuing
Directors (as defined below) cease to comprise a majority of the members of the
board of directors of the Company (the "Board"). For purposes of this
definition:
(i) An "Acquiring Person" means any person or group (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder as in effect on the date of this
Agreement (the "Exchange Act")) who or which, together with all affiliates and
associates (as defined in Rule 12b-2 under the Exchange Act) becomes the
beneficial owner of shares of the Company having 50% or more of the total number
of votes that may be cast for the election of directors of the Company; and
(ii) "Continuing Director" means any member of the Board, while such
person is a member of the Board, who is not an Acquiring Person, or an affiliate
or associate of an Acquiring Person or a representative of an Acquiring Person
or of any such affiliate or associate and who (x) was a member of the Board
prior to the date of this Agreement, or (y) subsequently becomes a member of
such Board and whose nomination for election or election to the Board is
recommended or approved by resolution of a majority of the Continuing Directors
or who is included as a nominee in a proxy statement of the Company distributed
when a majority of the Board consists of Continuing Directors.
13. COMPENSATION. For all services rendered under this Agreement, the
Company shall pay the Employee an initial base annual salary of $110,240 per
year. This compensation shall be reviewed on or about every anniversary of
employment or at such other time as officer's salaries are reviewed generally,
and may be adjusted at the discretion of the management of the Company. In
addition to the Employee's base annual rate, the Company may
- 4 -
<PAGE>
provide such additional or other compensation, benefits, or job perquisites as
the Company may see fit to furnish. The Employee shall be entitled to fifteen
days vacation per fiscal year, which entitlement shall increase by an additional
day for each additional year the Employee is employed with the Company, to a
maximum of 20 days. The time when vacations may be taken shall be subject to
the prior approval of the Company's management. The Employee shall also be
entitled to all legal holidays which the Company may decide to observe.
14. EXPENSES. The Company shall pay or reimburse the Employee for
expenses incurred by him on behalf of the Company with its approval. Such
reimbursement shall be made upon presentation by the Employee to the Company of
itemized accounts or receipts satisfactory to the Company. The Employee's
obligations with respect to his performance hereunder are unconditional and are
not dependent upon such reimbursement. The Company reserves the right to charge
back to the Employee any expense reimbursement found to be non-tax deductible by
the Company or found to have been falsely or improperly claimed by him.
15. DISABILITY.
(a) If the Employee becomes totally disabled, this Agreement shall
continue in full force and effect except that the Employee's compensation shall
be fifty percent (50%) of his base gross salary for a period not to exceed six
(6) months. Such compensation shall be reduced by any disability insurance
benefits the Employee receives under any disability insurance policy, including
state funded disability insurance.
(b) Upon termination of such total disability, the Employee shall be
obligated to resume his services under this Agreement.
(c) If a period of total disability is followed by any subsequent
period(s) of total disability, the subsequent period(s) of total disability
shall be considered a continuation of previous periods of total disability
unless the Employee shall have engaged in services under this Agreement for a
continuous period of twelve (12) months following a period of total disability,
in which case, any subsequent period of total disability shall be considered a
new period of total disability under the same terms as stated above.
(d) If the Employee is partially disabled, his compensation during
the period of such disability shall be reduced in the ratio that the amount of
time absent from work bears to his full work schedule. If the Employee fails to
devote at least ninety percent (90%) of the time required by full schedule to
his employment the Employee will be deemed to be partially disabled, if the
Employee is determined to be disabled pursuant to para-
- 5 -
<PAGE>
graph 15(f) hereunder. Notwithstanding the foregoing, the amount payable under
this partial disability clause shall not be less than the amount which would
have been payable to the Employee during a six (6) month period if the Employee
had been fully disabled for that length of that time. If the Employee's partial
disability exceeds fifty percent (50%), the Employee shall be deemed to be
totally disabled and the appropriate provisions of this Agreement shall apply.
If the Company and the Employee are unable to agree as to the amount by which
the Employee is deficient in completing his assigned tasks and responsibilities
hereunder due to his partial disability, then a determination of such deficiency
shall be settled and determined by binding arbitration conducted in San Diego,
California in accordance with the rules of the American Arbitration Association
then existing. The cost of arbitration shall be shared equally by the parties.
(e) The Employee shall be deemed "disabled" if the Employee is:
(i) adjudicated incompetent by a court of competent
jurisdiction, or
(ii) affected by a mental or physical impairment that impedes the
performance of his services under this Agreement, such determination to be made
by a physician selected by the Company, but this element of the definition shall
not apply to pregnancy, for which the Company customarily offers an unpaid leave
of absence for a reasonable period of time.
(f) The Employee agrees to undergo a physical examination whenever
reasonably requested to do so by the Company.
16. EXCLUSIVITY. The Employee shall not, while employed by the Company,
engage in any other employment or business venture for his account or on behalf
of others that relates, directly or indirectly, to the business and affairs of
the Company without the prior written consent of the Company.
17. PROHIBITION AGAINST ASSIGNMENT. This Agreement and the rights,
interests and benefits hereunder shall not be assigned, transferred, pledged or
hypothecated in any way by the Employee or any executor, administrator, heir,
legatee, distributee or any other person claiming under the Employee by virtue
of this Agreement and shall not be subject to execution, attachment or similar
process. Any attempt to assign, transfer, pledge or hypothecate or otherwise
dispose of this Agreement or of such rights, interests and benefits contrary to
the foregoing provisions, or the levy of any attachment or similar process
thereon shall be null and void and without effect and shall relieve the Company
of any and all liability hereunder.
- 6 -
<PAGE>
18. NOTICE. Any and all notices, designations, consents, offers,
acceptances or any other communication provided for herein shall be given in
writing by registered or certified mail, return receipt requested, which shall
be addressed, in the case of the Company, to its office in San Diego,
California, and in the Employee's case to his known place of residence as
reflected on the Company's records.
19. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and contains all of the agreements between them with respect
to the subject matter hereof; this Agreement supersedes any and all other
agreements, either oral or in writing, between us with respect to the subject
matter hereof, including any earlier employment agreement.
20. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective heirs, legal representatives,
executors, administrators, and successors.
21. GOVERNING LAW. This Agreement shall be subject to and governed by the
laws of the State of California.
22. AMENDMENT OF AGREEMENT. No change or modification of this Agreement
shall be valid unless the same be in writing and signed by the parties. No
waiver of any provision of this Agreement shall be valid unless in writing and
signed by the person or party to be charged.
23. SEVERABILITY. If any portion or portions of this Agreement shall be,
for any reason, deemed to be invalid or unenforceable, the remaining portion or
portions shall nevertheless be valid, enforceable and carried into effect,
unless to do so would clearly violate the present legal and valid intention of
the parties.
24. BREACH. In the event the Employee breaches this Agreement and the
Company prevails in an action to enforce the terms of this Agreement, the
Employee agrees to pay to the Company all reasonable attorneys' fees and costs
incurred by the Company in prosecuting such action, and all damages suffered by
the Company as well as any gain or profit derived by the Employee as a result of
any such breach.
25. HEADINGS. The headings of this Agreement are inserted for convenience
only and are not to be considered in construction of the provisions hereof.
- 7 -
<PAGE>
26. WAIVER OF BREACH. The waiver by either of the parties hereto of any
breach of any provision hereof shall not be construed to be a waiver of any
succeeding breach of that provision or a waiver of any other provision of this
Agreement.
WHEREAS, the parties have executed this Agreement as of the date first
above written.
MOLECULAR BIOSYSTEMS, INC.
By: /s/ Kenneth J. Widder
-------------------------
Kenneth J. Widder, M.D.
Chief Executive Officer
By: /s/ Allan H. Mizoguchi
-------------------------
Allan H. Mizoguchi
- 8 -
<PAGE>
TRIPLE NET LEASE
BY AND BETWEEN
RADNOR/COLLINS/SORRENTO PARTNERSHIP
AND
MOLECULAR BIOSYSTEMS, INC.
MAY 18, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
1. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Description of Premises . . . . . . . . . . . . . . . . . . . 1
2.2 Lessee's Covenants and Conditions . . . . . . . . . . . . . . 1
3. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.1 Non-Contingent Term. . . . . . . . . . . . . . . . . . . . . 1
3.2 Contingent Term . . . . . . . . . . . . . . . . . . . . . . . 1
4. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.1 Annual Base Rent . . . . . . . . . . . . . . . . . . . . . . 3
4.2 Payment of Rent . . . . . . . . . . . . . . . . . . . . . . . 3
4.3 Adjustments of Rent . . . . . . . . . . . . . . . . . . . . . 3
4.4 Late Charges . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . 5
7. Condition of Premises . . . . . . . . . . . . . . . . . . . . . . 5
7.1 Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.2 Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.3 Regulation . . . . . . . . . . . . . . . . . . . . . . . . . 6
8. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
10. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
11. Maintenance, Repairs and Alterations . . . . . . . . . . . . . . . 7
11.1 Lessee's Obligations . . . . . . . . . . . . . . . . . . . . 7
11.2 Lessor's Rights . . . . . . . . . . . . . . . . . . . . . . . 8
11.3 Lessor's Obligations . . . . . . . . . . . . . . . . . . . . 8
11.4 Alterations and Additions . . . . . . . . . . . . . . . . . . 10
12. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
13. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
14. Indemnification and Release . . . . . . . . . . . . . . . . . . . 12
15. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
15.1 Liability Insurance . . . . . . . . . . . . . . . . . . . . . 13
15.2 Property Insurance . . . . . . . . . . . . . . . . . . . . . 13
15.3 Other Required Insurance . . . . . . . . . . . . . . . . . . 14
i
<PAGE>
15.4 Insurers . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.5 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . 14
15.6 Exemption of Lessor from Liability . . . . . . . . . . . . . 15
15.7 Insurance Policies . . . . . . . . . . . . . . . . . . . . . 15
16. Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . 16
16.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.2 Partial Damage--Insured Loss . . . . . . . . . . . . . . . . 16
16.3 Partial Damage--Uninsured Loss . . . . . . . . . . . . . . . 17
16.4 Total Destruction . . . . . . . . . . . . . . . . . . . . . . 17
16.5 Damage Near End of Term . . . . . . . . . . . . . . . . . . . 17
16.6 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
17. Real Property Taxes . . . . . . . . . . . . . . . . . . . . . . . 18
17.1 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . 18
17.2 Definition of "Real Property Tax" . . . . . . . . . . . . . . 18
17.3 Joint Assessment . . . . . . . . . . . . . . . . . . . . . . 19
17.4 Personal Property Taxes . . . . . . . . . . . . . . . . . . . 19
18. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
18.1 Metering . . . . . . . . . . . . . . . . . . . . . . . . . . 20
19. Defaults and Remedies . . . . . . . . . . . . . . . . . . . . . . 20
19.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . 20
19.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 21
19.3 Worth at Time of Award . . . . . . . . . . . . . . . . . . . 21
19.4 Re-Entry by Lessor . . . . . . . . . . . . . . . . . . . . . 21
19.5 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . 22
20. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
21. Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . 23
21.1 Written Statement by Lessee . . . . . . . . . . . . . . . . . 23
21.2 Lessee's Failure to Deliver Statement . . . . . . . . . . . . 23
22. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 23
23. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 23
24. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . 24
24.1 Suit by Either Party . . . . . . . . . . . . . . . . . . . . 24
24.2 Lessor Named as Defendant . . . . . . . . . . . . . . . . . . 24
25. Performance by Lessee . . . . . . . . . . . . . . . . . . . . . . 24
26. Mortgage Protection . . . . . . . . . . . . . . . . . . . . . . . 24
27. Definition of Lessor . . . . . . . . . . . . . . . . . . . . . . . 25
28. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
29. Identification of Lessee . . . . . . . . . . . . . . . . . . . . . 25
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30. Terms and Headings . . . . . . . . . . . . . . . . . . . . . . . . 26
31. Examination of Lease . . . . . . . . . . . . . . . . . . . . . . . 26
32. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
33. Prior Agreement; Amendments . . . . . . . . . . . . . . . . . . . 26
34. Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
35. Recording . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
36. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
37. Limitation on Liability . . . . . . . . . . . . . . . . . . . . . 27
37.1 Limitation as to Lessor . . . . . . . . . . . . . . . . . . . 27
37.2 Limitation as to Lessee . . . . . . . . . . . . . . . . . . . 27
38. Lessor's Access . . . . . . . . . . . . . . . . . . . . . . . . . 28
38.1 Right of Entry . . . . . . . . . . . . . . . . . . . . . . . 28
38.2 Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
39. Auctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
40. Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
41. [Deleted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
42. Subordination and Attornment . . . . . . . . . . . . . . . . . . . 29
42.1 Subordination of Lease . . . . . . . . . . . . . . . . . . . 29
42.2 Lessee's Execution of Written Subordination . . . . . . . . . 29
43. Riders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
44. Modification for Lender . . . . . . . . . . . . . . . . . . . . . 30
45. Easements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
46. Performance Under Protest . . . . . . . . . . . . . . . . . . . . 30
47. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . 31
47.1 Lessor's Consent . . . . . . . . . . . . . . . . . . . . . . 31
47.2 Written Notice to Lessor . . . . . . . . . . . . . . . . . . 31
47.3 Right of Recapture . . . . . . . . . . . . . . . . . . . . . 32
47.4 Division of Profits . . . . . . . . . . . . . . . . . . . . . 32
47.5 Continuing Liability of Lessee . . . . . . . . . . . . . . . 33
48. Surrender Not Merger . . . . . . . . . . . . . . . . . . . . . . . 33
49. Common Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
49.1 Availability of Common Areas . . . . . . . . . . . . . . . . 33
49.2 Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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49.3 Common Area Maintenance Charges . . . . . . . . . . . . . . . 34
49.4 Common Areas Taxes and Assessments . . . . . . . . . . . . . 35
49.5 Lessee's Pro Rata Share . . . . . . . . . . . . . . . . . . . 35
49.6 Audit Rights . . . . . . . . . . . . . . . . . . . . . . . . 36
49.7 Tax Contest . . . . . . . . . . . . . . . . . . . . . . . . . 36
49.8 Exclusions to Common Area Maintenance Charges . . . . . . . . 36
49.9 Capital Improvements . . . . . . . . . . . . . . . . . . . . 37
50. Additional Provisions . . . . . . . . . . . . . . . . . . . . . . 38
50.1 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 38
50.2 Pacific Corporate Center Owners' Association . . . . . . . . 38
50.3 Option to Renew . . . . . . . . . . . . . . . . . . . . . . . 38
50.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 40
50.5 Lessor's Default . . . . . . . . . . . . . . . . . . . . . . 40
50.6 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . 40
50.7 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . 40
EXHIBITS:
Exhibit A - The Premises
Exhibit B - Lessee Requirements to Perform Alterations
Exhibit C - Use Restrictions
Exhibit D - The Project
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PACIFICPOINT
TRIPLE NET LEASE
1. PARTIES.
This Lease, dated for reference purposes on May 18, 1995, is made by and
between RADNOR/COLLINS/SORRENTO PARTNERSHIP, a California general partnership
("Lessor"), and MOLECULAR BIOSYSTEMS, INC., a Delaware corporation ("Lessee").
2. PREMISES.
2.1 DESCRIPTION OF PREMISES. Lessor hereby leases to Lessee and Lessee
leases from Lessor for the term, at the rental, and upon all of the conditions
set forth herein, that certain real property consisting of approximately 54,712
square feet located at 5828 Pacific Center Boulevard in the City of San Diego,
State of California as more particularly described in Exhibit "A", attached
hereto and by this reference made a part hereof (the "Premises").
2.2 LESSEE'S COVENANTS AND CONDITIONS. The parties hereto agree that said
letting and hiring is upon and subject to the terms, covenants and conditions
herein set forth. Lessee covenants, as a material part of the consideration for
this Lease, to keep and perform each and all of said terms, covenants and
conditions for which Lessee is liable, and that this Lease is made upon the
condition of such performance.
3. TERM.
3.1 NON-CONTINGENT TERM. Subject to Section 3.2, the term ("Term") of
this Lease shall commence on October 1, 1997, (the "Commencement Date") and end
on September 30, 2002 (the "Termination Date"). Unless otherwise specified, the
"Term" shall include any extension or renewal of the original Term.
3.2 CONTINGENT TERM. The parties acknowledge that, as of the execution
date of this Lease, the entire Premises are subject to a lease (the "Sunward
Lease") dated October 26, 1988 between Lessor and Sunward Technologies, aka
Sunward Technologies, California, a California corporation ("Sunward"), and that
Sunward has subleased a portion of the Premises to Lessee pursuant to a Sublease
dated February 6, 1992. The expiration date of the Sunward Lease is September
30, 1997.
The parties acknowledge that Sunward has an option to renew the
Sunward Lease for two (2) additional one-year periods. The effectiveness of
this Lease is conditioned on obtaining Sunward's written consent to the
cancellation of said option in form reasonably acceptable to Lessee and Lessor
(and Lessee and Lessor agree to sign such cancellation).
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The parties agree that if the Sunward Lease is cancelled or terminated
by Lessor for any reason before its expiration date, then the sublease between
Lessee and Sunward shall terminate and this Lease shall thereupon become
effective as between Lessee and Lessor with respect to the space previously
subleased by Lessee and the "Term" shall commence. In that event and while
Lessee is occupying less than the entire Building (i.e., the building which
contains the Premises) before the Commencement Date set forth in Section 3.1,
notwithstanding anything to the contrary in this Lease, (a) Lessee's Annual Base
Rent and monthly installments of Base Rent shall be calculated and adjusted as
provided in Section 4.3, and appropriate adjustments shall be made with respect
to Lessee's number of parking spaces and Pro Rata Share; (b) Lessee's repair and
maintenance obligations under Section 11 shall be limited to the portion of the
Building which it is occupying, except that with respect to repairs to or
maintenance of the exterior walls, roof, or other systems or structures serving
the Building as a whole or which cannot in Lessor's reasonable judgment be
practicably allocated to any particular portion of the Building, Lessor shall
perform such repairs and maintenance and Lessee shall reimburse Lessor a portion
of the cost thereof based on the percentage of the total space in the Building
which Lessee is occupying (but Lessee shall be wholly responsible for any
repairs necessitated by the negligence or willful misconduct of Lessee, its
agents, employees, or contractors), (c) Lessee's liability for Real Property
Taxes under Section 17 and Property Insurance under Section 15.2 shall be based
on the percentage of the total space in the Building which Lessee is occupying
and (d) to the extent fair and reasonable, references to the "Premises" in the
Lease shall be deemed to mean and refer to the portion of the Building being
occupied by Lessee.
If the space presently occupied by Sunward becomes available for
occupancy by a third party before the Commencement Date specified in Section
3.1, Lessor shall notify Lessee and Lessee shall have the right to incorporate
all or a portion of such space within the Premises subject to this Lease as set
forth above (with appropriate adjustments to the Base Rent, parking spaces, and
Pro Rata Share) by giving written notice to Lessor within fifteen (15) days
after receipt of Lessor's notice. Lessee agrees to accept any such space taken
by Lessee in the condition in which Sunward is required to leave it pursuant to
the Sunward Lease, without additional repairs or improvements by Lessor. If
Lessee elects to take only a portion of such space, Lessee shall specify the
exact portion; such portion must be contiguous with Lessee's other space and the
space not taken must have configuration and access such that it would be
leasable to a third party. After giving such notice to Lessee, Lessor may lease
any space not taken
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by Lessee to a third party, provided that such lease shall terminate before the
Commencement Date specified in Section 3.1.
4. RENT.
4.1 ANNUAL BASE RENT. Lessee agrees to pay Lessor as Annual Base Rent for
the Premises the sum of Six Hundred Seventeen Thousand One Hundred Sixty Dollars
($617,160) (subject to adjustment as hereinafter provided), net, net, net, in
twelve equal monthly installments, of Fifty One Thousand Four Hundred Thirty
Dollars ($51,430) each, in advance on the first day of each calendar month
during the term. The Annual Base Rent is the product of 12 months times the
estimated area within the Premises of 54,712 square feet times $0.94 per square
foot per month. Lessee is familiar with the Premises and there shall be no
adjustment of Base Rent or other payments based on any difference between the
estimated and actual square footage.
4.2 PAYMENT OF RENT. In addition to the Annual Base Rent, Lessee agrees
to pay as additional rental the amount of rental adjustments and all other
charges required by this Lease. All rental shall be paid to Lessor on the first
day of each and every month of the Term hereof, without prior demand and without
any deduction or offset, in lawful money of the United States of America, at the
address of Lessor designated at the end of this Lease or to such other person or
at such other place as Lessor may from time to time designate in writing.
4.3 ADJUSTMENTS OF RENT. The Annual Base Rent set forth in Section 4.1
hereof shall be increased as follows: effective on the first day of the
thirteenth full calendar month after the execution date of this Lease (i.e., the
date this Lease has been signed by both parties), and on the same day each and
every year thereafter, the Annual Base Rent then in effect shall be increased by
four percent (4%) and the monthly installments of Base Rent shall be increased
accordingly. Such adjustments shall occur even if the Term has not yet
commenced, so that upon commencement of the Term, the Annual Base Rent specified
above shall be appropriately adjusted. If Lessee occupies a portion of the
Premises before the Commencement Date specified in Section 3.1 as contemplated
by Section 3.2, Lessee's Annual Base Rent for the portion so occupied shall be a
percentage of the Annual Base Rent specified above (as annually adjusted) based
on the total space in the Building occupied by Lessee, and monthly installments
shall be one-twelfth thereof.
4.4 LATE CHARGES. Lessee acknowledges that, in the event Lessee fails to
pay any installment of rent when due, or in the event Lessee fails to make any
other payment for which Lessee is obligated under this Lease when due, Lessor
will incur costs and expenses not contemplated by this Lease, the exact amount
of which being extremely difficult and impractical to ascertain, including
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without limitation processing and accounting charges and financing costs and
late charges that may be imposed by the terms of any encumbrance on or note
secured by the Premises. Therefore, in the event any such payment is not paid
within ten (10) calendar days after the due date, Lessee shall pay to Lessor a
late charge equal to a minimum of one and one-half percent (1-1/2%) of the
amount due or One Hundred Dollars ($100.00), whichever is greater, to compensate
Lessor for the extra costs incurred as a result of such late payment; provided,
however, that no late charge shall be due unless Lessor has given Lessee written
demand for such payment and Lessee has failed to pay the same within such 10-day
period; provided, further, that Lessor shall only be required to give such
written notice one (1) time each calendar year. Additionally, all such
delinquent rent or other sums which are not paid within ten (10) calendar days
after the due date, shall bear interest at the rate of the Bank of America (San
Francisco Main Office) reference rate ("prime rate") plus two-percent (2%) per
annum, or the maximum lawful rate, whichever is less.
