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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, 1998
[ ] 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.)
10070 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:
Title of each class Name of each exchange on which
Common Stock, $.01 par value registered
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. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $136,975,838 as of June 16, 1998 (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 18,572,995 shares outstanding of the registrant's Common Stock as
of June 16, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Items 10, 11, 12 and 13 of this Report is
incorporated by reference to the registrant's definitive proxy statement for the
1998 Annual Meeting of Stockholders to be held August 13, 1998.
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PART I
ITEM 1. BUSINESS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS ITEM AND IN
ITEM 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."
GENERAL
Molecular Biosystems, Inc. ("MBI" or the "Company") is a leader in the
development, manufacture and sale of ultrasound contrast imaging agents. These
contrast agents are used primarily to improve the real-time images ("moving
pictures") of organs and body structures, especially the heart, obtained through
ultrasound examinations. MBI's products are designed to increase the diagnostic
usefulness of ultrasound examinations through enhanced visualization of
structures and vasculature, and to reduce the need for diagnostic procedures
that may be more expensive, time-consuming, or invasive. MBI is the first and
only company to obtain marketing approval from the United States Food and Drug
Administration ("FDA") for ultrasound contrast agents, having gained approvals
for ALBUNEX-Registered Trademark-_in 1994 and for OPTISON-TM- (the Company's
second-generation agent) in 1997. OPTISON, a significant improvement over
ALBUNEX in terms of efficacy, is used to detect heart disease by assessing blood
flow within the heart chambers and by identifying the location of the chamber
borders and the movement of the chamber walls ("cardiac function").
To increase the potential applications of OPTISON, MBI has conducted Phase 2
clinical trials to evaluate the product's efficacy in determining whether the
heart muscle is receiving an adequate blood supply ("myocardial perfusion").
The multiple Phase 2 trials include use of OPTISON in the emergency room for
patients presenting with chest pain, and in various forms of stress
echocardiography. Results using OPTISON in each of these applications suggest a
close agreement with nuclear SPECT imaging for the detection of ischemia by wall
motion and perfusion. Furthermore, the results indicate that use of OPTISON
could help to "rescue" a large proportion of uninterpretable non-contrast
studies, thereby reducing the need for additional, more expensive and time
consuming testing. The Company believes the information regarding perfusion
will enable cardiologists to diagnose heart attacks and coronary artery disease
more accurately and safely than is currently feasible. MBI is also conducting
Phase 2 clinical studies using OPTISON to detect abnormalities in other organs,
such as the liver.
Ultrasound imaging is a widely-used and cost-effective technique to examine
soft tissues, internal body organs and blood flow. Ultrasound systems use
low-power, high-frequency sound waves that are reflected by tissues and
fluids to produce real-time images. It is estimated that over 54 million
ultrasound imaging procedures were performed in the United States in 1997, of
which approximately 15 million procedures were used to examine the heart
("echocardiograms"). Unlike other imaging modalities, such as magnetic
resonance imaging, computed tomography and nuclear imaging, ultrasound
imaging procedures could not be performed with contrast agents to enhance
images until the approval of ALBUNEX and the subsequent approval of OPTISON.
Non-contrast ultrasound, while very good in delineating anatomy, often
results in poor image quality and is unable to demonstrate actual blood flow
within organ tissue.
MBI's ultrasound contrast agents are designed to enhance existing
ultrasound procedures by improving their ability to image blood flow and by
providing clearer images of body structures and organs. OPTISON and ALBUNEX
consist of human albumin microspheres made using MBI's patented process. The
microspheres are injected intravenously into the bloodstream and transported
to the heart and other organs. Because the microspheres are highly
reflective to the ultrasound xbeam, organs and structures containing blood
will appear more brightly and clearly than they would in the absence of the
contrast agent. Albumin is a protein naturally found in human blood and has
been used for many years as a blood expander. Both ALBUNEX, which was first
marketed in Japan in October 1993, and OPTISON, marketed since January 1998,
have been given to over 30,000 patients with no clinically significant side
effects.
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OPTISON permits cardiologists to see blood flow in the chambers of the
heart and the motion of the heart muscle using ultrasound. Cardiologists are
particularly interested in the chamber of the heart called the left ventricle
which pumps oxygenated blood arriving from the lungs to all other parts of
the body. In approximately 15-20% of patients undergoing an echocardiogram,
the wall of the left ventricle (the "endocardial border") cannot be detected
or its location appears ambiguous on the ultrasound image based on the
physical and disease condition of the patient. When OPTISON enters the left
ventricle, however, the endocardial border can be visualized because of the
reflectivity of the OPTISON microspheres in the blood. When the endocardial
border is visible, cardiologists can observe its motion and thus are able to
interpret cardiac function, which is critical in diagnosing cardiac disease,
including damage from a heart attack.