5. USE.
Lessee shall use the Premises for general administrative offices, research
and development, and other uses not inconsistent with or prohibited by
applicable zoning ordinances or the Covenants, Conditions and Regulations of the
Pacific Corporate Center - North Owners' Association, and shall not use or
permit the Premises to be used for any other purpose or suffer or permit the
Premises to remain vacant without the prior written consent of Lessor. Nothing
contained herein shall be deemed to give Lessee any exclusive right to such use
in the Premises or any adjoining property. Lessee shall not use or occupy the
Premises in violation of law or of the Certificate of Occupancy issued for the
Premises, and shall, upon written notice from Lessor, discontinue any use of the
Premises which is declared by any governmental authority having jurisdiction to
be a violation of law or of said Certificate of Occupancy. Lessee shall comply
with any direction of any governmental authority having jurisdiction which
shall, by reason of the nature of Lessee's use or occupancy of the Premises,
impose any duty upon Lessee or Lessor with respect to the Premises or with
respect to the use or occupation thereof. Lessee shall not use or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Lessee cause, maintain or permit any loud noise, vibration or
other nuisance in, on or about the Premises or otherwise disturb the peaceful
possession of adjoining or nearby Premises. Lessor agrees that Lessee may
operate its centrifuge provided such operation shall not disturb other tenants
of the Project. In addition, Lessee shall comply with the provisions of the
attached Exhibit "C". Lessee shall not commit or suffer to be committed any
waste in or upon the Premises, nor shall Lessee cause, maintain or permit any
outside storage on or about the Premises except as may be authorized in writing
by Lessor, which authorization shall not be unreasonably withheld
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provided that such enclosure shall not violate any laws or ordinances of the
City of San Diego or the Covenants, Conditions and Restrictions of the Pacific
Corporate Center - North Owners' Association.
6. COMPLIANCE WITH LAW.
Lessee shall, at its sole cost and expense, promptly comply with all laws,
statutes, ordinances, regulations, and other requirements of all municipal,
state and federal authorities now in force, or which may hereafter be in force,
pertaining to the Premises, and shall faithfully observe in the use of the
Premises the requirements of any board of fire underwriters, any certificate of
occupancy, and any recorded documents affecting the Premises, insofar as the
same relate to the condition, use or occupancy of the Premises. The judgment of
any court of competent jurisdiction, or the admission of Lessee in any action or
proceeding against Lessee, whether Lessor be a party thereto or not, that Lessee
has violated any such ordinance or statute in the use of the Premises, shall be
conclusive of that fact as between Lessor and Lessee.
7. CONDITION OF PREMISES.
7.1 ACCEPTANCE. Lessee has been in possession of a portion of the
Premises pursuant to a prior sublease and agrees to accept such portion in "as
is" condition and repair. With respect to the portion of the Premises not
occupied by Lessee pursuant to its sublease, Lessee agrees to accept such
portion in the condition in which Sunward is required to leave it pursuant to
the Sunward Lease, without additional repairs or improvements by Lessor. Lessor
makes no representation or warranty as to the condition of the Premises or as to
the use or occupancy which may be made thereof.
7.2 SURRENDER. Lessee agrees on the last day of the Term hereof, or on
the sooner termination of the Lease, to surrender the Premises unto Lessor
"broom clean", in good condition and repair, normal wear and tear excepted, and
all fixtures and equipment in good working order, together with all alterations,
additions and improvements which may have been made in, to, or on the Premises
(except movable trade fixtures put in at the expense of Lessee). At any time
within the term of this Lease, or at any time after the expiration or earlier
termination of this Lease, Lessor may, at its option and at Lessor's sole
expense, and with reasonable advance notice to Lessee, retain the services of
one or more inspectors or consultants to inspect the Premises and all equipment
and fixtures located on or affixed thereto, to determine whether such Premises,
equipment and fixtures are in the condition required by this Lease. In the
event of any deficiency as determined by such inspections), Lessee shall cause
the same to be corrected promptly and in a good and workmanlike manner, at its
sole expense. Lessee, on or before the end of the term or sooner termination of
this Lease, shall
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remove all of Lessee's personal property and trade fixtures from the Premises,
and all property not so removed shall be deemed abandoned by Lessee, and may be
sold or otherwise disposed of at Lessee's expense. Lessee waives all claims
against Lessor for any cost or damage to Lessee arising out of Lessor's
retention or disposition of any such alterations, fixtures or personal property.
If the Premises are not surrendered at the end of the term or sooner termination
of this Lease, Lessee shall indemnify Lessor against any expense, loss or
liability (including reasonable attorneys' fees) resulting from delay by Lessee
in so surrendering the Premises including, without limitation, any claims made
by any succeeding tenant founded on such delay.
7.3 REGULATION. Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Commencement Date
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants, conditions or restrictions now of record, or which may hereafter be
recorded with respect to the Premises as amended from time to time (provided
that no such amendments recorded by Lessor subsequent to the Commencement Date
shall materially interfere with Lessee's use of the Premises, nor make such use
substantially more costly), and accepts this Lease subject thereto and to all
matters disclosed thereby and by any Exhibits attached thereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
8. NOTICES.
Any notice, demand or communication required or permitted to be given
hereunder must be in writing and may be given by personal delivery or by mail,
and if given by mail shall be deemed sufficiently given three (3) business days
after being deposited in the United States mail, registered or certified mail,
postage prepaid, addressed to Lessee at the Premises, or to Lessor at its
address set forth herein. Either party may specify a different or additional
address for notice purposes by written notice to the other hereunder, except
that the Lessor may in any event use the Premises as Lessee's sole address for
notice purposes.
9. BROKERS.
Lessee warrants that it has had no dealings with any real estate broker or
agent in connection with the negotiation of this Lease, except Langdon Rieder
(Shaun Burnett), whose commission shall be payable by Lessor pursuant to a
separate written agreement, and that it knows of no other real estate broker or
agent who is or might be entitled to a commission in connection with this Lease.
If Lessee has dealt with any other person or real estate broker with respect to
leasing the Premises, Lessee shall be
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solely responsible for the payment of any fee due said person or firm and Lessee
shall hold Lessor free and harmless against any liability in respect thereto,
including attorneys' fees and costs, which shall be paid as incurred.
10. HOLDING OVER.
If Lessee holds over after the expiration or earlier termination of the
term hereof without the express written consent of Lessor, Lessee shall become a
Lessee at sufferance only, at a rental rate equal to (i) one hundred twenty
percent (120%) for the first one hundred twenty (120) day period, and (ii) one
hundred fifty percent (150%) thereafter of the rent in effect upon the date of
such expiration (as provided in Section 4 hereof and prorated on a daily basis),
and otherwise subject to the terms, covenants and conditions herein specified,
so far as applicable. Acceptance by Lessor of rent after such expiration or
earlier termination shall not result in a renewal of this Lease. The foregoing
provisions of this Section 10 are in addition to and do not affect Lessor's
right of re-entry or any rights of Lessor hereunder or as otherwise provided by
law. If Lessee fails to surrender the Premises upon the expiration of this
Lease despite demand to do so by Lessor, Lessee shall indemnify and hold Lessor
harmless from all loss or liability, including without limitation, any claim
made by any succeeding tenant founded on or resulting from such failure to
surrender and any attorneys' fees and costs.
11. MAINTENANCE, REPAIRS AND ALTERATIONS.
11.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition and
repair the Premises and every part thereof (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are reasonable or
readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements, the age or the
quality of construction of such portion of the Premises), including, without
limiting the generality of the foregoing, all plumbing, heating, ventilation,
air conditioning, electrical, lighting facilities and equipment within the
Premises, fixtures, interior walls and surfaces, ceilings, roofs (interior and
exterior), floors, windows, doors, plate glass and skylights located within the
Premises, fences, enclosures, and Lessee's signs located on the Premises, and
sidewalks and parkways immediately adjacent to the Premises. Lessor shall
arrange for inspection of the roof, mechanical, and electrical portions of the
Premises annually. Lessee shall pay for the reasonable costs of such
inspections and arrange for the correction of any defects found. Lessee shall
maintain and keep in force at all times during the Term a maintenance contract
for the heating, air conditioning and ventilation equipment serving the
Premises. In the event that Lessee fails to maintain any part of the Premises
in good condition and repair, Lessor shall deliver to Lessee written notice of
such
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defects, and Lessee shall immediately undertake such action as is reasonably
required to correct such defects. In the event that Lessee fails to diligently
undertake such corrective action, Lessor shall have the right, but not the
obligation, to correct same at Lessee's sole cost and expense.
11.2 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations
under this Section 11, or under any other Section of this Lease, Lessor may at
its option (but shall not be required to) enter upon the Premises after ten (10)
days' prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the rate described in Section 4.4
above, shall become due and payable as additional rental to Lessor together with
Lessee's next rental installment; provided that Lessor shall have no such rights
if (i) the performance of such obligation requires in excess of ten (10) days to
complete, and (ii) Lessee has commenced performance of such obligation and
diligently prosecutes such performance to completion.
11.3 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
Section 16 relating to destruction of the Premises and Section 20 relating to
condemnation of the Premises, it is intended by the parties hereto that Lessor
shall have no obligation, in any manner whatsoever, to repair and maintain the
nonstructural portions of the Premises or the equipment therein, or to pay any
other cost or expense whatsoever directly or indirectly relating to the
ownership, management, lease, operation or use of the Premises, all of which
obligations are intended to be the Lessee's obligations under this Lease, except
as provided in Section 11.3(a), below. Lessee expressly waives the benefit of
any statute now or hereinafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
damage to or destruction of the Premises; provided, however, that this waiver
shall not limit Lessee's rights or remedies in the event of a default by Lessor
with respect to Lessor's obligations under this Lease.
(a) Lessor, at its sole cost, has constructed the building shell
("Building Shell") of which the Premises are a part, and all common areas
associated therewith, in accordance with certain plans and specifications
("Plans") prepared by Turpit & Partners, Architects, and approved by the City of
San Diego. Lessor shall repair at no cost to Lessee those portions of the
Building Shell including, and specifically limited to, (i) foundations, (ii)
structural exterior walls (unless damaged by Lessee, in which event Lessee shall
be responsible for all repairs associated with such damage; and provided further
that any damage to such exterior walls not resulting from earthquake or defects
in design or construction shall be presumed to be associated with
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Lessee's use, and shall be the responsibility of Lessee), and (iii) plumbing,
electrical and sewer utilities ("Utilities") installed at the time of
construction of the Building Shell, as depicted in the Plans (provided that any
repairs to such Utilities are not the result of Lessee's misuse or abuse of
same, in which event Lessee shall be responsible for all repairs thereto).
Lessor shall not be responsible for any repairs the need for which arises from
alterations or additions made by Lessee.
(b) Notwithstanding anything in Section 11 to the contrary, Lessee
shall not be required to make any improvement, replacement or alteration the
cost of which is properly deemed a capital expenditure under generally accepted
accounting principles if such capital expenditure can be avoided by a repair
which is sound, functional, and consistent with good property management
practices applicable to similar first-class projects in the San Diego area.
Before making a repair, Lessee may notify Lessor in writing, describing the
repair, the reasons therefor and the estimated cost thereof, and Lessor shall,
if requested by Lessee, notify Lessee within twenty (20) days after receipt of
such notice from Lessee whether Lessor contends that a capital
repair/improvement should be made rather than a repair, and giving Lessor's
reason(s) therefor, together with estimated capital repair/improvement costs and
methods. Any dispute between Lessee and Lessor as to whether a repair versus a
capital improvement/alteration should be made under this Section 11.3(b) or
Section 49.9 shall be resolved by binding arbitration in San Diego, California,
under the commercial rules of the American Arbitration Association, and the
prevailing party shall recover its reasonable attorney's fees and costs.
(c) If Lessee is required to make an improvement, modification,
replacement or alteration pursuant to Section 11.3(b) or Section 6 which is a
capital expenditure under generally accepted accounting principles, Lessee shall
be entitled to a credit equal to the amount (if any) by which the actual
reasonable cost of such capital expenditure exceeds the product of (i) the
annual amortization of such cost on a straight-line basis based on the useful
life of the improvement, alteration, replacement, or modification and (ii) the
number of years remaining in the Term at the time the capital expenditure is
made. (By way of example, if Lessee makes a capital expenditure of $30,000 for
an improvement with a useful life of 20 years at a time when there are 5.5 years
remaining in the Term, Lessee would be entitled to a credit of $21,750 [$30,000
- - ($1500 X 5.5)].) Such credit shall be applied to the next rent becoming due
under this Lease until it has been fully applied; if this Lease expires before
the credit has been fully applied, the unapplied balance shall be paid to Lessee
upon Lessee's vacating the Premises in accordance with the terms of this Lease.
Before making an improvement, replacement, modification or alteration for which
Lessee may claim rent credit, Lessee shall give notice to Lessor and provide
Lessor with reasonably detailed
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information regarding the necessity for, nature and estimated cost of, the same.
If, after Lessee has been credited with any rent pursuant to this Section,
Lessee exercises any option(s) to renew this Lease, the parties shall
re-calculate the credit to which Lessee is entitled by including the renewal
period in the number of years remaining in the Term, and Lessee shall pay to
Lessor the excess of the credit taken by Lessee over the recalculated credit.
If such excess exceeds $10,000, the amount over $10,000 may be paid by Lessee in
equal monthly payments over the first twelve (12) months of the renewal period.
11.4 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent, which
may not be unreasonably withheld, make any alterations, improvements, additions,
or Utility Installations in, on or about the Premises, except for nonstructural
alterations not exceeding One Hundred Fifty Thousand Dollars ($150,000.00) in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of the foregoing cumulative cost, Lessee shall make no change or
alteration (i) not in prior compliance with each and every provision contained
in Exhibit "B", (ii) to the exterior of the Premises, or (iii) to the interior
if visible from the exterior, without Lessor's prior written consent. As used
in this Section 11.4 the term "Utility Installation" shall mean window
coverings, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing, fencing, satellite or other radio
reception or transmitting devices, or gas lines. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the termination or earlier expiration of the term (and will
notify Lessee of that fact at the time of approval), and restore the Premises to
their condition as of the Commencement Date, reasonable wear and tear excepted.
As a condition of Lessor's consent, as to any single work of improvement
exceeding Fifty Thousand Dollars ($50,000.00), Lessor may require Lessee to
provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in
an amount equal to one and one-half times the estimated cost of such
improvements, to insure Lessor against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Should Lessee make
any alterations, improvements, additions or Utility Installations without the
prior approval of Lessor, where such approval is required, Lessor may require
that Lessee remove any or all of the same at Lessee's expense.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises that Lessee shall desire to make and which require the
consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. Within ten (10) business days after receipt of
Lessee's request, Lessor shall notify Lessee whether or not Lessor approves such
request; should Lessor fail to give written approval or disapproval within
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such period, Lessee's request shall be deemed approved. If Lessor shall give
its consent, which consent may not be unreasonably withheld, the consent shall
be deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work, the compliance by Lessee of all conditions of said
permit, and a performance and payment bond in form and substance acceptable to
Lessor guaranteeing completion of and payment for all such work in a timely
manner. Any such work shall be completed by Lessee promptly, expeditiously and
in a good and workmanlike manner, using prime quality materials, and in such a
manner as not to cause any interruption of or interference with the use or
enjoyment of any adjoining premises. Lessee shall hold Lessor harmless from any
failure by Lessee to comply with the foregoing, pursuant to Section 14 below.
12. LIENS. Lessee shall not permit any mechanic's, materialmen's or other
liens to be filed against the Premises nor against Lessee's leasehold interest
in the Premises in connection with claims for labor or materials furnished or
alleged to have been furnished to or for Lessee at or for use in the Premises or
otherwise caused by Lessee. Lessee shall give Lessor not less than ten (10)
days' notice before commencement of any work on the Premises and Lessor shall
have the right to post and keep posted on the Premises any notices which it
deems necessary for protection from liens. If any such liens are filed, Lessor
may, without waiving its rights and remedies based on such breach of Lessee and
without releasing Lessee from any of its obligations, cause such liens to be
released by any means it shall deem proper, including payments in satisfaction
of the claim giving rise to such lien; provided that Lessor shall give Lessee
ten (10) days' prior written notice of Lessor's intent to do so, and Lessee
shall have the right to pay the claim underlying such lien or otherwise
discharge the item or post a bond reasonably acceptable to Lessor within said
ten (10) day period. Lessee shall promptly pay to Lessor, upon notice duly
made, any sum paid by Lessor to remove such liens, together with interest at the
rate described in Section 4.4 above. No provision of this Lease shall be
construed to give Lessor a lien on Lessee's personal property or trade fixtures.
13. BANKRUPTCY.
If Lessee shall file a petition in bankruptcy under any provision of the
Bankruptcy Code as then in effect, or if Lessee shall be adjudicated a bankrupt
in involuntary bankruptcy proceedings and such adjudication shall not have been
vacated within thirty (30) days from the date thereof, or if a receiver or
trustee shall be appointed of Lessee's property and the order appointing such
receiver or trustee shall not be set aside or vacated within thirty (30) days
after the entry thereof, or if Lessee shall make a general assignment for the
benefit of creditors, or if Lessee's interest in this Lease or a substantial
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portion of Lessee's assets located at the Premises shall be seized or attached
and such seizure or attachment is not discharged within thirty (30) days, or if
this Lease shall, by operation of law or otherwise, pass to any person or
persons hereof, then in any such event Lessor may terminate this Lease, if
Lessor so elects, with or without notice of such election and with or without
entry or action by Lessor. In such case, notwithstanding any other provisions
of the Lease, Lessor, in addition to any and all rights and remedies allowed by
law or equity, shall, upon such termination, be entitled to recover damages in
the amount provided in Section 19.2 hereof. Neither Lessee nor any person
claiming through or under Lessee or by virtue of any statute or order or any
court shall be entitled to possession of the Premises but shall surrender the
Premises to Lessor. Nothing contained herein shall limit or prejudice the right
of Lessor to recover damages by reason of any such termination equal to the
maximum allowed by any statute or rule of law in effect at the time when such
damages are to be proved, whether or not such amount is greater than, equal to,
or less than the amount of damages recoverable under the provisions of this
Section 13.
14. INDEMNIFICATION AND RELEASE.
Lessee shall indemnify, defend and hold Lessor and its officers, directors,
agents and employees harmless from all claims, demands, costs and expenses
(including reasonable attorneys' fees) directly or indirectly arising from or in
connection with Lessee's use of the Premises or the conduct of its business or
from any activity, work, or thing done, permitted or suffered by Lessee in or
about the Premises. Lessee shall further indemnify, defend and hold Lessor
harmless from all claims, demands, costs and expenses arising from any breach or
default in the performance of any obligation to be performed by Lessee under the
terms of this Lease, or arising from any act, neglect, fault or omission of
Lessee or of its agents or employees, and from and against all costs, attorneys'
fees, expenses and liabilities incurred in or about such claim or any action or
proceedings brought thereon; provided however, that such indemnification shall
not apply to the extent such claims or liabilities are caused by the negligence
or willful misconduct of Lessor. If any action or proceeding shall be brought
against Lessor by reason of any such claim, Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel selected by Lessor subject to
Lessee's reasonable approval. Lessee, as a material part of the consideration
to Lessor, hereby assumes all risk of damage to property or injury to persons
in, upon or about the Premises from any cause whatsoever except that which is
caused by the failure of Lessor to observe any of the terms and conditions of
this Lease where such failure has persisted for an unreasonable period of time
after written notice of such failure. Notwithstanding any of the foregoing to
the contrary, Lessee shall not be obligated to indemnify Lessor against any
breach of Lessor's obligations under this Lease.
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15. INSURANCE.
15.1 LIABILITY INSURANCE. Lessee shall, at Lessee's expense, obtain and
keep in force during the term of this Lease and any other period of occupancy
hereof, a policy of Combined Single Limit, Bodily Injury and Property Damage
insurance (Commercial General Liability insurance) insuring Lessor and Lessee
against any liability arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be in an amount not less than Three Million Dollars ($3,000,000.00)
combined single limit for injury to or death of one or more persons in an
occurrence, and for damage to tangible property (including loss of use) in an
occurrence, said limit to be adjusted for inflation every five (5) years. The
policy shall insure the hazards of premises and operations, independent
contractors, contractual liability (covering the Indemnity Clause contained in
this Section 15 and Section 14 above), and shall (i) name Lessor and its
managing agent as additional insureds, (ii) contain a cross liability provision,
and (iii) contain an endorsement that "the insurance provided the Lessor
hereunder shall be primary and noncontributing with any other insurance
available to the Lessor". The limits of said insurance shall not, however,
limit the liability of Lessee hereunder.
15.2 PROPERTY INSURANCE.
(a) Lessor shall obtain at Lessee's sole cost and expense a policy or
policies of insurance covering loss or damage to the Premises, or other real
property items as identified by Lessee from time to time, in the amount of the
full replacement value thereof, against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood,
earthquake, and special extended perils ("All Risk" as such term is used in the
insurance industry). Lessor shall obtain a minimum of three (3) proposals for
such insurance coverage, and shall select the proposal having the lowest cost.
Said insurance shall name Lessor as additional insured and provide for payment
of loss to Lessor, or to the holders of mortgages or to beneficiaries under
deeds of trust on the Premises. This insurance shall cover the buildings) to
which this Lease applies, including tenant improvements, heating and cooling
equipment or machinery and electrical equipment, as well as any furniture,
fixtures, equipment or other personal property owned by Lessor. A Stipulated
Value or Agreed Amount endorsement deleting the coinsurance provision of the
policy shall be procured with said insurance. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed Five Thousand Dollars
($5,000.00) per occurrence, and Lessee shall be liable for such deductible
amount. Lessee shall reimburse Lessor for the entire cost of such premiums
within thirty (30) days after payment therefor by Lessor; provided that the cost
to the Lessee for earthquake and flood insurance shall not, in any event,
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exceed the cost of the property insurance policy by more than twenty percent
(20%), and, if the cost of such insurance does exceed the above amount, Lessor,
at Lessor's sole discretion, shall either pay the excess amount or decide that
such insurance is not required. For example, if the property insurance required
hereunder, excluding earthquake and flood insurance, is priced at One Hundred
and No/100 Dollars ($100.00), and the cost of such insurance together with
earthquake and flood insurance is One Hundred Thirty and No/100 Dollars
($130.00), the cost to Lessee shall be limited to twenty percent (20%) over the
policy without earthquake and flood insurance, or One Hundred Twenty and No/100
Dollars ($120.00), and Lessor shall be responsible for the difference of Ten and
No/100 Dollars ($10.00) if Lessor shall nonetheless elect to obtain such
coverage, or Lessor in this event may elect not to obtain earthquake and flood
insurance. Notwithstanding the foregoing, Lessee may elect to provide its own
insurance coverage for the premises after taking possession of same, provided
that any such coverage shall fulfill all of the requirements of this Section
15.2, and shall be reviewed and approved by Lessor.
(b) If the Premises are part of a larger building, or if the Premises
are part of a group of buildings owned by Lessor which are adjacent to the
Premises, then Lessee shall pay for any increase in the property insurance of
such other building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(c) Lessee shall insure its contents, equipment and tenant
improvements at full replacement value.
(d) Lessee shall, at its own expense, obtain business interruption
insurance of such type and coverage sufficient to pay all rent and other sums
due hereunder for a period of not less than three (3) months in the event of any
cessation or reduction of Lessee's business for any reason including, without
limitation, damage or destruction described in Section 16 below.
15.3 OTHER REQUIRED INSURANCE. Lessee shall obtain, at Lessee's sole cost
and expense, Workers' Compensation and Employer's Liability insurance (as
required by state law).
15.4 INSURERS. Insurance policies required hereunder shall be in a form
satisfactory to Lessor and issued by insurance companies holding a "General
Policyholders Rating" of at least A/VII, as set forth in the most current issue
of "Best's Insurance Guide" (or equivalent rating, if such guide is discontinued
or materially changed).
15.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or
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incident to the perils insured against under Section 15, which perils occur in,
on or about the Premises, whether due to the negligence of Lessor or Lessee or
their agents, employees, contractors and/or invitees. All insurance that is
carried by either party with respect to the Premises or the Project, whether or
not required, shall include provisions that deny to the insurer acquisition by
subrogation of rights of recovery against the other party.
15.6 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
damage or injury or the means of repairing the same is inaccessible to Lessee,
except, however, that Lessor shall not be exempted from liability as herein
provided to the extent any of the above events of damage or injury are sustained
by Lessee due to the negligence or willful misconduct of Lessor. Lessor shall
not be liable for any damages arising from any act or neglect of any other
tenant, if any, of the building in which the Premises are located.
15.7 INSURANCE POLICIES.
(a) If Lessee uses radioactive materials on the Premises, the
liability and property insurance policies maintained by Lessee shall include
coverage for loss and liability arising from the use of radioactive materials
and contamination resulting therefrom (including containment and clean up).
(b) All insurance policies obtained by Lessee hereunder shall provide
that such policy may not be cancelled, materially reduced in coverage or amount,
or amended in any material manner for any reason whatsoever, except if notice is
given within thirty (30) days to Lessor.
(c) Upon signing this Lease, and thereafter upon demand at any time
during the term hereof, Lessee shall deliver to Lessor copies of policies or
certificates of insurance evidencing existence of the amounts and forms of
coverage and proof of payment satisfactory to Lessor.
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(d) Lessee shall, within twenty (20) days after the expiration of the
policies required hereunder, furnish the Lessor with renewal policies or
certificates of "binders" thereof; provided that in no event shall Lessee allow
the prior policy to expire and create a lapse in coverage before the renewal
policy is in effect. Failure to do so may result in the Lessor ordering such
insurance and charging the cost thereof to Lessee as additional rent, or may, in
Lessor's sole discretion, constitute a default under this Lease. If Lessor does
obtain any insurance that is the responsibility of the Lessee under this Lease,
Lessor shall deliver to Lessee a written statement setting forth the cost of
such insurance and showing in reasonable detail the manner in which it has been
computed.
16. DAMAGE OR DESTRUCTION.
16.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is less than twenty five
percent (25%) of the then replacement cost of the Premises, as such replacement
cost is reasonably determined by Lessor. "Premises Building Partial Damage"
shall herein mean damage or destruction to the building, if any, of which the
Premises are a part to the extent that the cost of repair is less than twenty
five percent (25%) of the then replacement cost (determined as described above)
of such building as a whole.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is twenty five
percent (25%) or more of the then replacement cost of the Premises, as such
replacement cost is reasonably determined by Lessor. "Premises Building Total
Destruction" shall herein mean damage or destruction to the building, if any, of
which the Premises are a part to the extent that the cost of repair is twenty
five percent (25%) or more of the then replacement cost (determined as described
above) of such building as a whole.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in Section
15 and for which the insurance proceeds of such policy(s) are sufficient to pay
the full cost of repair, excluding any deductible amounts.
16.2 PARTIAL DAMAGE--INSURED LOSS. Subject to the provisions of Sections
16.4, 16.5, and 16.6, if at any time during the term of this Lease there is
damage which is an Insured Loss and which falls into the classification of
Premises Partial Damage or Premises Building Partial Damage, which can be
repaired in less than 120 days from the date of events, then Lessor shall, at
Lessor's
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expense utilizing insurance proceeds, repair such damage to fixtures, equipment
or tenant improvements installed by Lessor, or identified by Lessee under
Section 15.2 hereof, as soon as reasonably possible and this Lease shall
continue in full force and effect. If said repair is estimated to take more
than 120 days, then either Lessor or Lessee may terminate this Lease upon
determination of a reasonable schedule of repair.
16.3 PARTIAL DAMAGE--UNINSURED LOSS. Subject to the provisions of Sections
16.4, 16.5, and 16.6, if at any time during the term of this Lease there is
damage which is not an Insured Loss and which falls within the classification of
Premises Partial Damage or Premises Building Partial Damage, unless caused by a
grossly negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease, as of the date
of the occurrence of such damage.
16.4 TOTAL DESTRUCTION. If at any time during the term of this Lease there
is damage, whether or not an Insured Loss, (including destruction required by
any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction, and all
insurance proceeds shall be payable to Lessor.
16.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last twelve (12) months of the term of
this Lease there is damage, whether or not an Insured Loss, which falls within
the classification of Premises Partial Damage, and which cannot be repaired
within ninety (90) days, Lessor may at Lessor's option cancel and terminate this
Lease as of the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within thirty (30) days after the date of
occurrence of such damage. If the damage was not caused by Lessee's negligence,
then Lessee shall also have the option to cancel the Lease under the provisions
of this Section 16.5(a).
(b) Notwithstanding Section 16.5(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee may exercise such option, if it is to
be exercised at all or, in the event Lessee has already exercised such option,
shall reconfirm such exercise in writing, no later than twenty (20) days after
the occurrence of an Insured Loss falling within the classification of Premises
Partial Damage during the last six (6)
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months of the term of this Lease. If Lessee duly exercises such option during
said twenty (20) day period, Lessor shall effect repairs in accordance with the
provisions of Section 16.2 above, and this Lease shall continue in full force
and effect. If Lessee fails to exercise or reconfirm its prior exercise of such
option during said twenty (20) day period, then Lessor may at Lessor's option
terminate and cancel this Lease as of the expiration of said twenty (20) day
period by giving written notice to Lessee of Lessor's election to do so within
ten (10) days after the expiration of said twenty (20) day period. In the event
of any conflict or inconsistency between the provisions of this Section 16.5 and
the terms or conditions of any such option, the provisions hereof shall be
controlling in all respects, notwithstanding any term or provision in the grant
of option to the contrary, unless otherwise expressly agreed in writing which
expressly and specifically refers to this Section 16.5.
16.6 WAIVER. Lessor and Lessee hereby waive the provisions of any statutes
or court decisions which relate to the abatement or termination of leases when
leased property is damaged or destroyed, and agree that such event shall be
exclusively governed by the terms of this Lease.
17. REAL PROPERTY TAXES.
17.1 PAYMENT OF TAXES. Lessee shall pay before delinquency all real
property taxes and assessments levied against the Premises and the parcel on
which they are located during the Term of this Lease. If any such real property
taxes paid by Lessee shall cover any period of time after the expiration of the
Term hereof, Lessee's share of such real property taxes shall be equitably
prorated to cover only the period of time within the tax fiscal year during
which this Lease shall be in effect, and Lessor shall promptly reimburse Lessee
to the extent required. At Lessor's option, such taxes shall be paid directly
to the taxing authority, or paid to Lessor at least ten (10) days before the
delinquency date and remitted by Lessor to the taxing authority. Lessee shall
in no event be liable for payment of any penalty, fine or interest charge
resulting from Lessor's failure to remit such taxes to the taxing authority in a
timely manner, except to the extent such delay is due to Lessee's failure to
comply with its obligations under this Section 17.1.
(a) Lessee shall not be required to pay any increase in real property
tax to the extent resulting from the first "change in ownership" of the Premises
or parcel on which they are located during the Term. The preceding sentence
shall have no further force or effect from and after the second "change in
ownership," and shall not apply to the normal two percent (2%) annual increase.
17.2 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax
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or assessment, general, special, ordinary or extraordinary, and any license fee,
rental tax, parking surcharge, improvement bond or bonds, levy or tax (other
than inheritance, income or estate taxes) imposed on or with respect to the
Premises by any authority having the direct or indirect power to tax, including
any city, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Premises or in the real property of
which the Premises are a part, as against Lessor's right to rent or other income
therefrom, and as against Lessor's business of leasing the Premises. The term
"real property tax" shall also include any tax, fee, levy, assessment or charge
(i) in substitution of, partially or totally, any tax, fee, levy assessment or
charge hereinabove included within the definition of "real property tax"; or
(ii) the nature of which was hereinbefore included within the definition of
"real property tax"; or (iii) which is imposed as a result of a transfer, either
partial or total, of Lessor's interest in the Premises or which is added to a
tax or charge hereinbefore included within the definition of real property tax
by reason of such transfer subject to those restrictions contained in Section
17.1 (a); or (iv) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof; or (v) which is
measured by or reasonably attributable to the cost or value of Lessee's
equipment, fixtures or other property located on the Premises or Lessee's
leasehold improvements made in or to the Premises, regardless whether title to
such improvements shall be in Lessor or Lessee; or (vi) upon or measured by the
rent payable hereunder; or (vii) upon or with respect to the possession,
leasing, operation, maintenance, management, use or occupancy of the Premises or
any portion thereof.
17.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be a prorata proportion of the real property taxes for
all of the land and improvements included within the Project, such proportion to
be determined by reference to Section 49.5 hereof.
17.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within ten (10) days before the delinquency date for such payment.
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18. UTILITIES.
Lessee shall pay for all water, gas, heat, light, power, telephone, waste
removal, sewer and other utilities and services supplied to the Premises,
together with any taxes thereon. If any such services are not separately
metered to Lessee, Lessee shall pay a reasonable proportion to be determined by
Lessor of all charges jointly metered with other Premises.
Lessee shall be responsible for contracting with and obtaining from
applicable utility companies those utility services required for the conduct and
operation of Lessee's business, to the extent that such desired services are
reasonably available to the Premises. Lessor agrees to reasonably cooperate
with Lessee in obtaining such services provided that Lessee shall have first
made application for such service(s) and shall have exhausted all reasonable
efforts in obtaining same. Lessor further agrees to promptly repair or replace
defects within the Premises or the Project that may unreasonably interfere with
the supply or availability of utilities reasonably desired by Lessee.
18.1 METERING. Electricity, gas and water supplied to the Premises shall
be separately metered. Lessee shall be responsible for the cost of maintenance,
inspection and repair of all meters exclusively servicing the Premises.
Electrical service to the Premises is 2,000 amps, three phase, 480/277 service.
19. DEFAULTS AND REMEDIES.
19.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default hereunder by Lessee:
(a) The vacation or abandonment of the Premises by Lessee.
Abandonment is herein defined to include, but is not limited to, failure of
Lessee to actively conduct business at the Premises for thirty (30) consecutive
business days or longer.
(b) The failure by Lessee to make any payment of rent or additional
rent or any other payment required to be made by Lessee hereunder, as and when
due.
(c) The failure by Lessee to observe or perform any of the express or
implied covenants or provisions of this Lease to be observed or performed by
Lessee, other than as specified in Section 19.1(a) above, where such failure
shall continue for a period of ten (10) days after written notice thereof from
Lessor to Lessee. Any such notice shall be in lieu of, and not in addition to,
any notice required under applicable state statutes regarding unlawful detainer
actions. If the nature of the Lessee's default is such that more than ten (10)
days are reasonably required for its cure, then Lessee shall not be deemed to be
in default if Lessee shall
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commence such cure within said ten (10) day period and thereafter diligently
prosecute such cure to completion; this cure provision shall not apply to
Lessee's failure to pay rent.
(d) The occurrence of any event described in Section 13 above.
19.2 REMEDIES. In the event of any such default by Lessee, in addition to
any other remedies available to Lessor at law or in equity, Lessor shall have
the immediate option to terminate this Lease and all rights of Lessee hereunder
and offset any deposits of Lessee against Lessee's obligations. In the event
that Lessor shall elect to so terminate this Lease then Lessor may recover from
Lessee:
(a) the worth at the time of award of any unpaid rent which had been
earned at the time of such termination including interest at the maximum rate
permissible by law; plus
(b) the worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Lessee proves could have been
reasonably avoided, including the maximum interest permissible by law; plus
(c) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that Lessee proves could be reasonably avoided; plus
(d) any other amount necessary to compensate Lessor for all the
detriment proximately caused by Lessee's failure to perform Lessee's obligations
under this Lease or which in the ordinary course of events would be likely to
result therefrom.
19.3 WORTH AT TIME OF AWARD. As used in Sections 19.2(a) and (b) above,
the "worth at the time of award" is computed by allowing interest at the maximum
rate permitted by law or twelve percent (12%) whichever is less. As used in
Section 19.2(c) above, the "worth at the time of award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%). Efforts by Lessor to
mitigate the damages caused by Lessee's breach of this Lease shall not waive
Lessor's right to recover damages under Section 19.2.
19.4 RE-ENTRY BY LESSOR. In the event of any such default by Lessee,
Lessor shall also have the right, with or without terminating this Lease, to re-
enter the Premises and remove all persons and property from the Premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Lessee. No re-entry or taking possession of the
Premises by Lessor pursuant to this Section 19.3 shall be
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construed as an election to terminate this Lease unless a written notice of such
intention is given by Lessee or unless the termination thereof is decreed by a
court of competent jurisdiction.
19.5 REMEDIES CUMULATIVE. All rights, options and remedies of Lessor
contained in this Lease shall be construed and held to be cumulative, and no one
of them shall be exclusive of the other, and Lessor shall have the right to
pursue any one or all of such remedies or any other remedy or relief which may
be provided by law, whether or not stated in this Lease. The Lessor has the
remedy described in California Civil Code Section 1951.4 (Lessor may continue
the Lease in effect after Lessee's breach and abandonment and recover rent as it
becomes due, if Lessee has the right to sublet or assign, subject only to
reasonable limitations.) No waiver of any default of Lessee hereunder shall be
implied from any acceptance by Lessor of any rent or other payments due
hereunder or any omission by Lessor to take any action of account of such
default if such default persists or is repeated, and no express waiver shall
affect defaults other than as specified in said waiver. No act or notice of
Lessor shall be deemed an election to terminate this Lease unless Lessor so
notifies Lessee in writing. The consent or approval of Lessor to or of any act
by Lessee requiring Lessor's consent or approval shall not be deemed to waive or
render unnecessary Lessor's consent to or approval of any subsequent similar
acts by Lessee.
20. CONDEMNATION.
If the Premises or any portion thereof are taken under the power of eminent
domain, or sold under the threat of the exercise of said power (all of which are
herein called "condemnation"), this Lease shall terminate as to the part so
taken as of the date the condemning authority takes title or possession,
whichever first occurs, but shall remain in full force and effect as to the
balance of the Premises, except as hereinafter provided. If more than ten
percent (10%) of the floor area of the Premises, or more than thirty percent
(30%) of the land area of the Premises which is not occupied by any building, is
taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing only within thirty (30) days after the condemning authority shall have
taken possession, terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be equitably
reduced. Any award for the taking of all or part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the sole and exclusive property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages, or for the bonus value or market
value of this Lease, or
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for the value of any option to extend the term of this Lease or to purchase the
Premises; provided, however, that Lessee shall be entitled to any award for loss
of or damage to Lessee's business, trade fixtures and removable personal
property, and expenses of relocation. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of
severance damages received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to the
extent that Lessee has been reimbursed therefor by the condemning authority.
21. ESTOPPEL CERTIFICATE.
21.1 WRITTEN STATEMENT BY LESSEE. Within ten (10) days following written
request of Lessor, Lessee shall execute and deliver to Lessor a statement
certifying: (i) the date of commencement of this Lease; (ii) the fact that this
Lease is unmodified and in full force and effect (or, if there have been
modifications hereto, that this Lease is in full force and effect, and stating
the date and nature of such modifications); (iii) the date to which the rental
and other sums payable under this Lease have been paid; (iv) to the best of
Lessee's knowledge, there are no current defaults under this Lease by either
Lessor or Lessee except as specified in Lessee's statement; and (v) such other
matters reasonably requested by Lessor. Lessor and Lessee intend that any
statement delivered pursuant to Section 21 may be relied upon by any mortgagee,
beneficiary, purchaser or prospective purchaser of the building in which the
Premises are located or any interest therein.
21.2 LESSEE'S FAILURE TO DELIVER STATEMENT. Lessee's failure to deliver
such statement within such time shall be a breach of this Lease and conclusive
upon Lessee that: (i) this Lease is in full force and effect without
modification, except as may be represented by Lessor, (ii) to the best of
Lessee's knowledge, there are no uncured defaults in Lessor's performance, (iii)
not more than one month's rental has been paid in advance, and (iv) Lessee has
thereby appointed Lessor as Lessee's special attorney-in-fact for the purpose of
executing and delivering any statement on Lessee's behalf.
22. GOVERNING LAW.
This Lease shall be governed by and construed pursuant to the laws of the
State of California.
23. SUCCESSORS AND ASSIGNS.
Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
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24. ATTORNEYS' FEES.
24.1 SUIT BY EITHER PARTY. If Lessor or Lessee should bring suit, or
institute any other action or proceeding, for possession of the Premises, for
the recovery of any sum due under this Lease, or because of the breach of any
provisions of this Lease, or for any other relief hereunder, or in the event of
any other litigation between the parties with respect to this Lease, then all
costs and expenses, including reasonable attorneys' fees and costs of appeals
incurred by the prevailing party therein, shall be paid by the other party,
including attorneys' fees of litigation, which obligation on the part of the
other party shall be deemed to have accrued on the date of the commencement of
such action and shall be enforceable whether or not the action is prosecuted to
judgment.
24.2 LESSOR NAMED AS DEFENDANT. If Lessor is named as a defendant in any
suit brought against Lessee in connection with or arising out of Lessee's
occupancy hereunder, Lessee shall pay to Lessor its costs and expenses incurred
in such suit, including reasonable attorneys' fees and costs of appeals.
25. PERFORMANCE BY LESSEE.
All covenants and agreements to be performed by Lessee under any of the
terms of this Lease shall be performed by Lessee at Lessee's sole cost and
expense and without any abatement of rent. If Lessee shall fail to pay any sum
of money owed to any party other than Lessor, for which it is liable hereunder,
or if Lessee shall fail to perform any other act on its part to be performed
hereunder or otherwise violate any term or provision of this Lease, and such
failure or violation shall continue for ten (10) days after notice thereof by
Lessor, Lessor may, but shall not be obligated to, make any such payment or
perform any such other act to be made or performed by Lessee, without waiving or
releasing Lessee from its obligations, unless the performance of such obligation
reasonably requires in excess of ten (10) days, in which case Lessor shall have
no such rights, provided Lessee has commenced performance of such obligation and
is diligently prosecuting such performance to completion. All sums so paid by
Lessor and all necessary incidental costs together with interest thereon at the
rate described in Section 4.4 above, from the date of such payment by Lessor,
shall be payable to Lessor on demand. Lessee covenants to pay any such sums,
and Lessor shall have (in addition to any other right or remedy of Lessor) all
rights and remedies in the event of the non-payment thereof by Lessee as are set
forth in Section 19 hereof.
26. MORTGAGE PROTECTION.
In the event of any default on the part of Lessor, Lessee will give notice
by registered or certified mail to any beneficiary of a deed of trust or
mortgage covering the Premises whose address
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shall have been furnished to Lessee, and shall offer such beneficiary or
mortgagee a reasonable opportunity to cure the default, including time to obtain
possession of the Premises by power of sale or a judicial foreclosure, if such
should prove necessary to effect a cure.
27. DEFINITION OF LESSOR.
The term "Lessor", as used in this Lease, so far as covenants or
obligations on the part of Lessor are concerned, shall be limited to and include
only the owner or owners, at the time in question, of the fee title of the
Premises or the lessees under any ground lease, if any. In the event of any
transfer, assignment or other conveyance or transfers of any such title, Lessor
herein named (and in case of any subsequent transfers or conveyances, the then
grantor) shall be automatically freed and relieved from and after the date of
such transfer, assignment or conveyance of all liability in respect to the
performance of any covenants or obligations on the part of Lessor contained in
this Lease thereafter to be performed. Without further agreement, the
transferee of such title shall be deemed to have assumed and agreed to observe
and perform any and all obligations of Lessor hereunder, during its ownership of
the Premises. Lessor may transfer its interest in the Premises without the
consent of Lessee and such transfer or subsequent transfer shall not be deemed a
violation on Lessor's part of any of the terms and conditions of this Lease.
28. WAIVER.
The waiver by either party of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of any subsequent breach of
the same or any other term, covenant or condition herein contained, nor shall
any custom or practice which may develop between the parties in the
administration of the terms hereof be deemed a waiver of or in any way affect
the right of either party to insist upon the performance by the other party in
strict accordance with said terms. The subsequent acceptance of rent hereunder
by Lessor shall not be deemed to be a waiver of any preceding breach by Lessee
of any term, covenant or condition of this Lease, other than the failure of
Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge
of such preceding breach at the time of acceptance of such rent.
29. IDENTIFICATION OF LESSEE.
If more than one person executes this Lease as Lessee, (i) each of them is
jointly and severally liable for the keeping, observing and performing of all of
the terms, covenants, conditions, provisions and agreements of this Lease to be
kept, observed and performed by Lessee, and (ii) the term "Lessee" as used in
this Lease shall mean and include each of them jointly and
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severally. The act of or notice from, or notice or refund to, or the signature
of any one or more of them, with respect to the tenancy of this lease,
including, but not limited to any renewal, extension, expiration, termination or
modification of this Lease, shall be binding upon each and all of the persons
executing this Lease as Lessee with the same force and effect as if each and all
of them had so acted or so given or received such notice or refund or so signed.
30. TERMS AND HEADINGS.
The words "Lessor" and "Lessee" as used herein shall include the plural as
well as the singular. Words used in any gender include other genders. The
paragraph headings of this Lease are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part hereof.
31. EXAMINATION OF LEASE.
Submission of this instrument for examination or signature by Lessee does
not constitute a reservation of or option for lease, and it is not effective as
a lease or other binding instrument until execution by and delivery to both
Lessor and Lessee.
32. TIME.
Time is of the essence with respect to the performance of every provision
of this Lease.
33. PRIOR AGREEMENT; AMENDMENTS.
This Lease contains all of the agreements of the parties hereto with
respect to any matter covered or mentioned in this Lease, and no prior agreement
or understanding pertaining to any such matter shall be effective for any
purpose. No provisions of this Lease may be amended or added to except by an
agreement in writing signed by the parties hereto or their respective successors
in interest.
34. SEPARABILITY.
Any provision of this Lease which shall prove to be invalid, void or
illegal in no way affects, impairs or invalidates any other provision hereof,
and such other provisions shall remain in full force and effect.
35. RECORDING.
Neither Lessor nor Lessee shall record this Lease nor a short form
memorandum thereof without the consent of the other.