In addition to other indications, OPTISON is designed to permit
cardiologists to evaluate myocardial perfusion. Unlike ALBUNEX, which is
air-filled, OPTISON microspheres contain an insoluble gas, fluoropropane.
Because of their composition, OPTISON microspheres remain in the bloodstream
for more than 5 minutes, as opposed to 35-40 seconds in the case of ALBUNEX.
As a result, OPTISON is able to perfuse into tissues, including the heart
muscle, highlighting areas of normal and abnormal blood flow. The Company
believes that if its clinical trials for myocardial perfusion are successful,
OPTISON will provide important diagnostic benefits, including detecting areas
of the heart muscle compromised due to coronary artery stenosis as well as
detecting the lack of blood flow in the heart muscle resulting from a
complete occlusion of a coronary artery (heart attack). The Company believes
that OPTISON may have much greater market potential than ALBUNEX because of
the greater diagnostic importance of the indications for which it may be
suitable (such as myocardial perfusion) when used in conjunction with new
ultrasound imaging modalities.
In June 1998, the Company announced that results from Phase 2 myocardial
perfusion clinical trials for OPTISON indicate that it may be a useful contrast
agent for the evaluation of myocardial perfusion. The Company believes that the
use of OPTISON in routine diagnostic as well as emergency room procedures may
significantly reduce the overall cost of patient care by substituting ultrasound
for more expensive diagnostic methods such as nuclear imaging and by enabling
more accurate screening of patients to determine whether follow-up diagnostic or
surgical procedures are required. In March 1996, the Company announced that
preliminary analysis of Phase 2 myocardial perfusion results indicated a 92%
concordance between diagnoses of patients with known or suspected heart disease
made using dipyridamole-stress nuclear imaging, the current perfusion "gold
standard" and dipyridamole-stress harmonic ultrasound imaging using OPTISON.
The Company has additionally completed Phase 2 clinical trials for an oral
ultrasound contrast agent, known as ORALEX, which may be used to enhance the
ultrasound image of the abdominal area and improve the ability to detect stomach
lesions and pancreatic tumors. Preliminary evaluation of data from this study
suggests that ORALEX may provide significant diagnostic utility as compared both
with non-contrast images and with water, which is sometimes used as a contrast
agent but which has a short gastric emptying time and is of limited efficacy.
MBI has entered into a strategic alliance with Chugai Pharmaceutical Co, Ltd.
("Chugai") to develop and commercialize ORALEX in Japan, Taiwan and South Korea.
In the United States, the Company is seeking a partner for continued development
of ORALEX. Because of the Company's primary commitment to OPTISON and related
products, it has determined that it will begin Phase 3 clinical trials for
ORALEX only when it has found a collaborative partner to fund a significant
portion of the necessary clinical and regulatory activities in the United
States.
In the area of computed tomography imaging ("CT"), MBI is developing a
novel contrast agent, MB-840, which employs iodinated triglycerides ("ITG")
to target hepatocytes (liver cells), thereby providing a site-specific
contrast agent for CT. Current CT imaging is not effective in identifying
the very early stages of liver cancer even with the use of traditional
iodinated x-ray contrast agents. The Company believes that MB-840 may make
possible consistent early identification of liver cancer by CT. At present,
the Company is preparing to initiate pre-clinical trials for MB-840.
MBI is collaborating with Mallinckrodt, Inc. ("Mallinckrodt") to develop and
commercialize OPTISON in all territories of the world with the exception of
Japan, Taiwan and South Korea. Mallinckrodt is one of the world leaders in the
marketing of contrast imaging agents, with 1997 imaging agent sales of
approximately $801 million.
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MBI's relationship with Mallinckrodt began in 1988 with the execution of a
distribution agreement for North and South America and a related investment
agreement pursuant to which Mallinckrodt paid the Company approximately $30
million.
The Company and Mallinckrodt expanded their original agreement in September
1995 when the parties entered into an Amended and Restated Distribution
Agreement ("ARDA"). ARDA expanded the geographic scope and extended the
duration of Mallinckrodt's exclusive marketing rights. Mallinckrodt at that
time also made a $13 million equity investment in MBI and committed $20
million to the clinical development of OPTISON and related projects. MBI may
receive up to an additional $9.5 million upon meeting certain territorial and
product development milestones, of which $3 million has been received to
date. There can be no assurances, however, that future milestones will be
met.