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36. AUTHORITY.
Each person executing this Lease on behalf of a party hereto hereby
represents and warrants that he has been thereunto duly authorized by
appropriate action of such party. Lessee agrees to provide to Lessor such
information or documents as Lessor may reasonably request in connection with the
foregoing.
37. LIMITATION ON LIABILITY.
37.1 LIMITATION AS TO LESSOR. In consideration of the benefits accruing
hereunder, Lessee and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Lessor:
(a) The sole and exclusive remedy shall be against the Lessor's
interest in the Building;
(b) No partner of Lessor shall be sued or named as a party in any
suit or action (except as may be necessary to secure jurisdiction of the
partnership);
(c) No service of process shall be made against any partner of Lessor
(except as may be necessary to secure jurisdiction of the partnership);
(d) No partner of Lessor shall be required to answer or otherwise
plead to any service of process;
(e) No judgment will be taken against any partner of the Lessor;
(f) Any judgment taken against any partner of Lessor may be vacated
and set aside at any time, with the same effect as though such judgment had not
been made;
(g) No writ of execution will ever be levied against the assets of
any partner of Lessor;
(h) These covenants and agreements are enforceable by Lessor and any
partner of Lessor.
37.2 LIMITATION AS TO LESSEE. In the event of actual or alleged failure,
breach or default hereunder by Lessee, Lessor shall have the right as against
Lessee to seek all remedies available to Lessor as are provided under the laws
of the State of California. Lessor shall have no rights as against the officers
or directors of Lessee other than as provided under the laws of the State of
California.
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38. LESSOR'S ACCESS.
38.1 RIGHT OF ENTRY. Lessor and Lessor's agents shall have the right to
enter the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements of additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Notwithstanding the above provisions, except in the case of an emergency, Lessor
shall: (i) give Lessee at least forty-eight (48) hours notice prior to entering
the Premises; (ii) be accompanied by an employee of Lessee at all times while in
the Premises; (iii) comply with Lessee's reasonable security procedures; and
(iv) not unreasonably interfere with Lessee's use of the Premises.
38.2 SIGNS. Lessor may at any time during the last one hundred eighty
(180) days of the term hereof reasonably place on or about the Premises any
ordinary "For Lease" or "For Sale" signs, all without rebate of rent or
liability to Lessee.
39. AUCTIONS.
Lessee shall not conduct, nor permit to be conducted, either voluntarily or
involuntarily, any auction upon the Premises without first having obtained
Lessor's prior written consent. Notwithstanding anything to the contrary in
this Lease, Lessor shall not be obligated to exercise any standard of
reasonableness in determining whether to grant such consent.
40. SIGNS.
Lessee shall have the right to install at Lessee's expense a sign to be
located on the exterior of the Premises, subject to the reasonable approval of
Lessor and the issuance of required permits by the City of San Diego. Items to
be considered by Lessor in granting sign approval shall include (i) review of a
comprehensive sign plan to be prepared by Lessee depicting size, color,
materials, script, location and power source, (ii) compatibility of design and
materials with building architecture, and (iii) designation of a sign company of
good reputation, as determined in Lessor's reasonable judgement. Lessee shall
not place any signs or other display materials in or about the Premises or
proximate to any exterior window if such sign is visible from the exterior of
the Premises, without Lessor's prior written consent. Any signs or display
materials violating this provision may be destroyed by Lessor without
compensation to Lessee. Additionally, Lessee shall place no window covering
(e.g., shades, blinds, curtains, drapes, screens, or tinting material),
stickers, signs, lettering, banners or advertising or display material on or
near exterior windows or doors if such materials are visible from the exterior
of the Premises, without Lessor's prior written consent. Similarly, Lessee may
not install any alarm boxes, foil protection tape or
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other security equipment of the Premises without Lessor's prior written consent.
41. [Deleted]
42. SUBORDINATION AND ATTORNMENT.
42.1 SUBORDINATION OF LEASE. This Lease, at Lessor's option, shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the real property of
which the Premises are a part and to any and all advances made on the security
thereof and to all renewals, modifications, consolidations, replacements and
extensions thereof. Notwithstanding such subordination, Lessee's right to quiet
possession of the Premises shall not be disturbed if Lessee is not in default
and so long as Lessee shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms. In the event of any sale or assignment of the Premises or if any
proceedings are brought for foreclosure, or in the event of the exercise of any
power of sale under any mortgage or deed of trust affecting the Premises, Lessee
shall attorn to the purchaser and recognize such purchaser as Lessor hereunder.
If any mortgagee, trustee or ground lessor shall elect to have this Lease prior
to the lien of its mortgage, deed of trust or ground lease, and shall give
written notice thereof to Lessee, this Lease shall be deemed prior to such
mortgage, deed of trust, or ground lease, whether this Lease is dated prior or
subsequent to the date of said mortgage, deed of trust or ground lease or the
date of recording thereof. Notwithstanding the foregoing provisions, Lessee's
leasehold interest shall not be subordinate to any mortgage, deed of trust, or
other instrument of security, nor shall Lessee be required to execute any
documents subordinating the Lease, unless the lender agrees to enter into a non-
disturbance agreement which (i) provides that the Lease will not be terminated
following a foreclosure if Lessee is not in default, and (ii) recognizes all of
Lessee's rights under the Lease. Lessor agrees to use reasonable best efforts
to obtain a non-disturbance agreement from Lessor's existing lender.
42.2 LESSEE'S EXECUTION OF WRITTEN SUBORDINATION. Lessee agrees to execute
any documents required to effectuate an attornment, a subordination or to make
this Lease prior to the lien of any mortgage, deed of trust or ground lease, as
the case may be. Lessee's failure to execute such documents within ten (10)
days after written demand shall constitute a material default by Lessee
hereunder, or, at Lessor's option, Lessor shall execute such documents on behalf
of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and
irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name,
place and stead, to execute such documents in accordance with this Section 42.2.
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43. RIDERS.
Clauses, plats and riders, if any, signed by Lessor and Lessee and affixed
to this Lease are a part hereof.
44. MODIFICATION FOR LENDER.
If, in connection with obtaining construction, interim or permanent
financing for the Premises or any real property of which the Premises are a
part, the lender shall request reasonable modifications in this Lease as a
condition to such financing, Lessee will not unreasonably withhold, delay or
defer its consent thereto, provided that such modifications do not materially
increase the obligations of Lessee hereunder or materially adversely affect the
leasehold interest hereby created or Lessee's rights hereunder.
45. EASEMENTS.
Lessor reserves to itself the right from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of parcel maps and restrictions, so long as such
easements, rights, dedications, maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor, and failure to do so shall
constitute a material breach of this Lease. Lessee understands and agrees that
Lessor may sell the parcel on which the Premises are located and assign this
Lease to the purchaser thereof. In order to accommodate such a sale, Lessee
agrees to relinquish its leasehold rights to the Common Areas provided that
Lessee shall concurrently receive rights to use, and be subject to duties with
respect to, the Common Areas under a reciprocal easement agreement and/or common
area maintenance agreement which are substantially the same as those to which
Lessee is entitled under this Lease, the owner(s) and tenant(s) of other parcels
within the Project shall have the right to use (and duties with respect to) the
Common Areas substantially the same as contemplated herein, and that Lessee's
share of expenses under said agreements shall not be greater than Lessee's Pro
Rata Share of Common Area Expenses and Common Area Taxes and Assessments under
this Lease. Lessee agrees to execute, acknowledge and deliver such documents as
are necessary to evidence and effectuate the foregoing.
46. PERFORMANCE UNDER PROTEST.
If at any time a dispute shall arise as to any amount or sum of money to be
paid by one party to the other under the provisions hereof, the party against
whom the obligation to pay the money is asserted shall have the right to make
payment "under protest" and such payment shall not be regarded as a voluntary
payment, and there shall survive the right on the part of said party to
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institute suit for recovery of such sum. If it shall be adjudged that there was
no legal obligation on the part of said party to pay such sum or any part
thereof, said party shall be entitled to recover such sum or so much thereof as
it was not legally required to pay under the provisions of this Lease.
47. ASSIGNMENT AND SUBLETTING.
47.1 LESSOR'S CONSENT. Lessee shall not either voluntarily or by operation
of law, assign, sell, encumber, pledge or otherwise transfer all or any part of
Lessee's leasehold estate hereunder, or permit the Premises to be occupied by
anyone other than Lessee or Lessee's employees, or sublet the Premises or any
portion thereof, without Lessor's prior written consent in each instance, which
consent may not be unreasonably withheld, conditioned, or delayed by Lessor. If
Lessee is a corporation, a transfer of more than fifty percent (50%) of its
voting stock shall be deemed an assignment, provided, however, that this
restriction shall not apply if such stock is publicly traded. If Lessee is a
partnership, limited liability company or other entity other than a corporation,
a transfer of a controlling interest (whether by one transaction or
cumulatively) shall be deemed an assignment, except that transfers resulting
from death shall not be considered. Consent by Lessor to one or more
assignments of this Lease or to one or more sublettings of the Premises shall
not operate to exhaust Lessor's rights under this Section. Notwithstanding
anything herein to the contrary, Lessee may assign this Lease without Lessor's
consent (a) to a corporate parent, subsidiary or affiliate, (b) to a
corporation which acquires Lessee's interest in this Lease by a merger,
consolidation or combination thereof or (c) to an entity which purchases
substantially all of the assets of Lessee; provided, and on condition, that (i)
Lessee shall remain primarily liable hereunder and, with respect to an entity
which purchases substantially all of Lessee's assets, shall give at least thirty
(30) days' prior notice to Lessor, accompanied by an audited financial statement
of the transferee showing that the transferee has a net worth (excluding
goodwill and similar intangible assets) reasonably acceptable to Lessor, and
(ii) the transferee shall unconditionally assume all of Lessee's obligations
under this Lease in writing.
47.2 WRITTEN NOTICE TO LESSOR. If Lessee desires at any time to assign
this Lease or to sublet the Premises or any portion thereof, it shall first
notify Lessor of its desire to do so and shall submit in writing to Lessor (i)
the name of the proposed subtenant or assignee; (ii) the nature of the proposed
subtenant's or assignee's business to be carried on in the Premises; (iii) the
terms and provisions of the proposed sublease or assignment; (iv) such
reasonable financial information as Lessor may request concerning the proposed
subtenant or assignee.
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47.3 RIGHT OF RECAPTURE. If Lessee seeks to sublet all or any portion of
the Premises, a copy of the proposed sublease agreement and all agreements
collateral thereto, shall be sent to Lessor at least thirty (30) days prior to
the commencement of the sublease (the "Proposed Effective Date"). If such
sublease, together with any extensions or renewals thereof, is for a term or
potential term in excess of (i) twenty-four (24) months, or (ii) the remaining
term of this Lease, whichever is less, then Lessor shall have the right, to be
exercised by giving written notice to Lessee, to recapture the space described
in the sublease. If such recapture notice is given, it shall serve to cancel
and terminate this Lease with respect to the proposed sublease space, or, if the
proposed sublease space covers all the Premises, it shall serve to cancel and
terminate the entire term of this Lease, in either case as of the Proposed
Effective Date and as fully and completely as if that date had been definitely
fixed for the expiration of the term of the Lease. However, no termination of
this Lease with respect to part or all of the Premises shall become effective
without the prior written consent, where necessary, of the holder of each
mortgage or deed of trust to which this Lease is then subject. If this Lease be
cancelled pursuant to the foregoing with respect to less than the entire
Premises, the rent and the additional rent shall be adjusted on the basis of the
proportion of rentable square feet retained by Lessee to the rentable square
feet originally demised and this Lease as so amended shall continue thereafter
in full force and effect. This Section 47.3 shall not apply to space which is
subleased to Affiliates of Lessee or to the sublease of up to and including
thirty percent (30%) of the total square footage of the Building to non-
Affiliates. For the purposes of this Section 47.3 and Section 47.4, an
"Affiliate" is any corporation with respect to which Molecular Biosystems, Inc.
(or any Affiliate thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
47.4 DIVISION OF PROFITS. If the monies payable to Lessee by an assignee
or sublessee are greater than the rent required under this Lease, Lessor shall
be entitled to retain fifty percent (50%) of the excess, after deduction of
normal and customary expenses incurred by Lessee in such assignment, encumbrance
or sublease, including without limitation costs of altering the Premises,
brokerage commissions, reasonable legal fees, and advertising costs, and Lessee
shall have no interest therein. As a condition for granting its consent to any
assignment, encumbrance or sublease, Lessor may require that the sublessee or
assignee remit directly to Lessor, on a monthly basis, all monies due to Lessee
by said assignee or sublessee not to exceed the sum of (a) the rent due to
Lessor under this Lease plus (b) Lessor's share of any monies due under the
preceding sentence; any monies in excess of the amount payable to Lessor shall
be payable by the sublessee or assignee directly to Lessee. If the monies
payable to Lessor by said assignee or sublessee are less than the rent required
under
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this Lease, Lessee shall pay the difference to Lessor. The preceding three (3)
sentences shall not apply to an assignment or sublease(s) to an Affiliate (as
defined in Section 47.3) of Lessee. Lessor's waiver or consent to any
assignment or subletting shall not relieve Lessee from any obligation under this
Lease. Neither an assignment by merger, consolidation, non-bankruptcy
reorganization or the sale of all or substantially all of the assets of Lessee,
nor the occupancy of all or part of the Premises by a parent, wholly-owned
subsidiary or wholly-owned affiliated company of Lessee shall be deemed an
assignment or subletting for purposes of this Section.
47.5 CONTINUING LIABILITY OF LESSEE. No subletting or assignment, even
with the consent of Lessor, shall relieve Lessee of its obligation to pay the
rent and perform all the other obligations to be performed by Lessee hereunder.
The acceptance of rent by Lessor from any other person shall not be deemed to be
a waiver by Lessor of any provision of this Lease or to be a consent to any
assignment or subletting.
48. SURRENDER NOT MERGER.
The voluntary or other surrender of this Lease by Lessee, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Lessor, terminate all or any existing subleases and/or subtenancies, or may, at
the option of Lessor, operate as an assignment to it of any or all of such
subleases or subtenancies.
49. COMMON AREAS.
49.1 AVAILABILITY OF COMMON AREAS. Areas within the outer property lines
of the project in which the Premises are located, as delineated on the plat
attached hereto marked Exhibit "D" (the "Project"), exclusive of areas therein
specified for leasing to tenants, shall be known as "Common Areas." Such areas
and any other areas from time to time designated by Lessor for use as part of
the Project shall be available for the non-exclusive use of Lessee during the
term of this Lease or any extension thereof for use by itself, its employees,
agents, customers, invitees and licensees. Condemnation or other taking by
public authority sale in lieu of condemnation of any or all of such Common Areas
shall not constitute a violation of this covenant.
49.2 PARKING. Lessor hereby grants to Lessee and Lessee's customers,
suppliers, employees and invitees a non-exclusive license to use parking areas
in the Common Areas for the use of motor vehicles during the term of this Lease,
without charge, subject to rights reserved to Lessor as hereinafter specified.
Lessor reserves the right at any time and from time to time to grant similar
non-exclusive use to other tenants; to promulgate rules and regulations relating
to the use of the Common Areas including parking areas (including reasonable
restrictions of
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parking by tenants and employees of tenants to park outside the Project); to
designate specific spaces for the use of any tenant, provided that no spaces
adjacent to the Building or within the area on Exhibit A labelled "No Exclusive
Parking" shall be designated for any other tenant's exclusive use without
Lessee's prior written consent; to make changes in the parking layout from time
to time; to establish reasonable time limits (greater than 72 hours) upon
customer parking, and to do and perform any other acts in and to said areas and
improvements as Lessor determines to be advisable. Lessee agrees to abide by
and conform with such reasonable rules and regulations. Lessee is hereby
granted the non-exclusive use of 212 parking spaces (as determined by the ratio
of four spaces per 1,000 square feet of usable area in the Premises).
49.3 COMMON AREA MAINTENANCE CHARGES. As used herein, the term "Common
Area Expenses" shall be construed to include, without limitation, all sums
expended in connection with the Common Areas for all general maintenance,
repair, resurfacing or painting, restriping, cleaning, sweeping and janitorial
services; purchase, replacement and maintenance of trash receptacles located
within the Common Areas; maintenance and repair of sidewalks, lavatories,
washrooms, first aid stations, fountains, curbs and signs, landscape sprinkler
systems, planting and landscaping; lighting and other utilities; directional
signs and other markers and bumpers; maintenance and repair of any fire
protection systems; lighting systems, storm drainage systems, and any other
utility system; property management (for which Lessor shall obtain a minimum of
three (3) proposals from qualified property management firms such as Coldwell
Banker, John Burnham and Company, and the Hannah-Gillard Company, at a frequency
of not more than every two (2) years, and shall select therefrom the proposal
having the lowest cost); personnel to implement such services, including, if
Lessor reasonably deems necessary, the cost of security guards; garbage, trash,
rubbish and waste removal; any governmental imposition or surcharge imposed upon
Lessor or assessed against any portion of the Common Areas; including, without
limitation, any tax, assessment (general or special), fee or imposition or other
charge on any parking space or parking lot or other facility within the Common
Areas; all costs with respect to repairs and maintenance of utility facilities
(including pipes and conduits) serving more than one tenant, except for repairs
caused by the intentional act of Lessor or the tenant within the premises
wherein such repairs are required; depreciation on maintenance and operating
machinery and equipment (if owned) and rental paid for such machinery and
equipment (if rented); public liability and property damage insurance and fire
and extended coverage insurance (including flood and earthquake insurance),
except, however, the cost to the Lessee for flood and earthquake insurance shall
not, in any event, exceed the cost of the property insurance policy by more than
twenty percent (20%), and, if the cost of such insurance does exceed the above
amount, Lessor, at Lessor's sole discretion, shall either pay the excess amount
or decide that such insurance is not required) on
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the Common Areas upon which Lessor shall be named as an additional insured;
rubbish removal; and (subject to Section 49.9) the cost of any additional
capital improvements made to the Common Areas. Lessee shall, in addition, pay a
sum to Lessor for management, accounting, bookkeeping and collection of the
expenses in connection with said Common Areas in an amount equal to five percent
(5%) of the total of Lessee's share of the aforementioned expenses for each
calendar year, as described below. Lessor may cause any or all of said services
to be provided by an independent contractor. Notwithstanding the foregoing
provisions, in no event shall Common Area Expenses include ground lease payments
or mortgage payments.
49.4 COMMON AREAS TAXES AND ASSESSMENTS. In addition to Common Area
Expenses described above and in addition to payment of the taxes and assessments
as set forth in this Lease, Lessee shall be obligated to pay its Pro Rata Share
of taxes, assessments, charges and impositions on the Common Areas (hereinafter
referred to as "Common Area Assessments"), including all parking spaces.
Lessee's share of such Common Area Assessments shall be computed in the same
manner as Lessee's share of Common Area Expenses, as set forth hereafter.
Common Area taxes, assessments and other charges shall be reasonably apportioned
by Lessor by reference to Lessee's Pro Rata Share. Lessee shall not be required
or obligated to pay any State or Federal income or franchise tax, or any State
or Federal estate, inheritance or transfer tax levied against Lessor.
49.5 LESSEE'S PRO RATA SHARE. Lessee's Pro Rata Share of the Common Area
Assessments and Common Area Expenses shall be determined by dividing (a) the
total number of square feet of floor area contained in the Premises (as set
forth in Exhibit "A"), by (b) the total number of square feet contained in the
building areas shown on Exhibit "D". Lessor and Lessee hereby acknowledge and
agree that Lessee's initial Pro Rata Share is 38.797%.
(a) From and after the Commencement Date, but subject to annual
adjustments hereinafter provided, Lessee shall pay Lessor on the first day of
each calendar month during every calendar year of the term of this Lease, an
amount estimated by Lessor to be one-twelfth (1/12th) of Lessee's Pro Rata Share
of the annual Common Area Expenses and Common Area Assessments for such calendar
year, to be remitted monthly without further billing. Lessor shall provide to
Lessee prior to the Commencement Date a detailed statement of estimated expenses
and Lessee's Prorata Share thereof.
(b) Following the end of each calendar year, Lessor shall furnish
Lessee a statement covering the calendar year just expired, showing the total
operating costs, the amount of Lessee's percentage of such Common Area Expenses
for such calendar year and the payments made by Lessee with respect to such
period. In addition, said statement shall set forth the amount of Common Area
Assessments and the amount of Lessee's percentage thereof. If
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Lessee's actual Pro Rata Share of such Common Area Expenses or Common Area
Assessments exceeds Lessee's payments so made, Lessee shall pay Lessor the
deficiency within ten (10) business days after receipt of such statement. If
said payments exceed Lessee's share of said amounts, Lessee shall be entitled to
offset any excess against payments next thereafter to become due.
49.6 AUDIT RIGHTS. Lessor shall maintain full, accurate and separate books
of account for all operating expenses for the Project, and shall retain such
books of account for a period of not less than two (2) years following the
calendar year for which such books of account were prepared. Lessee, at its
sole cost and expense, shall have the right upon advance written notice to
Lessor made not less than five (5) business days prior to the time requested to
inspect and audit the books of account during normal business hours of Lessor.
Lessee's rights hereunder shall continue throughout the Term, and one (1) year
following the Termination Date, provided that Lessee shall not exercise such
audit rights more frequently than twice per calendar year. In the event that
any audit so conducted by Lessee discloses that actual operating expenses were
overreported or underreported, Lessor or Lessee, as the case may be, shall
promptly adjust accounts to reflect actual operating expenses, all as determined
by Lessee's audit and substantiated by Lessor's right to independently verify
the accuracy of Lessee's audit. Lessor shall maintain the books of account
according to generally accepted accounting principles, and shall certify the
accuracy thereof, to the best of Lessor's knowledge and belief, upon submittal
of Lessor's annual report to Lessee as provided in Section 49.5 (b), above.
49.7 TAX CONTEST. In the event that Lessee together with other lessees in
the Project occupying at least fifty percent (50%) of the Project shall petition
Lessor seeking a reduction in the assessed tax valuation of the Project (as
determined and assessed by the Assessor of the County of San Diego), and shall
produce for Lessor's review information reasonably supporting such petition,
Lessor shall seek appropriate relief to such valuation through all reasonable
administrative or legal means, the cost of which shall be borne by those lessees
of the Project seeking such relief.
49.8 EXCLUSIONS TO COMMON AREA MAINTENANCE CHARGES. Operating Expenses
shall exclude the following expenses and costs:
1. The cost of repairs or other work occasioned by fire, or other insured
casualty or by the exercise of eminent domain, or by the acts of any Lessee or
user of the Building or Project to the extent Lessor is reimbursed by insurance
or by the condemning authority or by such Lessee or user.
2. Leasing commissions, attorneys' fees, costs, disbursements, and other
expenses incurred in connection with the leasing of the Building or the Project.
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3. Costs incurred in improving, constructing, renovating, decorating, or
painting any rentable area in the Building or Project leased to Lessee or other
Lessees.