In December 1996, the Company and Mallinckrodt amended ARDA to further expand
the geographical scope of Mallinckrodt's exclusive marketing and distribution
rights for OPTISON, ALBUNEX and related products. The amendment extended
Mallinckrodt's exclusive territory to include the territory that the Company had
formerly licensed to Nycomed Imaging AS, consisting of Europe, Africa, India and
parts of Asia.
Under ARDA, the Company is responsible for manufacturing all licensed
products for sale to Mallinckrodt at a price generally equal to 40% of
Mallinckrodt's quarterly average selling price to end users. The Company is
responsible for conducting clinical trials and securing regulatory approvals
of the licensed products in the United States for cardiac indications.
Mallinckrodt is responsible for conducting clinical trials and securing
approvals of the licensed products in the United States for non-cardiac
indications and is responsible for conducting all clinical trials and
securing approvals in the other countries in Mallinckrodt's territory.
In April 1998, the Company and Chugai entered into a strategic alliance to
develop and commercialize OPTISON and ORALEX in Japan, Taiwan and South Korea.
(Chugai may market OPTISON under a name other than "OPTISON." In the Chugai
agreement, OPTISON is referred to as "FS069," MBI's developmental name for
OPTISON.) In exchange for granting to Chugai a royalty-based license to market
these products in the named countries, MBI received an upfront license fee from
Chugai of $14 million. In addition, Chugai made an equity investment in MBI
common stock of $8.3 million at a premium of 40% over the then-prevailing market
price. MBI is eligible to receive milestone payments of up to $20 million based
on the achievement of certain product development goals in the Japanese
territory and will receive royalties from Chugai from the sale of commercialized
products in the territory.
BUSINESS STRATEGY
The Company's objective is to remain a leader in the development and
commercialization of innovative contrast imaging agents. MBI intends to achieve
this objective by implementing the following key strategies.
DEVELOP OPTISON FOR MULTIPLE INDICATIONS. MBI's primary clinical developmental
objective is to gain additional regulatory approvals in the United States and
abroad for OPTISON for the diagnosis of multiple cardiac indications, such as
cardiac function and myocardial perfusion. Thereafter the Company intends to
expand the application of OPTISON by seeking approval for non-cardiac
(radiology) indications. The Company believes that the extensive knowledge that
it and Mallinckrodt have gained through the marketing of ALBUNEX regarding the
requirements of the medical and third-party payor communities will assist in the
commercialization of OPTISON.
DEMONSTRATE COST-EFFECTIVENESS. The Company and Mallinckrodt will continue to
design studies to demonstrate the overall cost-effectiveness of using the
Company's ultrasound contrast agents. The Company believes that such studies may
establish that use of OPTISON can significantly reduce the overall cost of
patient care by substituting ultrasound for more expensive diagnostic
modalities, and by enabling more accurate screening of patients to determine
whether follow-up diagnostic or therapeutic procedures are required.
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NEW PRODUCT DEVELOPMENT. The Company has established significant clinical,
regulatory and manufacturing expertise in the development of OPTISON and
ALBUNEX. The Company intends to leverage this expertise for the development of
new, proprietary imaging products such as ORALEX, MB840, and other products.
INDUSTRY BACKGROUND
NON-ULTRASOUND IMAGING TECHNIQUES
Since the discovery of x-rays, medical imaging has been used extensively to
diagnose and guide the treatment of diseases and injuries to internal organs.
Medical imaging can be used to identify high-risk patients, to make initial
diagnoses, to confirm diagnoses based on other information, to formulate
treatment plans, and to evaluate the effectiveness of treatment and detect the
recurrence of a medical problem. Generally, imaging improves patient care and
lowers health care costs by enabling the detection of disease or abnormal
structures not apparent by routine physical examination.
There are a variety of medical imaging methods, or "modalities," available
to the physician. The choice of modality by the physician depends on a number
of factors, including the part of the body to be imaged, the suspected
condition to be investigated, the cost of the procedure, the diagnostic
usefulness of the image and the condition of the patient. Other important
factors in determining the selection of a modality are the availability of
equipment and trained operators and the ability to schedule time on the
equipment. The major non-ultrasound modalities are:
COMPUTED TOMOGRAPHY ("CT"). CT employs x-rays aimed into the body from several
different angles to create a computerized static "snapshot" image of soft tissue
and bones. CT is used extensively to image the head and neck for injury and
disease, and is also used to detect liver cancer and other hepatobiliary
diseases. CT may employ injectable contrast agents which absorb x-rays and
thereby enhance structural imaging. In 1996, approximately 23.5 million CT
examinations were performed in the United States, approximately 44% of which
employed a contrast agent. While CT is effective in revealing anatomic detail,
it is expensive, does not generally provide real-time images ("moving pictures")
or permit the assessment of blood flow, and exposes patients to radiation. CT is
rarely used to image the heart.
CONVENTIONAL X-RAY. Familiar procedures such as chest x-rays and mammograms
use x-rays aimed from only a single angle and do not require computer
reconstruction to create an image. In 1994, approximately 5.2 million abdominal
x-rays performed in the United States employed barium as a contrast agent to
examine the gastrointestinal system. Conventional x-ray is not used to assess
heart function.
MAGNETIC RESONANCE IMAGING ("MRI"). MRI creates an image by exposing the body
to a radio frequency pulse to which the body's hydrogen atoms respond in a way
detectable by the MRI equipment. This information is analyzed by computer and a
cross-sectional image is produced. MRI is used primarily to image soft tissues
in order to detect tumors, lesions, and injuries. An accurate image is produced,
but as with CT, the images are not real-time. In addition, MRI does not
generally provide information on blood flow or perfusion of blood into organs
and tissues, and has not yet been accepted as a primary diagnostic for imaging
of the heart. In 1996, approximately 8.5 million MRI procedures were performed
in the United States, approximately 29% of which used a contrast imaging agent.
In 1994, MRI equipment cost up to $2 million.
NUCLEAR IMAGING. Nuclear imaging requires the injection of radioactive
substances into the body. It is typically preceded by a stress echo exam. The
radiation is detected by a special camera and analyzed by computer, resulting in
a static image that does not depict blood flow in real time. Great care is
required in the handling and disposal of radioactive contrast agents. It is used
primarily to detect cardiovascular disease, malignancies and soft-tissue tumors.
It is also the current "gold standard" used to detect myocardial perfusion.
Approximately 10 million nuclear imaging procedures were performed in the United
States in 1994, approximately 3.0 million of which were cardiac perfusion
studies. In 1996, the median Health Care Finance Administration ("HCFA")
reimbursement rate for a nuclear cardiac exam was $850, excluding the cost of
any preceding echocardiogram.
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X-RAY ANGIOGRAPHY. Angiography is used to visualize real-time blood flow in
the body's vasculature in order to determine the presence of blockages or
occlusions in the vessels leading to the heart prior to performing bypass
surgery or balloon angioplasty. A catheter is inserted into a vessel or
directly into the heart chamber and a contrast agent that is visible using
special x-ray detection equipment is injected. This procedure requires a
specially-equipped laboratory. It is effective in locating blockages and
occlusions, but it is expensive, invasive, and exposes the patient to x-ray
radiation. In 1996, approximately 4.5 million angiographic examinations were
performed in the United States, with a median HCFA reimbursement rate for a
heart angiogram and catheterization procedure of approximately $2,000,
excluding the cost of any preceding echocardiogram.
ULTRASOUND IMAGING
Ultrasound employs low-power, high-frequency sound waves which are directed at
the organ to be imaged by placing a generating instrument called a "transducer"
on the body near the organ. The sound waves are reflected off of the organ or
tissue back to the ultrasound machine. The ultrasound machine reads the
reflected sound waves and produces a cross-sectional real-time "moving picture"
image of the targeted organ or tissue. Ultrasound is used to image the heart,
liver, kidneys, gall bladder, pancreas, other abdominal structures, blood
vessels, and the reproductive system, and is also being investigated for use
with brain and breast examinations. Cardiac ultrasound examinations are called
"echocardiograms." Non-cardiac diagnostic ultrasound examinations are referred
to as "radiology" indications or applications. The advantages of ultrasound
include:
SAFETY. The sound waves employed by ultrasound have no noticeable medical
effect on the body. The same organs or sections of the body may be
imaged repeatedly for long periods of time with no adverse effects.
Ultrasound is routinely used in fetal examinations.
EASE OF USE. Ultrasound exams are relatively simple to perform and require
little patient preparation. Unlike machines used for MRI, CT, nuclear
imaging and x-ray angiography, ultrasound machines are compact and
portable and do not require specially-equipped facilities or housing.