4. Lessor's cost of electricity, HVAC, and other utilities, services and
benefits, if any, that are provided to other tenants and for which Lessor is
entitled to reimbursement directly from such tenants.
5. Expenses in connection with services, utilities, goods, materials, or
other benefits of a kind that are provided to other tenants of the Building or
Project but not to Lessee, or, if provided to Lessee, for which Lessee directly
reimburses Lessor.
6. Any legal costs, fines or penalties incurred due to a violation by
Lessor or any other tenant of the terms and conditions of any lease of space in
the Building or Project or any governmental law or regulation.
7. Fees paid to subsidiaries or affiliates of Lessor for services in the
Building to the extent the same exceed the competitive costs of such services if
they were provided by third parties.
8. Interest on debt or amortization payments on any mortgage or mortgages
and rental under any ground or underlying lease or leases.
9. Lessor's general overhead.
10. Advertising and promotional expenditures.
11. The initial construction cost of the Building or Project and
depreciation thereon.
12. Wages, salaries, or other compensation paid to any executive employees
of Lessor above the grade of Building Manager.
49.9 CAPITAL IMPROVEMENTS. With respect to any improvement to or
replacement on the Common Areas the cost of which is properly deemed a capital
expenditure under generally accepted accounting principles, Lessor agrees as
follows: (a) Lessor will not make a capital expenditure the cost of which
exceeds Five Thousand Dollars ($5000) if it is feasible and cost-effective to
make a sound and functional repair consistent with good property management
practices applicable to similar first-class projects in the San Diego area and
(b) if any capital expenditure is made for improvements/replacements, the cost
thereof shall be amortized on a straight-line basis over the useful life (lives)
of the improvements/replacements and the annual amortization shall be
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included in each year's Common Area Expenses. If Lessor makes a capital
expenditure in violation of this Section, the cost thereof (in excess of the
reasonable repair cost which could have been included as a Common Area Expense)
shall not be included as a Common Area Expense. Before making a capital
expenditure, Lessor may notify Lessee in writing, describing the expenditure,
the reason(s) therefor, and the estimated cost thereof, and Lessee shall, if
requested by Lessor, notify Lessor within twenty (20) days after receipt of such
notice from Lessor whether Lessee contends that a repair should be made rather
than a capital expenditure, and giving Lessee's reasons therefor, together with
estimated repair costs and methods. Any dispute under this Section as to
whether a repair versus a capital improvement/replacement should be made shall
be resolved by binding arbitration as provided in Section 11.3(b).
50. ADDITIONAL PROVISIONS.
50.1 APPROVALS. Whenever the Lease requires the approval, consent or
determination of either Lessor or Lessee, such approval, consent or
determination shall not be unreasonably withheld or delayed.
50.2 PACIFIC CORPORATE CENTER OWNERS' ASSOCIATION. In addition to the
terms and provisions contained herein, Lessor and Lessee shall be bound and
obligated to comply with such covenants, conditions and restrictions, and to pay
such assessments, as may be adopted from time to time by the Pacific Corporate
Center - North Owners' Association ("Association"). Lessee has received copies
of the Articles of Incorporation and Bylaws (dated July 23, 1986) and
Declaration of Covenants, Conditions and Restrictions (dated September 24, 1986,
as amended) adopted by the Association. The Project, of which the Premises are
a part, is located on Lot 19 (2.990 acres) and Lot 20 (5.326 acres) of Unit 6 of
the Pacific Corporate Center, as depicted on Exhibit "D". Any and all
assessments attributable to the Project as may be imposed by the Association
shall be deemed a Common Area Charge, and paid by Lessor to the Association,
subject to reimbursement by Lessee to Lessor in accordance with the provisions
of Sections 49.3 (Common Area Maintenance Charges), 49.4 (Common Area Taxes and
Assessments), and 49.5 (Lessee's Pro Rata Share) hereof.
50.3 OPTION TO RENEW.
(a) Lessor hereby grants to Lessee the Option to Renew the Lease for
two (2) additional terms of five (5) years each. Each such 5-year period is
herein called a "Renewal Term." The first Renewal Term shall commence on the
expiration of the initial Term and the second Renewal Term shall commence upon
expiration of the first Renewal Term. If Lessee does not timely and properly
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exercise its option for the first Renewal Term, or if the first Renewal Term is
terminated for any reason before the expiration thereof, there shall be no
second Renewal Term.
(b) The lease of the Premises for each Renewal Term shall be on the
same terms and conditions as set forth in the Lease except the rental for the
Premises during each Renewal Term shall be as set forth in Subsection 50.3(d)
below.
(c) Lessee may exercise its right to renew the Lease for each Renewal
Term only by giving to Lessor written notice of its election to renew on or
before one hundred eighty (180) days before the expiration date of the Term then
in effect. The second Renewal Option may not be exercised until after the first
Renewal Term has commenced. At Lessor's option, no exercise of a renewal option
shall be valid if Lessee is in material default under this Lease at the time the
notice is given.
(d) The initial Annual Base Rent for each renewal term shall be the
then prevailing market rental rate under recent leases for comparable space,
comparably improved, in comparable buildings in the surrounding market area;
provided, however, that the Annual Base Rent shall be at ninety-eight percent
(98%) of prevailing market rental rate if Lessee reimburses Lessor for any
leasing commission payable by Lessor on account of Lessee's exercise of such
renewal option. If Lessor and Lessee cannot mutually agree on such rent at
least one hundred twenty (120) days before the end of the Term then in effect,
then such rent shall be determined as follows: Lessor shall petition the
presiding judge of San Diego Superior Court to appoint an independent M.A.I.
appraiser familiar with local market conditions. Lessor and Lessee shall then
each independently submit to the appraiser within ten (10) days after
appointment of the appraiser a sealed proposal which states their determination
of the Annual Base Rent and any supporting evidence they so desire. Lessor and
Lessee shall each pay one-half (1/2) of the fee required by the appraiser. The
Annual Base Rent as determined by the appraiser shall be binding for the Renewal
Term and shall be subject to annual adjustments as provided herein.
(e) Lessee shall have five (5) days after receipt of written notice
of the appraiser's determination of the Annual Base Rent to cancel its exercise
of the renewal option, in which case Lessee shall pay the entire appraisal fee
(notwithstanding anything in (d) above to the contrary) and this Lease shall
terminate upon the expiration of the Term then in effect. If Lessee fails to
give timely written notice of cancellation to Lessor as aforesaid, Lessee shall
have no right to cancel its exercise of the renewal option.
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50.4 APPROVALS. Whenever the Lease requires the approval, consent or
determination of either Lessor or Lessee, such approval, consent or
determination shall not be unreasonably withheld or delayed.
50.5 LESSOR'S DEFAULT. If Lessor fails to perform any of its obligations
hereunder, Lessee may bring suit for the recovery of any damages suffered by
Lessee as a result thereof (subject to the provisions of Sections 26 and 37.1
above and after notice and expiration of the applicable cure period) without
terminating this Lease. If Lessor fails to perform any of its obligations
hereunder and fails to cure such default within fifteen (15) days after written
notice from Lessee to Lessor and any mortgagee as provided in Section 26
specifying the nature of such default where such default could reasonably be
cured within said fifteen (15)-day period, or fails to commence such cure within
said fifteen (15)-day period and thereafter continuously with due diligence to
prosecute such cure to completion where such default cannot reasonably be cured
within said fifteen (15)-day period, then Lessee shall have the right to take
any and all reasonable action to cure such default for the account of Lessor.
If Lessor fails to reimburse Lessee for all reasonable costs incurred by Lessee
in so curing Lessor's default within ten (10) days after receipt of an invoice
therefor, Lessee may offset such amounts against any rent and other charges
payable hereunder. Lessee's rights and remedies under this Section 50.9 are in
addition to, and not in lieu of, any rights or remedies available under any
other provision of this Lease.
50.6 FORCE MAJEURE. In any case where either party hereto is required to
do any act, delays caused by or resulting from acts of God, war, civil
commotion, fire, flood or other casualty, labor difficulties, shortages of
labor, materials or equipment, governmental regulations, unusually severe
weather, or other causes beyond such party's reasonable control, shall not be
counted in determining the time during which such act shall be completed,
whether such time be designated by a fixed date, a fixed time or a "reasonable
time," and such time shall be deemed to be extended by the period of such delay;
provided, however, that the foregoing shall not apply to Lessee's failure to pay
rent hereunder as and when due.
50.7 QUIET ENJOYMENT. Lessor agrees that provided Lessee is not in
default hereunder beyond the expiration of all applicable notice and cure
periods, Lessee may and shall peaceably and quietly
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have, hold and enjoy the Premises during the Term, and any renewal thereof,
without any manner of disturbance, hindrance or molestation by anyone claiming
by or through Lessor.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
LESSOR: LESSOR'S ADDRESS:
RADNOR/COLLINS/SORRENTO RADNOR/COLLINS/SORRENTO
PARTNERSHIP, PARTNERSHIP
a California general 5963 La Place Court, Suite 109
partnership Carlsbad, CA 92008
By: /s/ Roy B. Collins
-------------------- With copy to:
Roy B. Collins
General Partner RADNOR PACIFIC CORPORATE
CENTER CORPORATION
By: RADNOR PACIFIC CORPORATE 9255 Towne Centre Drive
CENTER CORPORATION, Suite 100
a Delaware corporation, San Diego, CA 92121
General Partner
By: /s/ Paul Donndelinger
-----------------------
Paul Donndelinger
Vice President
Date: 6/19/95
--------------
LESSEE: LESSEE'S ADDRESS:
MOLECULAR BIOSYSTEMS, INC., 5828 Pacific Center Boulevard
a Delaware corporation San Diego, CA 92121
By: /s/ Gerard A. Wills
------------------------
Its: Chief Financial Officer
-----------------------
By: ________________________
Its: _______________________
Date: 6/19/95
-----------
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EXHIBIT "A"
THE PREMISES
BUILDING "C" WHICH IS PART OF THE RADNOR/COLLINS/ SORRENTO PARTNERSHIP
PACIFICPOINT BUSINESS PARK, LOCATED WITHIN THE PROJECT SHOWN ON
EXHIBIT D.
ADDRESS: 5828 PACIFIC CENTER BLVD.
SAN DIEGO, CA 92121
PREMISES: 54,712 SQUARE FEET +-
<PAGE>
EXHIBIT "B"
LESSEE REQUIREMENTS TO PERFORM ALTERATIONS
I. SUBMIT PLANS OF PROPOSED ALTERATION.
Submit complete working drawings, engineered mechanical and electrical
drawings and Title XXIV Energy calculations to Lessor for approval prior to
start of work. A separate drawing will be necessary for each trade
proposing structural, electrical, plumbing or mechanical modifications.
II. CONTRACTOR INFORMATION.
If you are employing more than one trade upon a single job, you are
required by State Law to secure the services of a general contractor in
addition to specialty work being performed.
A. Each contractor used must be listed with their business address and
phone number and the contact person with whom your arrangements were
made.
B. Each contractor shall provide proof of their licensing as a general or
specialty contractor in accordance with State Law. Additionally, each
contractor shall furnish proof of their licensing in the city or
municipality wherein the construction related activity is to take
place.
C. Each contractor, or the Lessee, shall provide proof of compliance with
local building, mechanical and/or electrical codes by prompt
notification to Lessor at completion of project.
D. Each contractor employed at the project shall provide Lessor with a
current certificate of insurance in effect for that contractor for the
following coverages prior to starting work:
1) Lessee will obtain, prior to the commencement of the Work, Fire
and Extended Coverage Insurance, including "All Risk" insurance
for malicious mischief and vandalism upon the Work and upon all
materials intended to become a part of the Work, whether on-site,
temporarily stored elsewhere or in transit. A copy of the policy
shall be submitted to Lessor. Lessor shall be named as
"Additional Insured" and the policy shall include a Waiver of
Subrogation and Permission to Occupy Endorsement, all to Lessor's
reasonable satisfaction.
<PAGE>
EXHIBIT "B"
LESSEE REQUIREMENTS TO PERFORM ALTERATIONS - PAGE 2
- ----------------------------------------------------
2) The Lessee Contractor and all Subcontractors shall provide
evidence of the following coverage:
a) WORKERS' COMPENSATION: As required by the laws of the State
of California.
b) GENERAL LIABILITY: Comprehensive General Liability,
including completed operations coverage, in the following
limits, or such higher limits as Contractor may specify;
Bodily Injury $1,000,000 combined single
and limit each occurrence and
Property Damage aggregate
c) CONTRACTUALLY ASSUMED LIABILITY: Specifically covering
Contractor of Subcontractor for liability loss, cost and
damages, including attorneys' fees, assumed by Contractor or
Subcontractor under the provisions of the Hold Harmless
Agreement set forth below.
HOLD HARMLESS AGREEMENT: Contractor or Subcontractor shall
assume liability and indemnify Lessor from and against any
liability and all loss, costs, damages, expenses, and attorneys'
fees on account of claims for personal injury, including death,
sustained by any person or persons including employees of
Contractor or Subcontractor, and for injury to or destruction of
property of a person or organization, including loss of use
thereof, arising out of the performance of the Work.
3) The Contractor and all Subcontractors shall have their respective
insurance company name Lessor as additional insured using I.S.O
Bureau form #G116 with the following clause added: "The
insurance afforded to the Additional Insured is primary
insurance. If the Additional Insured has other insurance which
is applicable to the loss on an excess or contingent basis, the
amount of the company's liability under this policy shall not be
reduced by the existence of such other insurance."
4) Each of the above required Certificates shall provide that the
coverage therein afforded shall not be cancelled or reduced
except by written notice to Lessor given at least ten (10) days
prior
<PAGE>
EXHIBIT "B"
LESSEE REQUIREMENTS TO PERFORM ALTERATIONS - PAGE 3
- ----------------------------------------------------
to the effective date of such cancellation or reduction. In the
event the coverage evidenced by any such Certificate is cancelled
or reduced, Contractor or Subcontractor shall procure and furnish
to Lessor before the effective date of such cancellation new
Certificates conforming to the above requirements.
E. A complete list of all subcontractors to be employed on the project
must be submitted prior to commencement of construction. This list
shall include valid state license numbers and appropriate license
classifications.
F. Lessee shall secure from each and every specialty contractor or
general contractor employed at the project a Mechanics Lien Waiver in
favor of Lessor.
G. Lessee shall be totally responsible for all costs and obligations of
this improvement as originally ordered or as subsequently required to
accomplish all of the criteria as stipulated herein. Lessee shall
obtain a completion and payment bond acceptable to Lessor in an amount
sufficient to cover all work being performed. Lessor shall be
provided a copy of the prime contract for review and approval, which
approval shall not be unreasonably withheld.
III. MISCELLANEOUS REQUIREMENTS.
A. Work will only be approved within the confines of a given space.
Lessee shall not modify the building exterior or mechanical and
electrical service as provided to the building in common with other
tenants.
B. All electrical work shall be approved from within the Premises only.
Additional service requirements shall be secured only by direction of
Lessor.
C. Lessee will be required to guarantee all work completed for a period
of one year from acceptance from contractor.
D. Lessee will be responsible to repair, to the satisfaction of Lessor,
any damage to existing improvements created by its work in the
premises.
E. Lessee will be required to provide a schedule of all work to be
performed, subject to Lessor approval. Any nature of the job which
may be objectionable to
<PAGE>
EXHIBIT "B"
LESSEE REQUIREMENTS TO PERFORM ALTERATIONS - PAGE 4
- ----------------------------------------------------
neighboring tenancies must be performed after building hours.
Additional costs, if any, incurred by this requirement shall be borne
by the Lessee. Contractor(s) must coordinate building access, during
and after normal business hours, with Lessor.
F. Lessee shall be responsible for all clean up of space and surrounding
exterior areas if necessary. All such trash and demolition materials
shall be removed away from project and shall be disposed of in an
approved sanitation site. Building trash containers are provided for
office-generated trash only and are not to be used for construction
related activities. Unapproved usage shall result in a penalty
assessment to Lessee at the cost of an extra pick-up service.
G. Lessor reserves the right of inspection prior to, during, and at the
completion of all construction and/or demolition projects.
Additionally, Lessor reserves the right to order a total cessation of
construction in the event of noncompliance with any of the above
criteria.
IV. SUMMARY.
A. When properly authorized, Lessee will receive written approval and
consent for alterations to the Premises as provided in Section 11.4 of
the Lease. Any alterations to the Leased Premises excepting movable
furniture and trade fixtures shall at Lessor's option become a part of
the realty and belong to Lessor.
B. Checklist of criteria for each contractor and subcontractor:
1) Plan of Alterations.
2) List of Contractor(s), Address, Telephone Number, Contact.
3) Copy of Contractor's State and City Business License.
4) Copy of Initial Building Permit.
5) Schedule of Work and all subsequent schedules as revised.
<PAGE>
EXHIBIT "B"
LESSEE REQUIREMENTS TO PERFORM ALTERATIONS - PAGE 5
- ----------------------------------------------------
6) Copy of completion and Payment Bond.
C. Submit all information to:
RADNOR/COLLINS/SORRENTO PARTNERSHIP
5963 La Place Court, Suite 109
Carlsbad, CA 92008
<PAGE>
EXHIBIT "C"
USE RESTRICTIONS
1. EMISSIONS; STORAGE, USE AND DISPOSAL OF WASTE.
1.1 EMISSIONS. Lessee shall not:
(a) Permit any vehicle on the Premises to emit exhaust which is in
violation of any governmental law, rule, regulation or requirement;
(b) Discharge, emit or permit to be discharged or emitted, any
liquid, solid or gaseous matter, or any combination thereof, into the
atmosphere, the ground or any body of water, which matter, as reasonably
determined by Lessor or any governmental entity, does, or may, pollute or
contaminate the same, or is, or may become, radioactive or does, or may,
adversely affect the (1) health or safety of persons, wherever located, whether
on the Premises or anywhere else, (2) condition, use or enjoyment of the
Premises or any other real or personal property, whether on the Premises or
anywhere else, or (3) Premises or any of the improvements thereto or thereon
including buildings, foundations, pipes, utility lines, landscaping or parking
areas;
(c) Produce, or permit to be produced, any intense glare, light or
heat except within an enclosed or screened area and then only in such manner
that the glare, light or heat shall not be discernible from outside the
Premises;
(d) Create, or permit to be created, any sound pressure level which
will interfere with the quiet enjoyment of any real property outside the
Premises, or which will create a nuisance or violate any governmental law, rule,
regulation or requirement;
(e) Create, or permit to be created, any ground vibration that is
discernible outside the Premises;
(f) Transmit, receive, or permit to be transmitted or received, any
electromagnetic, microwave or other radiation which is harmful or hazardous to
any person or property in, on or about the Premises, or anywhere else.
1.2 STORAGE USE.
(a) STORAGE. Subject to the uses permitted and prohibited to Lessee
under this lease, Lessee shall store in appropriate leak proof containers all
solid, liquid or gaseous matter, or any combination thereof, which matter, if
discharged or emitted into the atmosphere, the ground or any body of water, does
or may (1) pollute or contaminate the same, or (2) adversely affect
<PAGE>
EXHIBIT "C"
USE RESTRICTIONS - PAGE 2
- --------------------------
the (i) health or safety of persons, whether on the Premises or anywhere else,
(ii) condition, use or enjoyment of the Premises or any other real or personal
property, whether on the Premises or anywhere else, or (iii) Premises or any of
the improvements thereto or thereon.
(b) USE. In addition, without Lessor's prior written consent, Lessee
shall not use, store or permit to remain on the Premises any solid, liquid or
gaseous matter which is, or may become, radioactive. If Lessor does give its
consent, Lessee shall store the materials in such a manner that no radioactivity
will be detectable outside a designated storage area and Lessee shall use the
materials in such a manner that (1) no real or personal property outside the
designated storage area shall become contaminated thereby and (2) there are and
shall be no adverse effects on the (i) health or safety of persons, whether on
the Premises or anywhere else, (ii) condition, use or enjoyment of the Premises
or any other real or personal property thereon or therein, or (iii) Premises or
any of the improvements thereto or thereon.
1.3 DISPOSAL OF WASTE.
(a) REFUSE DISPOSAL. Lessee shall not keep any trash, garbage, waste
or other refuse on the Premises except in sanitary containers and shall
regularly and frequently remove same from the Premises. Lessee shall keep all
incinerators, containers or other equipment used for the storage or disposal of
such materials in a clean and sanitary condition.
(b) SEWAGE DISPOSAL. Lessee shall properly dispose of all sanitary
sewage and shall not use the sewage disposal system (1) for the disposal of
anything except sanitary sewage or (2) for any use in excess of those uses (a)
reasonably contemplated by the uses permitted under this Lease or (b) permitted
by any governmental entity, whichever is less. Lessee shall keep the sewage
disposal system free of all obstructions and in good operating condition.
(c) DISPOSAL OF OTHER WASTE. Lessee shall properly dispose of all
other waste or other matter delivered to, stored upon, located upon or within,
used on, or removed from, the Premises in such a manner that it does not, and
will not, adversely affect the (1) health or safety of persons, wherever
located, whether on the Premises or elsewhere, (2) condition, use or enjoyment
of the Premises or any other real or personal property, wherever located,
whether on the Premises or anywhere else, or (3) Premises or any of the
improvements thereto or thereon including buildings, foundations, pipes, utility
lines, landscaping or parking areas.
<PAGE>
EXHIBIT "C"
USE RESTRICTIONS - PAGE 3
- --------------------------
1.4 COMPLIANCE WITH LAW. Lessee shall comply with applicable provisions
in the Lease and all laws, statutes, ordinances, regulations, rules and other
governmental requirements relating to the storage, use and disposal of hazardous
or toxic matter brought onto the Premises by Lessee, its agents, employees,
contractors, invitees or licensees.
1.5 COVENANTS, CONDITIONS AND RESTRICTIONS. Lessee shall comply with all
covenants, conditions and restrictions covering the Premises, if any.
1.6 HAZARDOUS WASTE.
(a) To the best of Lessor's knowledge, Lessor warrants that the
Premises are in compliance with all laws regulating the handling, use, storage,
and disposal of Hazardous Materials. The foregoing warranty does not apply to
any Hazardous Materials handled, disposed of, used or stored on the Premises or
Project by Lessee under this Lease or Lessee's prior sublease. Lessee shall
indemnify, defend and hold harmless Lessor from any judgment, damages, losses,
claims, actions, attorneys' fees, consultants' fees, storage or disposal of
hazardous materials in or about the Premises in violation of law. Lessee shall
have no other liability to Lessor or any of its officers, agents or partners as
a consequence of the presence of hazardous materials in or about the Premises,
except as otherwise may be provided herein. Lessee shall surrender the Premises
to Lessor on the Termination Date or sooner termination of the Lease free of all
hazardous materials and toxic wastes, in full compliance with all applicable
municipal, state and federal laws regulating the storage, handling and removal
of such materials. Lessee shall indemnify and hold Lessor harmless from all
damage, whether direct or indirect, proximate or remote, resulting from injury
or damage to the Premises, the Project, subsequent Lessees of the Premises and
their employees, invitees, agents, consultants and guests, resulting from any
breach by Lessee of Lessee's obligation to remove all hazardous materials, toxic
wastes, and all residue therefrom, from the Premises, on or before the date of
termination, expiration or surrender.
(b) Lessee at its sole cost, shall comply with all federal, state and
local laws, statutes, ordinances, codes, regulations and orders relating to the
receiving, handling, use, storage, accumulation, transportation, generation,
spillage, migration, discharge, release and disposal of Hazardous Material (as
hereinafter defined) in or about the Premises. Lessee shall not cause or permit
any Hazardous Material to be brought upon, kept or used in or about the Premises
by Lessee, its agents, employees, contractors, invitees or subtenants, in a
manner or for a purpose prohibited by any federal, state or local agency or
authority.
<PAGE>
EXHIBIT "C"
USE RESTRICTIONS - PAGE 4
- --------------------------
(c) Lessee shall immediately provide Lessor with telephonic notice,
which shall promptly be confirmed by written notice, of any and all spillage,
discharge, release and disposal of Hazardous Material onto or about the
Premises, including the soils and subsurface waters thereof, which by law must
be reported to any federal, state or local agency, and any injuries or damages
resulting directly or indirectly therefrom.
(d) Lessee shall be responsible for and shall indemnify, protect,
defend and hold harmless Lessor and Lessor's Agents from any and all liability,
damages, injuries, causes of action, claims, judgments, costs, penalties, fines,
losses, and expenses which arise during or after the term of this Lease and
which are shown to result from Lessee's (or from Lessee's Agents, assignees,
subtenants, employees, agents, contractors, licensees, or invitees) receiving,
handling, use, storage, accumulation, transportation, generation, spillage,
migration, discharge, release or disposal of Hazardous Material in, upon or
about the Premises, including without limitation (i) diminution in value of the
Premises, (ii) damages for the loss or restriction on use of any portion or
amenity of the Premises, (iii) damages arising from any adverse impact on
marketing of space in the Building, (iv) damages and the costs of investigations
and remedial work to the Premises and other property in the vicinity of the
Premises owned by Lessor or an affiliate of Lessor, and (v) consultant fees,
expert fees, and attorneys' fees. Lessor shall be responsible for and shall
indemnify, protect, defend and hold harmless Lessee on the same basis as above
for any claims which result from Lessor's or from Lessor's Agents receiving,
handling, use, storage, accumulation, transportation, generation, spillage,
migration, discharge, release or disposal of Hazardous Material in, upon or
about the Premises or Project.
(e) Lessor acknowledges that it is not the intent of this section to
prohibit Lessee from operating its business as permitted in this Lease or to
unreasonably interfere with the operation of Lessee's business. Lessee may
operate its business according to the custom of the industry so long as the use
or presence of Hazardous Material is strictly and properly monitored according
to all applicable governmental requirements. As a material inducement to Lessor
to allow Lessee to use Hazardous Material in connection with its business,
Lessee agrees to deliver to Lessor prior to the commencement date of the initial
Term and each Renewal Term a list identifying each type of Hazardous Material to
be present in or upon the Premises and setting forth any and all governmental
approvals or permits required in connection with the presence of Hazardous
Material on the Premises ("Hazardous Material Summary") and a copy of the
Hazardous Material business plan prepared pursuant to Health and Safety Code
Section
<PAGE>
EXHIBIT "C"
USE RESTRICTIONS - PAGE 5
- --------------------------
25500 et seq. At Lessor's request, and at reasonable times, Lessee shall make
available to Lessor true and correct copies of the following documents
(hereinafter referred to as the "Hazardous Material Documents") relating to the
handling, storage, disposal and emission of Hazardous Material: permits;
approvals; reports and correspondence; storage and management plans; notice of
violations of any laws; plans relating to the installation of any storage
facilities to be installed in or under the Premises (provided said installation
of facilities shall be permitted only after Lessor has given Lessee its written
consent to do so, which consent may not be unreasonably withheld); and all
closure plans or any other documents required by any and all federal, state and
local governmental agencies and authorities for any storage facilities installed
in, on or about the Premises. Lessee shall not be required, however, to provide
Lessor with that portion of any document which contains information of a
proprietary nature and which, in and of itself, does not contain a reference to
any Hazardous Material which are not otherwise identified to Lessor in such
documentation, unless any such Hazardous Material Document names Lessor as an
"owner" or "operator" of the facility in which Lessee is conducting its
business. Lessor shall treat all information furnished by Lessee pursuant to
this section as confidential and shall not disclose such information to any
person or entity without Lessee's prior written consent, which consent shall not
be unreasonably withheld or delayed, except as required by law.
(f) Notwithstanding the other provisions of this Lease, if (i) any
anticipated use of the Premises by a proposed assignee or subtenant involves the
generation or storage, use, treatment or disposal of Hazardous Material in any
manner or for a purpose prohibited by any applicable law, (ii) the proposed
assignee or sublessee has been required by any governmental authority to take
remedial action in connection with Hazardous Material contaminating a property
if the contamination resulted from such party's action or use of the property in
question and has failed to take such action, or (iii) the proposed assignee or
sublessee is subject to an enforcement order issued by any governmental
authority in connection with the use, disposal or storage of Hazardous Material
of a type such proposed assignee or sublessee intends to use in the Premises, it
shall not be unreasonable for Lessor to withhold its consent to an assignment or
subletting to such proposed assignee or sublessee.
(g) At any time prior to the expiration or earlier termination of the
term of the Lease, Lessor shall have the right to enter upon the Premises at all
reasonable times and at reasonable intervals in order to conduct appropriate
tests regarding the presence, use and storage of Hazardous Material, and
<PAGE>
EXHIBIT "C"
USE RESTRICTIONS - PAGE 6
- --------------------------
to inspect Lessee's records with regard thereto. Lessee will pay the reasonable
costs of any such test which demonstrates that contamination in excess of
permissible levels has occurred and shall correct any deficiencies identified in
any such tests.
(h) Lessee shall at its own expense cause an environmental site
assessment of the Premises to be conducted and a report thereof delivered to
Lessor upon the expiration or earlier termination of the Lease, such report to
be as complete and broad in scope as is necessary to identify any impact on the
Premises Lessee's operations might have had (hereinafter referred to as the
"Exit Report"). Lessee shall pay the cost of correcting any deficiencies
identified in Exit Report.
(i) Lessee's obligations under this section shall survive the
termination of the Lease. Should Lessee employ any period of time after the
expiration or earlier termination of this Lease to complete the removal from the
Premises of any such Hazardous Material, Lessee shall be a tenant at sufferance
subject to the provisions hereof, except that monthly base rental shall be
increased to one hundred twenty five percent (125%) of the Basic Annual Rent in
effect during the last twelve (12) months of the Lease term.
(j) As used herein, the term "Hazardous Material" means any hazardous
or toxic substance, material or waste which is or becomes regulated by any local
governmental authority, the State of California or the United States Government.
The term "Hazardous Material" includes, without limitation, any material or
substance which is (i) defined as a "hazardous waste," "extremely hazardous
waste" or "restricted hazardous waste" under Sections 25515, 25117 or 25122.7,
or listed pursuant to Section 25140, of the California Health and Safety Code,
Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as a
"hazardous substance" under Section 25316 of the California Health and Safety
Code, Division 2, Chapter 6.8 (Carpenter-Presly-Tanner Hazardous Substance
Account Act), (iii) defined as a "hazardous material," hazardous substance" or
"hazardous waste" under Section 25501 of the California Health and Safety Code,
Division 20, Chapter 6.95 (Hazardous Substances), (v) petroleum, (vi) asbestos,
(vii) listed under Article 9 and defined as hazardous or extremely hazardous
pursuant to Article 11 of Title 22 of the California Administrative Code,
Division 4, Chapter 20, (viii) designated as a "hazardous substance" pursuant
to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section
1317), (ix) defined as a "hazardous waste" pursuant to Section 1004 of the
Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et. seq.
(42 U.S.C. Section 6903), or
<PAGE>
EXHIBIT "C"
USE RESTRICTIONS - PAGE 7
- --------------------------
(x) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
Section 9601 et. seq. (42 U.S.C. Section 9601).
<PAGE>
EXHIBIT D
THE PROJECT
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease is effective this 15th day of July, 1994, and
is by and between Principal Mutual life Insurance Company (hereinafter referred
to as "Landlord") and Molecular Biosystems, Inc., a Delaware Corporation
(hereinafter referred to as "Tenant").
WHEREAS, Tenant and the Landlord have executed this certain Lease for the
premises located at 3252 HOLIDAY COURT, SUITE 101, LA JOLLA, CA 92037, dated
September 9, 1991 (hereinafter referred to as the "Lease"); and
WHEREAS, the parties desire to amend and extend such Lease:
NOW, THEREFORE, in consideration of the mutual covenants, conditions and
promises hereinafter contained, the parties hereto agree to amend the Lease as
follows:
1. SECTION 5 - BASIC RENT shall be amended as follows: The new base rent
shall be $1.45 per square foot plus utilities. The new base rent for
the first twelve (12) months shall be $194,932.21 in equal payments of
$16,244.40 per month net of utilities. The rent shall not increase
during the entire eighteen (18) month renewal term.
2. SECTION 8 - TERM shall be amended as follows: The new term shall be
eighteen (18) months commencing October 15, 1994, and ending April 14,
1996.
3. ADDENDUM TO LEASE ARTICLE 1 - TERM shall be deleted and have no more
force nor effect.
4. ADDENDUM ARTICLE 2 - RENT shall be deleted and have no more force nor
effect.
5. OPTION TO RENEW: As long as Tenant is not in default, Tenant shall
have the right to renew the Lease for an additional period of eighteen
(18) months upon all the terms and conditions contained in the Lease,
excluding rent. Rent during the option period shall be $1.51 per
square foot per mont plus utilities. Tenant shall be required to give
no less than one hundred eighty (180) days' advance written notice.
6. TENANT IMPROVEMENTS: The Landlord shall not be required to provide
tenant improvements.
7. COMMISSION: Landlord agrees to pay CB Commercial and Pacific
Southwest Realty Services EACH a two and a half percent (2.5%)
commission, based on the total Lease consideration of the renewed
eighteen (18) month term.
The First Amendment to Lease is not effective until such time as it is
fully executed by all parties to it. Until it is so executed, the terms of the
Lease continue in full force and effect.
IN ALL OTHER RESPECTS, the Lease by and between the parties hereto, dated
September 9, 1991, shall remain in full force and effect. In the event of a
conflict between the terms of this Amendment and the Lease, this Amendment shall
be deemed to control.
IN WITNESS WHEREOF, the parties hereto have executed this document
effective on the date first written above.
LANDLORD: TENANT:
Principal Mutual life Insurance Company Molecular Biosystems, Inc.
a Delaware Corporation and Syngene,
a subsidiary of Molecular
Biosystems
By: By: /s/Gerard Wills
------------------------------------- ------------------------------
Its: Its: Controller
------------------------------------ ------------------------------
Date: Date: 7/27/94
----------------------------------- -----------------------------
<PAGE>
AMENDMENT TO PROMISSORY NOTE
RECITAL
James L. Barnhart ("Maker") executed a promissory noted dated December 31,
1993, in favor of Molecular Biosystems, Inc. ("MBI"), in the principal amount
of $213,481.85, due and payable on January 31, 1995 ("Note"). Maker and MBI
desire to extend the Note an additional year.
NOW, THEREFORE, in consideration of the payment of $1.00 by Maker to MBI,
the receipt and sufficiency of which is acknowledged by MBI, the parties agree
as follows:
1. The final sentence of Paragraph 1 of the Note shall be replaced in its
entirety with the following sentence:
"The entire indebtedness represented by this Note and all interest accrued
hereunder shall be due and payable on January 31, 1996."
2. All other terms and conditions of the Note are reaffirmed.
AGREED:
/s/ James L. Barnhart 12/31/94
-------------------------------------------------
James L Barnhart Date
MOLECULAR BIOSYSTEMS, INC.
/s/ Steven Lawson
-------------------------------------------------
By: Steven Lawson Date
Vice President, Legal Affairs and
General Counsel
<PAGE>
AMENDMENT TO PROMISSORY NOTE
RECITAL
John Young ("Maker") executed a promissory noted dated December 31, 1993,
in favor of Molecular Biosystems, Inc. ("MBI"), in the principal amount of
$112,943.67, due and payable on January 31, 1995 ("Note"). Maker and MBI desire
to extend the Note an additional year.
NOW, THEREFORE, in consideration of the payment of $1.00 by Maker to MBI,
the receipt and sufficiency of which is acknowledged by MBI, the parties agree
as follows:
1. The final sentence of Paragraph 1 of the Note shall be replaced in its
entirety with the following sentence:
"The entire indebtedness represented by this Note and all interest accrued
hereunder shall be due and payable on January 31, 1996."
2. All other terms and conditions of the Note are reaffirmed.
AGREED:
/s/ John Young 12/08/94
-------------------------------------------------
John Young Date
MOLECULAR BIOSYSTEMS, INC.
/s/ Steven Lawson
-------------------------------------------------
By: Steven Lawson Date
Vice President, Legal Affairs and
General Counsel
<PAGE>
AMENDMENT TO PROMISSORY NOTE
RECITAL
Richard Stern ("Maker") executed a promissory noted dated December 31,
1993, in favor of Molecular Biosystems, Inc. ("MBI"), in the principal amount
of $218,766.03, due and payable on January 31, 1995 ("Note"). Maker and MBI
desire to extend the Note an additional year.
NOW, THEREFORE, in consideration of the payment of $1.00 by Maker to MBI,
the receipt and sufficiency of which is acknowledged by MBI, the parties agree
as follows:
1. The final sentence of Paragraph 1 of the Note shall be replaced in its
entirety with the following sentence:
"The entire indebtedness represented by this Note and all interest accrued
hereunder shall be due and payable on January 31, 1996."
2. All other terms and conditions of the Note are reaffirmed.
AGREED:
/s/ Richard Stern
-------------------------------------------------
Richard Stern Date
MOLECULAR BIOSYSTEMS, INC.
/s/ Steven Lawson
-------------------------------------------------
By: Steven Lawson Date
Vice President, Legal Affairs and
General Counsel
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SELECTED CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues $ 16,941 $ 8,784 $ 3,689 $ 9,193 $ 10,220
Total Operating Costs and Expenses 29,618 29,159 19,503 11,738 8,389
Interest Income 1,189 1,902 3,144 3,620 1,806
Income (Loss) from
Continuing Operations (12,182) (18,800) (11,813) 367 1,713
Loss from Discontinued Operations -- -- (2,255) (924) (1,938)
Net Loss (12,182) (18,800) (14,068) (557) (225)
Earnings (Loss) Per Common Share:
Continuing Operations (1.02) (1.58) (1.01) .03 .18
Discontinued Operations -- -- (.19) (.08) (.20)
Net Loss (1.02) (1.58) (1.20) (.05) (.02)
Weighted Average Common
Shares Outstanding 11,999 11,905 11,690 11,235 9,450
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
SELECTED CONSOLIDATED BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working Capital $20,927 $ 28,117 $ 51,761 $ 65,094 $ 24,023
Total Assets 50,639 56,051 71,758 87,034 43,184
Total Liabilities 14,215 7,975 6,867 9,881 8,828
Long-Term Debt 8,408 3,917 3,965 4,001 4,605
Other Noncurrent Liabilities -- -- -- -- 1,565
Total Shareholders' Equity 36,424 48,076 64,891 77,153 34,356
</TABLE>
18.mbi
<PAGE>
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Molecular Biosystems has devoted substantial resources to research and
development related to its proprietary diagnostic imaging agents. The Company's
continuing operations have been unprofitable since 1992. Product revenues from
sales of ALBUNEX-REGISTERED TRADEMARK-, the Company's flagship product and the
first intravascular ultrasound imaging agent available in the United States, are
expected to be an increasing source of income for the Company. However,
operating losses may occur for at least the next several years due to continued
requirements for research and development, preclinical testing and clinical
trials, regulatory activities and the high costs of commercial manufacturing
start-up. The magnitude of the losses and the time required by the Company to
achieve profitability are highly reliant on the market acceptance of
ALBUNEX-REGISTERED TRADEMARK- and are therefore uncertain. There can be no
assurance that the Company will be able to achieve profitability at all or on a
sustained basis.
LIQUIDITY AND CAPITAL RESOURCES
Since the Company's founding, funds for its operations have been provided
primarily by private and public equity financing, research and licensing
revenues and interest income. Product revenues from sales of ALBUNEX-REGISTERED
TRADEMARK- are expected to be an increasing source of funds for Company
operations in the future. At March 31, 1995, the Company had net working capital
of $20.9 million compared to $28.1 million at March 31, 1994. Cash and current
marketable securities were $19.7 million at March 31, 1995. The decrease in
working capital resulted primarily from cash used for operating purposes of $12
million and from capital expenditures of $2.5 million. These uses were offset by
$5 million of long-term debt proceeds.
Capital expenditures for facilities, laboratory equipment, furniture and
fixtures were $2.5 million, $8.2 million and $1.8 million for fiscal 1995, 1994
and 1993, respectively. The fiscal 1994 expenditures consisted primarily of the
purchase of two unimproved buildings and the underlying land for $7 million, as
further discussed below. The fiscal 1995 and 1993 expenditures consisted
primarily of building improvements and equipment for aseptic manufacturing
facilities being constructed for the manufacture of ALBUNEX-REGISTERED
TRADEMARK- and other future products.
In December 1993, the Company purchased two unimproved buildings and the
underlying land in San Diego, California, to replace currently leased facilities
and allow for planned expansion of the Company's research and development
facilities and administrative offices. The purchase price of the buildings was
$7 million. In May 1994, the Company entered into a credit agreement with a bank
to finance the purchase and planned modifications. The terms of the agreement
provided for two loans of $5 million. Each loan accrued interest at the bank's
prime rate plus two percent until the Company received FDA approval in the U.S.
for ALBUNEX-REGISTERED TRADEMARK-, when the rate declined to prime plus one
percent. The initial $5 million loan was funded in May 1994 and is payable in
monthly installments of $20,800 plus accrued interest with the balance due and
payable in April 2000. The Company had not yet drawn on the second loan at March
31, 1995, but has the right to draw on it in $500,000 increments to a maximum of
$5 million until October 1995. Monthly payments of interest only would be
payable until October 1995, at which time payments would be adjusted to fully
amortize the then outstanding loan over a 54-month period. Both loans are
secured by certain assets of the Company.
The Company continually reviews its product development activities in an effort
to allocate its resources to those product candidates that the Company believes
have the greatest commercial potential. Factors considered by the Company in
determining the products to pursue may include but are not limited to the
projected markets, potential for regulatory approval, technical feasibility and
estimated costs to bring the product to the market. Based upon these factors,
the Company may from time to time reallocate its resources among its product
development activities. In February 1995, the Company made the decision to focus
its research and development efforts primarily on its ultrasound imaging agents
and reduce its staffing by approximately twenty-five percent. In a related
decision, the Company plans to sell the two unimproved buildings purchased in
December 1993 which had originally been purchased for planned expansion.
Proceeds from the sale of these two buildings would be used first to retire the
$5 million line of credit used to fund the purchase and any additional funds
would be added to the Company's existing cash reserves.
mbi.19
<PAGE>
The Company currently leases two of its operating facilities in San Diego. The
two leases require aggregate payments of approximately $4.4 million through
fiscal 2003.
For the next several years, the Company expects to incur substantial additional
expenditures associated with product development. Product revenues from sales of
ALBUNEX-REGISTERED TRADEMARK- will support a portion of the Company's operating
costs and expenses. The Company will also continue to utilize its existing cash
and marketable securities and the interest earned thereon to fund its operations
and capital spending needs. The Company expects that it will need to raise
additional funds during fiscal 1996. The Company intends to pursue a number of
options to raise these additional funds including borrowings, lease
arrangements, collaborative research and development arrangements with
pharmaceutical companies, the licensing of product rights or additional public
and private financing, as anticipated capital requirements change as a result of
strategic, competitive, technological and regulatory factors. There can be no
assurance that funds from these sources will be available on favorable terms, if
at all.
RESULTS OF CONTINUING OPERATIONS
REVENUES For the years ended March 31, 1995, 1994 and 1993 revenues
were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues under collaborative agreements $ 15.1 $ 5.7 $ 3.4
Product revenues 1.8 1.1 -
License fees - 2.0 .3
</TABLE>
Revenues under collaborative agreements have been the primary source of revenues
for the Company in the past. Of the $15.1 million earned under collaborative
agreements during the fiscal year ended March 31, 1995, approximately $11.8
million resulted from the marketing approval of ALBUNEX-REGISTERED TRADEMARK- in
the United States in July 1994 of which $3.1 million was to be distributed to
company employees as provided in the Company's distribution agreement with
Mallinckrodt. An additional $3 million resulted from the first commercial
shipment of ALBUNEX-REGISTERED TRADEMARK- in the United States in October 1994.
Of the milestones earned in fiscal 1995, $3.5 million had not yet been paid to
the Company as of March, 1995; this amount is included in accounts receivable as
of that date.
Under the Mallinckrodt contract, the Company is entitled to receive additional
payments in an amount equivalent to first-year product sales of
ALBUNEX-REGISTERED TRADEMARK-. The Company earned $345,000 through approximately
the first five months of sales under this provision. The Company will continue
to earn this bonus through mid-October 1995. Any amounts earned under this
provision of the contract will not be paid until 60 days after the end of the
twelve-month period, in December 1995. The Company does not anticipate earning
any additional milestones under its existing distribution agreements for
ALBUNEX-REGISTERED TRADEMARK- other than those based upon the first year product
sales. Revenues earned under collaborative agreements in 1994 and 1993 were all
earned under the Shionogi agreement, of which $5 million was due to a milestone
payment resulting from the marketing approval of ALBUNEX-REGISTERED TRADEMARK-
in Japan in October 1993.
Product revenues in fiscal 1995 include $1.1 million earned from Mallinckrodt
since the first commercial shipment of ALBUNEX-REGISTERED TRADEMARK- in the
United States in October 1994. The remainder of product revenues in 1994 and
1995 consist of sales to Shionogi.
Cost of products sold totaled $1.6 million in 1995 and $580,000 in 1994,
resulting in gross profit margins of 9% and 45%, respectively. The decrease in
gross profit margin percentage is due to the higher proportion of U.S. sales in
1995 which are currently at a negative margin. The Company anticipates an
increase in its gross profit margins at such time as ALBUNEX-REGISTERED
TRADEMARK- sales volume increases. The amount of any increase and the time
required by the Company to achieve higher margins are highly reliant on the
market acceptance of ALBUNEX-REGISTERED TRADEMARK- and are therefore uncertain.
License fee revenues of $2 million for the year ended March 31, 1994 were earned
in connection with a license agreement granting exclusive marketing and
distribution rights for the Company's orally-administered ultrasound abdominal
agent in Europe.
20.mbi
<PAGE>
OPERATING COSTS AND EXPENSES (IN THOUSANDS):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Research & Development Costs
Compensation $ 7,454 $ 8,185 $ 6,427
Equipment and supplies 4,422 3,735 3,736
Outside research, preclinical and clinical trials 2,175 1,691 1,504
Legal, professional and consulting 1,201 1,419 1,051
Occupancy costs 1,309 1,485 1,089
Other 2,182 1,595 833
- ------------------------------------------------------------------------------------------------------------------------------------
Total R & D $18,743 $18,110 $14,640
% of total operating costs and expenses 63% 62% 75%
Selling, General and Administrative $ 9,267 $10,469 $ 4,863
% of total operating costs and expenses 31% 36% 25%
</TABLE>
FISCAL 1995 VS. 1994 Research and development costs as a percentage of total
costs and expenses in fiscal 1995 remained substantially unchanged from the
prior fiscal year. Increases in preclinical trials expense and the amortization
of license fees, which is included under other, were offset by a decrease in
compensation. Increased preclinical trials costs resulted primarily from studies
done for the Company's second generation cardiac ultrasound agent, FS069.
License fee amortization, which is calculated by using the ratio of current
contract revenues earned to total expected contract revenues related to the
licensed products, increased as a result of increased ALBUNEX-REGISTERED
TRADEMARK- development milestones during the year.
Selling, general and administrative costs in fiscal years 1995 and 1994 included
one-time charges of $3.1 million and $3.7 million, respectively. The one-time
charge of $3.1 million in 1995 resulted from the payment to the Company's
employees of an approval bonus under the Mallinckrodt distribution agreement. In
1994, the charge of $3.7 million was due to the settlement of a class action
lawsuit which was filed in November 1992. Without these one-time charges in
either year, selling, general and administrative expenses decreased $602,000 or
9% in fiscal 1995. This decrease is primarily attributable to decreased legal
expenses, as a result of the settlement of the litigation mentioned above.
FISCAL 1994 VS. 1993 Research and development expense increased $3.5 million or
24% in fiscal 1994. The increase in compensation was due both to additional
headcount and increased wages and benefits costs, resulting from the
commercialization of ALBUNEX-REGISTERED TRADEMARK- for the Japanese market as
well as the growth of the Company's research programs for its new contrast
agents. In particular, the Company increased its development efforts during 1994
for its second generation cardiac ultrasound agent, FS069 and its
orally-administered abdominal ultrasound agent, ORALEX-REGISTERED TRADEMARK-.
Increased professional and consulting costs resulted primarily from outside
research, preclinical studies and stability studies for FS069, ORALEX-REGISTERED
TRADEMARK- and other contrast agents. Occupancy costs increased due to the
lease of an additional 3,500 square feet in Midland, Michigan in March 1993, and
due to the use of the Syngene facility by the Company's ultrasound research and
development departments in fiscal 1994. The Syngene operations were discontinued
effective September 1992 and as a result, the associated facilities expenses
were included in the loss from discontinued operations in the fiscal 1993
financial statements. The largest increase in other expense was due to the
amortization of some of the Company's license fees, which are based on the
timing of ALBUNEX-REGISTERED TRADEMARK- product development milestones.
Selling, general and administrative costs increased $5.6 million or 115% in
fiscal 1994 due primarily to the $3.7 million charge in the fourth quarter
related to the preliminary settlement of the class action lawsuit. Without this
charge, selling, general and administrative expenses increased $1.9 million or
39%. This increase consisted primarily of additional personnel costs, increased
insurance premiums and legal expenses associated with then pending litigation.
INTEREST EXPENSE AND INTEREST INCOME Interest expense for the years ended March
31, 1995, 1994 and 1993 consists of mortgage interest on the Company's
manufacturing building. In addition, interest expense increased in the year
ended March 31, 1995 due to a loan which the Company entered into in May 1994 to
finance the purchase of two unimproved buildings and underlying land in December
1993.
In fiscal 1995, the Company earned $1.2 million in interest income, as
compared to $1.9 million and $3.1 million in fiscal 1994 and 1993, respectively.
The decrease in interest income in both fiscal 1995 and 1994 is due primarily to
a reduction in cash and marketable securities as well as lower interest rates in
1995 and 1994.
mbi.21
<PAGE>
PROVISION (CREDIT) FOR INCOME TAXES The credit provision in 1993 reflects the
tax benefit of carrying back the 1993 fiscal year loss to prior years. No
benefit has been recognized in the 1995 or 1994 fiscal years as the Company had
fully utilized its operating loss carryback ability in 1993. As of March 31,
1995, the Company had Federal and state operating loss carryforwards of
approximately $53.3 million and $25.4 million, respectively.
RESULTS OF DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
The Company discontinued the DNA diagnostic probe operations conducted by its
wholly-owned subsidiary, Syngene, Inc., effective September 30, 1992. The loss
from discontinued operations of $2.3 million for the year ended March 31, 1993
includes a provision for operating losses during the phaseout period of $300,000
and reflects no tax benefits. Revenues from the probe operations were $357,000
for the year ended March 31, 1993.
PROSPECTIVE INFORMATION
- --------------------------------------------------------------------------------
SALES OF ALBUNEX-REGISTERED TRADEMARK- In October 1993, ALBUNEX-REGISTERED
TRADEMARK- was approved for marketing in Japan and became the first ultrasound
contrast agent available in that country. Product sales from the Company to
Shionogi, the Company's distributor in Japan, averaged approximately $500,000
per quarter for the first three quarters Shionogi was actively marketing the
product in Japan. However, because initial sales were below the Company's
expectations, Shionogi and the Company engaged in an intensive cooperative study
of the situation. Both companies believe that the lower-than-expected sales were
the result of the unique nature of the Japanese market. Among the possible
reasons for the initial slow Japanese launch was that the packaging and
transport of the product for Japan may have adversely affected the early
shipments. Changes in vial and packaging configuration and transportation
practices appear to have corrected the issue. However, to increase the
likelihood of improved sales performance in the future, Shionogi, with the
Company's concurrence, decided during the first quarter of fiscal 1995 to
curtail promotional efforts and limit current Japanese sales to selected
accounts until these issues have been resolved. The Company had no sales to
Shionogi during the second and third quarters of fiscal 1995. Sales to Shionogi
during the fourth quarter of fiscal 1995 amounted to $220,000. A relaunch of
ALBUNEX-REGISTERED TRADEMARK- in Japan is anticipated in fiscal 1996.
In August 1994, the Company received clearance for the marketing and sale of
ALBUNEX-REGISTERED TRADEMARK- in the United States. Product sales from the
Company to Mallinckrodt, the Company's distributor in the United States, totaled
$1.1 million for the first five months the product has been marketed in the
United States. Product sales are booked by the Company at forty percent of the
sales price Mallinckrodt sells the product to its customers. Under the
Mallinckrodt contract, the Company is entitled to receive additional payments in
an amount equivalent to first year product sales of ALBUNEX-REGISTERED
TRADEMARK-. The Company earned $345,000 through approximately the first five
months of sales under this provision. The Company will continue to earn this
bonus through mid-October 1995. Any amounts earned under this provision of the
contract will not be paid until 60 days after the end of the twelve-month
period, in December 1995.
In February 1994, Nycomed, the Company's European licensee, announced that
ALBUNEX-REGISTERED TRADEMARK- (named INFOSON-REGISTERED TRADEMARK- in Europe)
had been approved for marketing in Sweden, the first European country to approve
the product. In August 1994, Nycomed announced that ALBUNEX-REGISTERED
TRADEMARK- had also been approved in the United Kingdom and in January 1995 it
received approval in Finland. Nycomed has filed for applications in the
remaining European countries and anticipates filing other approval applications
in selected countries outside the European community. Although approved in
Sweden, Finland and in the United Kingdom, Nycomed has not yet begun to market
ALBUNEX-REGISTERED TRADEMARK- in Europe.
The Company believes that ALBUNEX-REGISTERED TRADEMARK- is a safe and useful
product for which demand exists in the medical community. The Company is
disappointed by the initial sales in the United States and Japan, as well as by
the continuing delays in the European launch. While the Company believes that
Mallinckrodt, Shionogi and Nycomed continue to have the greatest opportunity to
successfully commercialize ALBUNEX-REGISTERED TRADEMARK- in their respective
markets, it is carefully reviewing their performance and marketing strategies.
22.mbi
<PAGE>
REVENUES AND OPERATING EXPENSES Product revenues from sales of
ALBUNEX-REGISTERED TRADEMARK-, the Company's flagship product, are expected to
be an increasing source of income for the Company. However, operating losses may
occur for at least the next several years due to continued requirements for
research and development, preclinical testing and clinical trials, regulatory
activities and commercial manufacturing start-up for the remaining ultrasound
contrast agents. In February 1995, the Company made the decision to reduce its
cash burn rate by focusing its research and development efforts primarily on its
ultrasound contrast agents and by reducing its staffing by approximately twenty
five percent. The amount of net losses and the time required by the Company to
achieve profitability are highly reliant on the market acceptance of
ALBUNEX-REGISTERED TRADEMARK- and therefore are uncertain. There can be no
assurance that the Company will be able to achieve profitability at all or on a
sustained basis.
The Company anticipates that its current capital resources, including expected
revenues from the sales of ALBUNEX-REGISTERED TRADEMARK- and related bonuses to
be paid by Mallinckrodt on the first twelve months' sales in the United States
should be adequate to satisfy its capital requirements and fund current and
planned operations for at least the next twelve to eighteen months. As a result,
the Company is actively seeking other sources of financing. There can be no
assurance that funds from these other sources will be available on favorable
terms, if at all. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate one or more of its product
development programs. Additionally, the Company may need to obtain funds through
arrangements with its current distributors or others that may require the
Company to relinquish rights to certain of its technologies, product candidates,
or products that the Company would not otherwise relinquish. The Company's
future capital requirements will depend on many factors but will be heavily
reliant on the market acceptance of ALBUNEX-REGISTERED TRADEMARK- in the United
States, the relaunch date of the product in Japan and the launch of the product
in Europe.
TECHNOLOGICAL DEVELOPMENT With the exception of ALBUNEX-REGISTERED TRADEMARK-,
the Company's technologies must be regarded as being at a very early stage of
development. Like any new technology, their respective prospects are subject to
many uncertainties. Early test results may prove to have been in error; new
competitive products may obviate the need for the Company's product; unexpected
patent problems may appear; the Company's strategy may dictate changes in the
mix of pipeline products; large-scale manufacturing may prove to be unfeasible;
later studies may reveal safety or efficacy concerns not apparent earlier on;
the Company's marketing partner(s) may change its strategic focus; the
technology may fall prey to regulatory difficulties; and other unpredictable
difficulties may arise. While the Company believes that each of its development
programs has the potential to evolve into safe and useful medical products, the
Company continually evaluates each of them for commercializability, and at this
point cannot accurately predict the likelihood or extent of successful product
development.
IMPACT OF INFLATION AND REGULATION
- --------------------------------------------------------------------------------
The Company believes that inflation and changing prices have not had a material
effect on operations for fiscal 1995, 1994 and 1993 and that the impact of
government regulation on the Company is not materially different from the impact
on other similar enterprises.
mbi.23
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1995 1994
- -------------------------------------------------------------------------------------
(In Thousands, Except number of Shares)
<S> <C> <C>
ASSETS
- -------------------------------------------------------------------------------------
CURRENT ASSETS (NOTE 5):
Cash and cash equivalents $ 3,882 $ 1,557
Marketable securities, available-for-sale (Note 2) 15,836 27,943
Accounts and notes receivable (Note 7) 5,180 901
Accrued interest receivable 51 295
Inventories 1,394 1,169
Prepaid expenses and other assets 391 310
- -------------------------------------------------------------------------------------
Total current assets 26,734 32,175
- -------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, AT COST (NOTE 5):
Building and improvements 18,125 18,022
Equipment, furniture and fixtures 5,216 5,296
Construction in progress 2,253 114
25,594 23,432
Less: Accumulated depreciation and amortization 5,947 4,872
19,647 18,560
OTHER ASSETS:
Patents and license rights, net of amortization
of $1,224 in 1995 and $759 in 1994 (Note 6) 1,724 1,556
Other assets, net 2,534 3,760
- -------------------------------------------------------------------------------------
4,258 5,316
- -------------------------------------------------------------------------------------
$ 50,639 $ 56,051
- -------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt (Note 5) $ 307 $ 53
Accounts payable and accrued liabilities 5,089 3,419
Compensation accruals 411 586
Total current liabilities 5,807 4,058
- -------------------------------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT PORTION (NOTE 5) 8,408 3,917
- -------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
SHAREHOLDERS' EQUITY (NOTE 7):
Common stock, $.01 par value, 20,000,000 shares authorized,
11,999,561 and 11,989,361 shares issued and
outstanding, respectively 120 120
Additional paid-in capital 78,422 78,259
Retained deficit (41,472) (29,290)
Unrealized loss on available-for-sale securities (118) --
Less notes receivable from sale of common stock (469) (954)
Less 3,970 shares of treasury stock, at cost (59) (59)
- -------------------------------------------------------------------------------------
Total shareholders' equity 36,424 48,076
- -------------------------------------------------------------------------------------
$ 50,639 $ 56,051
- -------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
24.mbi
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES (Note 3):
Revenues under collaborative agreements $ 15,132 $ 5,713 $ 3,439
Product revenues 1,769 1,056 --
License fees 40 2,015 250
- ------------------------------------------------------------------------------------------------------------------------------------
16,941 8,784 3,689
- ------------------------------------------------------------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT COSTS (NOTE 3):
Compensation 7,454 8,185 6,427
Equipment and supplies 4,422 3,735 3,736
Outside research, preclinical and clinical trials 2,175 1,691 1,504
Legal, professional and consulting 1,201 1,419 1,051
Occupancy costs 1,309 1,485 1,089
Other 2,182 1,595 833
- ------------------------------------------------------------------------------------------------------------------------------------
18,743 18,110 14,640
COST OF PRODUCTS SOLD 1,608 580 --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (NOTE 7) 9,267 10,469 4,863
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 29,618 29,159 19,503
- ------------------------------------------------------------------------------------------------------------------------------------
Loss from operations (12,677) (20,375) (15,814)
INTEREST EXPENSE (694) (327) (340)
INTEREST INCOME 1,189 1,902 3,144
- ------------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before income taxes (12,182) (18,800) (13,010)
CREDIT FOR INCOME TAXES (NOTE 4) -- -- 1,197
- ------------------------------------------------------------------------------------------------------------------------------------
Loss from Continuing Operations (12,182) (18,800) (11,813)
LOSS FROM DISCONTINUED OPERATIONS (NOTE 8) -- -- (2,255)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Loss $(12,182) $(18,800) $(14,068)
- ------------------------------------------------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE
Continuing operations $ (1.02) $ (1.58) $ (1.01)
Discontinued operations -- -- (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Loss $ (1.02) $ (1.58) $ (1.20)
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,999 11,905 11,690
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
mbi.25
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED NOTES
COMMON STOCK LOSS ON RECEIVABLE
------------------ ADDITIONAL RETAINED AVAILABLE- FROM SALE
NUMBER PAID-IN EARNINGS FOR-SALE OF COMMON TREASURY
YEAR ENDED MARCH 31, OF SHARES AMOUNT CAPITAL (DEFICIT) SECURITIES STOCK STOCK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1992 11,561,496 $116 $73,531 $ 3,578 $ -- $ (13) $(59) $77,153
Exercise of stock options 289,490 3 2,484 -- -- (681) -- 1,806
Net loss -- -- -- (14,068) -- -- -- (14,068)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1993 11,850,986 119 76,015 (10,490) -- (694) (59) 64,891
Exercise of stock options 138,375 1 2,244 -- -- (260) -- 1,985
Net loss -- -- -- (18,800) -- -- -- (18,800)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1994 11,989,361 120 78,259 (29,290) -- (954) (59) 48,076
Exercise of stock options 10,200 -- 163 -- -- 20 -- 183
Unrealized loss on available-
for-sale securities (Note 2) -- -- -- -- (118) -- -- (118)
Forgiveness of notes
receivable (Note 7) -- -- -- -- -- 465 -- 465
Net loss -- -- -- (12,182) -- -- -- (12,182)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1995 11,999,561 $120 $78,422 $(41,472) $(118) $(469) $(59) $36,424
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
26.mbi
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH USED IN OPERATING ACTIVITIES:
Net loss $(12,182) $(18,800) $(14,068)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,022 2,195 1,453
Loss on disposals of property and equipment 35 18 16
Forgiveness of note receivable from sale of common stock 1,319 -- --
Changes in operating assets and liabilities:
Receivables (4,889) 543 (602)
Inventories (225) (445) (422)
Prepaid expenses and other assets (81) 272 1,012
Accounts payable and accrued liabilities 1,670 1,797 579
Compensation accruals (175) 469 73
Deferred contract revenue -- (713) (3,630)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (11,506) (14,664) (15,589)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,528) (8,208) (1,781)
Additions to patents and license rights (634) (786) (718)
Reductions of other assets 75 -- --
Decrease in marketable securities 11,989 20,511 17,885
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by investing activities 8,902 11,517 15,386
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common shares 183 1,985 1,806
Long-term debt proceeds 5,000 -- --
Principal payments on long-term debt (254) (45) (41)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 4,929 1,940 1,765
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,325 (1,207) 1,562
CASH AND CASH EQUIVALENTS, beginning of year 1,557 2,764 1,202
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 3,882 $ 1,557 $ 2,764
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Disclosures:
Income tax refund received $ -- $ 473 $ 2,097
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income received $ 1,433 $ 2,623 $ 3,139
- ------------------------------------------------------------------------------------------------------------------------------------
Interest paid $ 688 $ 321 $ 334
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
mbi.27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS Molecular Biosystems, Inc. has devoted substantial
resources to research and development related to its proprietary diagnostic
imaging agents. The Company's continuing operations have been unprofitable since
1992. Product revenues from sales of ALBUNEX-REGISTERED TRADEMARK-, the
Company's flagship product and the first intravascular ultrasound imaging agent
available in the United States, are expected to be an increasing source of
income for the Company. However, operating losses may occur for at least the
next several years due to continued requirements for research and development,
preclinical testing and clinical trials, regulatory activities and commercial
manufacturing start-up. The amount of net losses and the time required by the
Company to achieve profitability are highly reliant on the market acceptance of
ALBUNEX-REGISTERED TRADEMARK- and are therefore uncertain. There can be no
assurance that the Company will be able to achieve profitability at all or on a
sustained basis.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of Molecular Biosystems, Inc. and its wholly-owned subsidiaries,
Syngene, Inc. ("Syngene"), a currently inactive corporation which has been
classified as a discontinued operation (see note 8), and Scan Pharmaceuticals,
Inc., an inactive corporation. All significant intercompany accounts and
transactions have been eliminated. Certain amounts in the prior years' financial
statements and notes have been reclassified to conform with the current year
presentation.
RESEARCH AND DEVELOPMENT COSTS All research and development costs and related
special purpose equipment costs are charged to expense as incurred.
REVENUES UNDER COLLABORATIVE AGREEMENTS Revenues under collaborative agreements
are earned in connection with research activities performed thereunder. Revenue
is recognized based on work performed at a predetermined rate or level of
expense reimbursement, or on the achievement of certain milestones, some of
which relate to regulatory approvals. Additionally, under the terms of the U.S.
marketing agreement, the Company is entitled to receive additional payments in
an amount equivalent to first year product sales of ALBUNEX-REGISTERED
TRADEMARK- in the U.S. These revenues are accrued as sales are made by the
Company's marketing partner and included in revenue under collaborative
agreements. Advance payments received in excess of amounts earned are classified
as deferred contract revenue.
REVENUE RECOGNITION FOR PRODUCT SOLD The Company recognizes revenue when goods
are shipped to the customers.
INCOME TAXES Effective April 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes,"
which was issued by the Financial Accounting Standards Board in February 1992.
SFAS No. 109 is an asset and liability approach that requires the recognition of
deferred assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns.
CASH EQUIVALENTS Cash equivalents include marketable securities with original
maturities of three months or less.
MARKETABLE SECURITIES Effective April 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company's management has classified its
investment securities as available-for-sale and records holding gains or losses
as a separate component of stockholders' equity. The cumulative effect of the
change was not material to the Company's financial statements.
CONCENTRATION OF CREDIT RISK The Company invests its excess cash in debt
instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification and
maturities that maintain safety and liquidity. These guidelines are periodically
28.mbi
<PAGE>
reviewed and modified to take advantage of trends in yields and interest rates.
The Company has not realized any losses on its cash equivalents.
At March 31, 1995 substantially all of the Company's receivables were from
Mallinckrodt Medical, Inc., the Company's exclusive ALBUNEX-REGISTERED
TRADEMARK- distributor in the United States.
INVENTORIES Inventories are stated at lower of cost (first-in, first-out) or
market, and consist of the following major classes as of March 31 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $1,215 $ 822
Work in process 133 74
Finished goods 46 273
- --------------------------------------------------------------------------------
$1,394 $1,169
- --------------------------------------------------------------------------------
</TABLE>
Work in process and finished goods include the cost of materials, direct labor
and manufacturing overhead.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation
and amortization are provided using the straight-line method over estimated
useful lives of five years for equipment, thirty-one years for buildings and
improvements and the term of the lease for leasehold improvements.
PATENTS AND LICENSE RIGHTS Patents and license rights are amortized on the
straight-line method over their estimated useful lives of five to ten years.
OTHER ASSETS In June 1989, the Company prepaid $2 million in royalties on the
first $66.6 million of sales of ALBUNEX-REGISTERED TRADEMARK- in the United
States. Included in other assets is $1.9 million which is the portion of this
prepayment which has not yet been expensed. Additionally, other assets include
$4.5 million (less amortization of $3.9 million and $2.7 million at March 31,
1995 and 1994, respectively) paid in connection with the Company's license for
the right to make, have made, use and sell ALBUNEX-REGISTERED TRADEMARK- and
other products using the licensed patents. Amortization is calculated generally
by using the ratio of current contract revenues earned to total expected
contract revenues related to the licensed products.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued
liabilities consist of the following major classes as of March 31 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Reserve for class action settlement stock $1,500 $1,500
Accounts payable--trade 1,481 498
Other miscellaneous accruals 2,108 1,421
- --------------------------------------------------------------------------------
$5,089 $3,419
- --------------------------------------------------------------------------------
</TABLE>
LOSS PER SHARE Loss per common share has been computed by dividing the loss by
the weighted average number of common shares outstanding during the year.
Warrants and options do not impact the per share loss since they would be
antidilutive.
NOTE 2. MARKETABLE SECURITIES
Short-term investments are recorded at estimated fair market value at March 31,
1995, and consist primarily of treasury securities, government agency securities
and corporate obligations with maturities of more than three months. The Company
has classified all of its investments as available-for-sale securities. The
following table summarizes available-for-sale securities at March 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
COST NET OF
PREMIUMS/ GROSS ESTIMATED
DISCOUNTS UNREALIZED FAIR
AMORTIZED LOSSES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. treasury securities and
obligations of U.S. government agencies $ 6,856 $ 85 $ 6,771
Corporate obligations 9,098 33 9,065
- ----------------------------------------------------------------------------------------------------
Marketable securities available-for-sale $15,954 $118 $15,836
- ----------------------------------------------------------------------------------------------------
</TABLE>
The gross realized gains and losses on sales of available-for-sale securities
totaled $24,000 and $205,000, respectively for the year ended March 31, 1995.
The proceeds on these sales totaled $3,094,000.
mbi.29
<PAGE>
The amortized cost and estimated fair value of debt and marketable securities at
March 31, 1995, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
COST LESS ESTIMATED
PREMIUMS FAIR
AMORTIZED VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $11,850 $11,808
Due after one year through three years 3,680 3,617
Due after three years 424 411
- --------------------------------------------------------------------------------
$15,954 $15,836
- --------------------------------------------------------------------------------
</TABLE>
NOTE 3. SIGNIFICANT RESEARCH CONTRACTS
The Company conducts all of its research and development activities on its own
behalf. Under the terms of its collaborative research agreements, the Company
retains all ownership rights to its proprietary technologies, subject to
licensing arrangements made with its licensees.
In December 1987, December 1988 and March 1989, the Company entered into
respective agreements (the Agreements) with Nycomed A.S. (Nycomed), a Norwegian
corporation, Mallinckrodt Medical, Inc. (Mallinckrodt) of St. Louis, Missouri
and Shionogi & Co., Ltd. (Shionogi), a Japanese corporation, under which the
Company granted exclusive licenses, restricted to certain geographic areas, to
test, evaluate, develop and sell products covered by specified patents of the
Company relating directly to the design, manufacture or use of microspheres for
ultrasound imaging in vascular applications. The Company also granted rights to
sublicense, use, make and sell the licensed products under specified royalty
arrangements.
Under the terms of the Agreements, as amended, the Company earned and received
license fees of $6.5 million. The Agreements also provide for total payments to
the Company aggregating up to $66.5 million, to continue product development,
clinical trials, preproduction and premarketing activities relating to the
Company's ultrasound imaging agents for vascular applications. These amounts are
to be received in installments based on the achievement of certain milestones by
the Company. To date the Company has earned revenues under the above agreements
in the amount of $58.5 million of which $3.5 million had not yet been paid as of
March 31, 1995, and is included in accounts receivable as of that date. Under
the Mallinckrodt agreement, the Company is entitled to receive additional
payments in an amount equivalent to first year product sales, up to a maximum of
$30 million. The Company has earned $345,000 through approximately the first
five months of sales under this provision.
During the years ended March 31, 1995, 1994 and 1993, the Company received
contract research payments and earned revenue under the above agreements as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract payments received
Nycomed $ 733 $ - $ -
Mallinckrodt 10,554 - -
Shionogi - 5,000 -
- --------------------------------------------------------------------------------
Total $11,287 $5,000 $ -
- --------------------------------------------------------------------------------
Contract revenues earned
Nycomed $ 733 $ - $ -
Mallinckrodt 14,399 - -
Shionogi - 5,713 3,430
- --------------------------------------------------------------------------------
Total $15,132 $5,713 $3,430
- --------------------------------------------------------------------------------
</TABLE>
In May 1993 the Company entered into an exclusive license agreement for its
orally-administered abdominal ultrasound agent with Bracco S.p.A., of Milan,
Italy. The agreement granted Bracco exclusive marketing and distribution rights
to the product in Europe and the former Soviet Union. Bracco is responsible for
conducting clinical trials and obtaining regulatory approvals in the countries
in its territory. Under the terms of the agreement, the Company has received $2
million in license fees and is entitled to receive additional payments
conditioned on the successful completion of certain product development and
regulatory milestones. The status of this agreement is currently in dispute.
(See note 6.)
30.mbi
<PAGE>
NOTE 4. INCOME TAXES
As described in Note 1, the Company uses the liability method of computing
deferred income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The credit for income taxes
attributable to continuing operations for the year ended March 31, 1993 consists
of current federal income taxes only.
The effective income tax rate on the loss from continuing operations before
income taxes differs from the statutory U.S. federal income tax rate for the
years ended March 31, as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed statutory tax $(3,992) $ (6,392) $ (4,423)
State income taxes (729) (1,160) -
Tax exempt interest (5) (33) (95)
Losses without income tax benefit 4,715 7,584 3,320
Other 11 1 1
- --------------------------------------------------------------------------------------
Credit for income taxes $ - $ - $ (1,197)
- --------------------------------------------------------------------------------------
</TABLE>
At March 31, 1995, the Company has deferred tax assets of $22.3 million relating
to the following tax loss carryforwards for income tax purposes (in thousands):
<TABLE>
<CAPTION>
EXPIRATION
AMOUNT DATES
- -------------------------------------------------------------------------------
<S> <C> <C>
Federal and state net operating losses $ 78,700 1997-2010
Research and development credit $ 1,500 1997-2010
Alternative minimum tax credit $ 300 Indefinite
</TABLE>
For financial reporting purposes, a valuation allowance of $22.3 million has
been recognized to offset the deferred tax assets related to the carryforwards.
If realized, approximately $3.3 million of the tax benefit for those items will
be applied directly to paid-in capital, related to deductible expenses reported
as a reduction of the proceeds from issuing common stock in connection with the
exercise of stock options.
NOTE 5. LONG-TERM DEBT
Long-term debt at March 31
consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Note payable due 2004 $ 3,923 $ 3,970
Note payable due 2000 4,792 -
- ----------------------------------------------------------------------
8,715 3,970
Less - current portion 307 53
- ----------------------------------------------------------------------
$ 8,408 $ 3,917
- ----------------------------------------------------------------------
</TABLE>
The note payable due in 2004 bears interest at a variable rate based upon the
weighted average Eleventh District cost of funds plus 2.35 percent. The interest
rate on this note is adjusted semi-annually and was eight percent at March 31,
1995 and 1994. The note is secured by the Company's manufacturing facility and
certain of the equipment contained therein and is payable in monthly
installments of principal and interest.
The note payable due in 2000 was entered into in May 1994 to finance the
Company's purchase of two unimproved buildings and underlying land in December
1993. The note bears interest at prime plus one percent and is payable in
monthly installments of $20,800 plus accrued interest with the balance due and
payable in April 2000. The interest rate on this note was ten percent at March
31, 1995. In connection with this financing, the Company has a second line of
credit available which may be drawn on in increments of $500,000 to a maximum of
$5 million until October 1995. Monthly payments of interest only would be
payable until the expiration of the draw down period (October 1995), at which
time payments would be adjusted to fully amortize the outstanding loan over 54
months. Both loans contain covenants relating to cashflow coverage, minimum cash
balances and require a compensating balance of $3 million. These loans are both
secured by the tangible assets of the Company.
Long-term debt maturing in fiscal years 1997 through 2000 is $312,000, $317,000,
$322,000 and $328,000, respectively.
mbi.31
<PAGE>
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company conducts certain of its operations in leased premises. Terms of the
leases, including renewal options, vary by lease. Future minimum rental
commitments for all noncancellable operating leases that have initial or
remaining lease terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, AMOUNT
- -------------------------------------------------------
<S> <C>
1996 $ 417
1997 243
1998 458
1999 688
2000 715
Thereafter 1,915
- -------------------------------------------------------
Total minimum lease payments $ 4,436
- -------------------------------------------------------
</TABLE>
The leases expire in 1997 and 2003 and contain renewal provisions of up to ten
years at the end of the lease terms. Minimum annual rentals under the lease
terms are increased by 4% per year and the Company is obligated to pay real
estate taxes, insurance and utilities on its portion of the leased properties.
Rental expense for the years ended March 31, 1995, 1994 and 1993 was $508,000,
$485,000 and $354,000, respectively.
In December 1992, the Company entered into a license and collaborative research
agreement with Dendritech, Inc. and its affiliate Michigan Molecular Institute.
The license agreement grants the Company the exclusive worldwide rights to use
Dendritech's patented dendrimer technology to develop and commercialize contrast
agents for use with magnetic resonance imaging, computerized tomography and
ultrasound. Under this agreement, the Company is committed to pay a license fee
of $500,000 per year for five years beginning December 1992. As of March 31,
1995, a total of $1.5 million in license fees have been paid. The Company is
currently negotiating an agreed termination of this agreement arising out of its
decision to concentrate on its current ultrasound products.
The Company has entered into license agreements requiring future minimum royalty
payments ranging from 1% to 6% of specified product sales relating to the
licensed technologies.
In June 1994, the United State District Court for the Southern District of
California granted final approval to an agreement settling a class action
complaint against the Company, certain of its officers and all of the members of
its Board of Directors (SHERMAN V. WIDDER, ET AL., No. TS 92-1827-IEG (M))
alleging violations of the Securities Exchange Act of 1934 and California
securities laws. The Company agreed to pay $3 million in cash, and shares of
MBI's common stock worth $1.5 million (172,414 shares valued as of March 31,
1995), into a settlement fund which is being distributed to qualifying class
members. The Company's directors and officers liability insurer contributed
$800,000 of the cash payment. Pursuant to the settlement order, the distribution
of cash and stock is being administered by counsel for the plaintiff class.
Included in accrued liabilities at March 31, 1995 and 1994, is a liability of
$1.5 million for the issuance of this common stock.
In May 1993 the Company entered into an exclusive license agreement with Bracco
S.p.A. of Milan, Italy, for the distribution rights in Europe and the former
Soviet Union to the Company's proprietary orally-administered ultrasound agent
for imaging the gastrointestinal tract. At that time Bracco paid the Company a
license fee of $2 million and undertook certain developmental obligations in the
territory. In March 1994 Bracco notified the Company that it desired to rescind
the agreement and demanded that MBI return the license fee. The Company denied
that Bracco was entitled to rescind the agreement or to the return of any
portion of the license fee, and notified Bracco that it regarded Bracco's notice
of rescission as a breach of contract. In January 1995, Bracco filed a demand
for arbitration claiming return of the $2 million license fee, in addition to
other monetary relief. MBI has filed a response denying the material allegations
of Bracco's demand, and has also filed a counterdemand asking for damages in the
amount of at least $5.5 million and other monetary relief, claiming that
Bracco's purported rescission was in bad faith and resulted from its acquisition
of the exclusive licensee of a competing agent. MBI also claims that the
purported rescission was wrongful and a breach of the exclusive license. The
Company believes it will prevail on Bracco's claims. The Company stresses,
however, that the course of arbitration cannot be predicted. In any event, the
Company does not believe an unfavorable ruling in arbitration would have a
material adverse impact on its financial condition.
32.mbi
<PAGE>
NOTE 7. SHAREHOLDERS' EQUITY
In June 1989, 1990 and 1991 the Company issued warrants to Nycomed for 14,381,
9,508 and 14,524 shares, respectively, exercisable through June 1994, 1995 and
1996 at $15.26, $17.56 and $14.61 per share, respectively, pursuant to an
agreement granting to Nycomed a right of first refusal to purchase additional
unregistered shares in connection with the private sale of shares by the
Company. As of June 1994, warrants for 14,381 shares had expired.
Nycomed and Mallinckrodt have certain registration rights with respect to the
common stock issued and issuable to them.
COMMON SHARES RESERVED Common shares were reserved for the following purposes at
March 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Warrants 24 38
Options granted 2,112 2,318
Future grants of options 1,701 2,004
- -------------------------------------------------------------
3,837 4,360
- -------------------------------------------------------------
</TABLE>
STOCK OPTIONS
1993 PLANS In 1993 both the Board of Directors and the shareholders of the
Company approved the 1993 Stock Option Plan and the 1993 Outside Directors Stock
Option Plan (together, the 1993 Plans). The 1993 Plans were intended to replace
the Company's 1984 Incentive Stock Option Plan and the 1984 Nonstatutory Stock
Option Plan (together, the 1984 Plan), under which substantially all of the
options authorized to be granted have been granted. The 1993 Plans provide for
the grant of both qualified incentive stock options and nonstatutory stock
options to purchase common stock to employees (1993 Stock Option Plan) or
non-employee directors of the Company (1993 Outside Directors Stock Option Plan)
at no less than the fair value of the stock on the date of grant. Options
granted under these plans are exercisable per the terms specified in each
individual option, but not before one year (unless the option exercisability is
accelerated by the Company's Board of Directors), or later than ten years from
the date of grant.
1984 PLAN The Company has an Incentive Stock Option Plan and Nonstatutory Stock
Option Plan (together, the 1984 Plan) which provides for the grant of options to
purchase common stock to employees or non-employee directors of the Company at
no less than the fair value of the stock on the date of grant. Options granted
under the 1984 Plan are exercisable per the terms specified in each individual
option, but not before one year (unless the option exercisability is accelerated
by the Company's Board of Directors) or later than five years from the date of
grant.
On May 11, 1995, the Board of Directors voted to offer the Company's
non-executive employees the opportunity to reprice certain stock options which
were originally granted under the 1984 Plan to the closing price on May 31,
1995. The Board approved this repricing because it believes retaining key
employees is in the best interests of the stockholders and the Company. During
the fourth quarter of fiscal 1995, following a decline in the stock price and a
restructuring which included a twenty-five percent staff reduction, key
employees were being contacted by other companies and agencies about employment
opportunities elsewhere. The Board believes the repricing of the options was the
most effective employment retention tool available.
OTHER OPTION GRANTS The Company has granted to employees, consultants and
scientific advisors options to purchase shares of common stock. These options
are exercisable per the terms specified in each individual option and lapse five
years after grant date. The options were granted at amounts per share which were
not less than the fair market value at the date of grant.
mbi.33
<PAGE>
Additional information with respect to the Company's option plans is as follows:
<TABLE>
<CAPTION>
1993 STOCK OPTION PLAN 1993 DIRECTORS OPTION PLAN
------------------------------------- --------------------------
OPTION PRICE OPTION PRICE
SHARES PER SHARE SHARES PER SHARE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at March 31, 1993 - -
Granted 582,500 $16.63 - $22.25 20,000 $ 17.00
Expired or lapsed (3,100) 19.13 - 20.28 -
- -------------------------------------------------------------------------------------------------------------------
Options outstanding at March 31, 1994 579,400 16.63 - 22.25 20,000 17.00
Granted 407,231 7.00 - 12.25 20,000 8.13
Expired or lapsed (127,342) 8.75 - 22.25 - -
- -------------------------------------------------------------------------------------------------------------------
Options outstanding at March 31, 1995 859,289 7.00 - 22.25 40,000 8.13 - 17.00
- -------------------------------------------------------------------------------------------------------------------
Options exercisable at March 31, 1995 266,825 20,000
- -------------------------------------------------------------------------------------------------------------------
Reserved for future grants 1,640,711 60,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1984 STOCK OPTION PLAN OTHER OPTION GRANTS
--------------------------------------- -------------------------------------
OPTION PRICE OPTION PRICE
SHARES PER SHARE SHARES PER SHARE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at March 31, 1992 1,243,610 $ 7.75 - $33.50 281,142 $11.75 - $ 31.13
Granted 547,300 17.38 - 24.63 314,500 17.38 - 24.63
Exercised (339,917) 7.75 - 23.63 (4,100) 11.75 - 16.25
Expired or lapsed (153,858) 13.75 - 33.50 (89,292) 11.75 - 31.13
- ----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at March 31, 1993 1,297,135 11.50 - 31.13 502,250 12.13 - 28.75
Granted 191,690 16.63 - 24.63 87,500 16.63 - 24.63
Exercised (95,500) 11.50 - 22.50 (50,375) 12.13 - 22.50
Expired or lapsed (178,385) 13.75 - 31.13 (35,975) 12.88 - 28.75
- ----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at March 31, 1994 1,214,940 13.38 - 31.13 503,400 13.50 - 28.75
Granted 27,175 10.88 - 15.63 17,000 10.88 - 11.88
Exercised - - - (10,200) 13.75 - 16.50
Expired or lapsed (409,250) 10.88 - 24.63 (129,875) 13.75 - 28.75
- ----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at March 31, 1995 832,865 10.88 - 31.13 380,325 10.88 - 27.00
- ----------------------------------------------------------------------------------------------------------------------------------
Options exercisable at March 31, 1995 636,965 232,950
- ----------------------------------------------------------------------------------------------------------------------------------
Reserved for future grants - -
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES RECEIVABLE FROM SALE OF COMMON STOCK At March 31, 1995, the Company had
notes receivable from related parties of approximately $586,000 relating to the
exercise of options to purchase common stock of the Company by officers and
other employees. Of this amount, approximately $117,000 is included in accounts
and notes receivable and represents taxes payable by the individuals at the time
of these option exercises plus accrued interest thereon, as well as accrued
interest on purchase price notes. The amounts relating to the purchase price of
the common stock are recorded as a reduction to shareholders' equity. The loans
are secured by the common stock purchased, accrue interest at a rate of 6% and
are due by January 31, 1996.
In January 1995, the Company received a bonus payment of $3.1 million from
Mallinckrodt. Per the Distribution Agreement dated December 7, 1988 between
Mallinckrodt and the Company, this payment was to be distributed to "key
employees." In February 1995, the Company's Board of Directors approved the
payment of bonuses of $1.8 million to all of the Company's employees. In
connection with these bonuses, the Board of Directors also approved the
forgiveness of two loans (including accrued interest) which the Company had
previously extended to its chief executive and chief operating officers to
permit them to exercise certain stock options. The total amount forgiven on the
notes was $1.3 million of which $465,000 had previously been included in notes
receivable from sale of common stock and the remainder, which represented taxes
payable at the time of the option exercises plus accrued interest, was included
in accounts and notes receivable. The approval bonus of $3.1 million is included
in revenues under collaborative agreements and the payment of the $1.8 million
of bonuses, as well as the forgiveness of debt, is included in selling, general
and administrative expenses.
34.mbi
<PAGE>
NOTE 8. DISCONTINUED OPERATIONS
In August 1992, the Board of Directors of the Company declared its intention to
discontinue the DNA diagnostic probe operations conducted by the Company's
wholly-owned subsidiary, Syngene, Inc. Accordingly, the Company has reported
Syngene as a discontinued operation in its consolidated statements of operations
for 1993.
The Company completed the phaseout of its probe operations by December 1992 and
has entered into an exclusive license of the patent and technology rights owned
by Syngene.
Revenues from the probe operations were $357,000 in 1993. The loss of $2,255,000
for 1993 includes a provision for operating losses during the phaseout period of
$300,000 and reflects no tax benefits.
NOTE 9. SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of the unaudited quarterly results of operations for
the years ended March 31, 1995 and 1994 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30 SEPT. 30 DEC. 31 MARCH 31
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1995
Revenues(a) $ 534 $ 8,786 $ 6,908 $ 713
Research and Development Costs 4,714 5,145 4,252 4,632
Total Operating Costs and Expenses(a) 6,661 6,833 9,233 6,891
Net Income (Loss) (5,913) 2,083 (2,235) (6,117)
Income (Loss) Per Common Share (.49) .17 (.19) (.51)
Weighted Average Common Shares Outstanding 11,996 12,000 12,000 12,000
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
QUARTER ENDED JUNE 30 SEPT. 30 DEC. 31 MARCH 31
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1994
Revenues(b) $ 2,356 $ 372 $ 5,532 $ 524
Research and Development Costs 4,085 5,083 4,600 4,342
Total Operating Costs and Expenses(c) 5,644 6,678 6,973 9,864
Net Loss (2,772) (5,810) (1,123) (9,095)
Loss Per Common Share (.23) (.49) (.09) (.76)
Weighted Average Common Shares Outstanding 11,859 11,874 11,917 11,968
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes $8.7 million and $6.1 million research milestone payments during
the quarters ended September 30, 1994 and December 31, 1994, respectively.
The $6.1 million in December 31, 1994 includes a milestone of $3.1 million
which was paid to key employees and offset by a like charge in operating
costs and expenses. Total operating costs and expenses include a $500,000
charge for severance costs during the quarter ended March 31, 1995.
(b) Includes $2 million license fee and $5 million research milestone payment
during the quarters ended June 30, 1993 and December 31, 1993 respectively.
(See Note 3.)
(c) Includes $3.7 million charge for legal settlement during the quarter ended
March 31, 1994. (See Note 6.)
</TABLE>
mbi.35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF MOLECULAR BIOSYSTEMS, INC.:
We have audited the accompanying consolidated balance sheets of MOLECULAR
BIOSYSTEMS, INC. (a Delaware corporation) and subsidiary as of March 31, 1995
and 1994, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended March 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Molecular Biosystems, Inc. and
subsidiary as of March 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
May 10, 1995
MARKET INFORMATION
The Company's common stock is traded on the New York Stock Exchange under the
symbol "MB." As of June 19, 1995, there were approximately 3,300 holders of
record of the Company's common stock, representing approximately 9,000
beneficial owners. The Company has not paid dividends on its common stock. The
following tables set forth the quarterly high and low last sale price for a
share of the Company's common stock for the two fiscal years ended March 31,
1995 and 1994, respectively, as reported by the NYSE.
<TABLE>
<CAPTION>
FISCAL 1995 HIGH LOW
- ------------------------------------------------------------
<S> <C> <C>
First Quarter (4/1 to 6/30) 18 10-7/8
Second Quarter (7/1 to 9/30) 13-7/8 9-5/8
Third Quarter (10/1 to 12/31) 14-1/8 9-1/8
Fourth Quarter (1/1 to 3/31) 11-3/8 7
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1994 HIGH LOW
- ------------------------------------------------------------
<S> <C> <C>
First Quarter (4/1 to 6/30) 23 16-5/8
Second Quarter (7/1 to 9/30) 26-1/2 19-1/2
Third Quarter (10/1 to 12/31) 26-3/4 18
Fourth Quarter (1/1 to 3/31) 20-1/2 17
</TABLE>
36.mbi
<PAGE>
Exhibit 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements, File Numbers 33-723, 33-24508,
33-37872, 33-78564 and 33-78572.
ARTHUR ANDERSEN LLP
San Diego, California
June 23, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MOLECULAR BIOSYSTEMS, INC. DATED
MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 3,882
<SECURITIES> 15,836
<RECEIVABLES> 5,011
<ALLOWANCES> 53
<INVENTORY> 1,394
<CURRENT-ASSETS> 26,734
<PP&E> 25,594
<DEPRECIATION> 5,947
<TOTAL-ASSETS> 50,639
<CURRENT-LIABILITIES> 5,807
<BONDS> 8,408
<COMMON> 120
0
0
<OTHER-SE> 36,304
<TOTAL-LIABILITY-AND-EQUITY> 50,639
<SALES> 1,769
<TOTAL-REVENUES> 16,941
<CGS> 1,608
<TOTAL-COSTS> 29,618
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 694
<INCOME-PRETAX> (12,182)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,182)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,182)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> 0
</TABLE>