REAL-TIME IMAGES. Unlike the other imaging modalities (with the exception
of x-ray angiography), ultrasound creates a "moving picture" of the
targeted organ. The organ under study may be safely examined over any
period of time selected by the physician. This feature is especially
important in heart examinations, where the dynamics of the beating
heart are of diagnostic importance to the cardiologist.
LARGE INSTALLED BASE. There is a large installed base of ultrasound
machines throughout the world. In 1997, there were approximately
72,000 machines installed in the United States. Several large
manufacturers such as Hewlett-Packard, ATL, Acuson and Toshiba compete
in the ultrasound hardware market.
PRICE. Ultrasound is a relatively inexpensive procedure. In 1994, the HCFA
reimbursement rate for a typical echocardiogram was approximately
$570, while that for a cardiac exam using nuclear imaging was
approximately $850. A heart angiogram and catheterization cost
approximately $2,000. The average cost of an ultrasound machine was
$120,000, while the average cost of nuclear imaging equipment was
approximately $450,000.
Although ultrasound is a widely-used imaging modality, the visual clarity of
non-contrast-enhanced ultrasound images is generally inferior to that obtainable
using certain of the other modalities. With each of the other modalities,
contrast agents are frequently used, and in nuclear imaging and x-ray
angiography, an imaging agent is required to create the images. Until the
introduction of ALBUNEX, no imaging agents were available in the United States
for use with ultrasound.
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"Conventional" ultrasound imaging sends and receives sound waves at a
single frequency; this is called the "fundamental" frequency. The Company's
products are being tested with new ultrasound techniques which, although
currently not widely available, may find acceptance in diagnostic imaging
over the next several years. The most significant of these new techniques is
"harmonic imaging." Researchers have discovered that if the ultrasound
machine's transducer is modified to read the sound waves returning from the
imaged area at a multiple ("harmonic") of the outgoing fundamental frequency,
and if a contrast agent is used, the resulting image can provide more
complete information on blood flow and structures in the scanned area than is
available with a conventional ultrasound exam. This is because the
microspheres generate a harmonic signal significantly stronger than that
generated by the tissue, resulting in a significantly enhanced
signal-to-noise ratio.
PRODUCTS AND MARKETS
ALBUNEX AND OPTISON MICROSPHERE TECHNOLOGY
Both OPTISON and ALBUNEX are ultrasound contrast imaging agents consisting of
gas-filled human albumin microspheres manufactured using MBI's proprietary
process and albumin microsphere technology. They are injected into an arm vein
and pass through the bloodstream to the right atrium and ventricle of the heart,
where they are pumped through the lungs and into the left atrium and ventricle
of the heart. The left ventricle is the chamber of the heart that pumps
oxygenated blood arriving from the lungs out to the rest of the body and is the
portion of the heart that is of the greatest clinical interest in the diagnosis
of heart disease.
ALBUNEX microspheres are air-filled, while OPTISON microspheres are filled
with an insoluble gas, octafluoropropane. The use of OPTISON and ALBUNEX as
ultrasound imaging contrast agents relies on the greater acoustic reflectivity
of the microspheres relative to blood, which does not reflect sound waves well
and is effectively invisible to ultrasound imaging, and relative to the tissues
to which the blood carries the microspheres. Areas where OPTISON and ALBUNEX are
present will appear brighter and clearer than areas where no agent is present.
The contrast effect between the blood containing the microspheres and the
surrounding tissues enhances the ability to detect blood flow using ultrasound
imaging and permits the resolution of subtle differences in the density of the
target tissue structures.
OPTISON, which uses a 1% albumin solution, has exhibited a safety profile in
clinical studies equivalent to that of ALBUNEX. ALBUNEX consists of a 5%
albumin solution (in saline) in which the air-filled microspheres are suspended.
Human albumin is a protein extracted from human blood that has been used as a
blood expander for many years. Both ALBUNEX, which was first marketed in Japan
in October 1993, and OPTISON, marketed since January 1998, have been given to
over 30,000 patients with no clinically significant side effects.
ALBUNEX
ALBUNEX is the first ultrasound contrast imaging agent to be approved by the
FDA. It was approved for marketing in the United States in August 1994 to
assess cardiac function. It has also been approved in Japan and Europe. The
Company believes that, with the exception of certain niche applications, such as
the evaluation of fallopian tube patency (described in the "Fallopian Tube
Patency" section below), it is likely that ALBUNEX will be replaced in the
market by OPTISON because of the latter's superior performance characteristics.
FALLOPIAN TUBE PATENCY. MBI and Mallinckrodt have identified fallopian tube
patency ("FTP") as a potentially promising radiology application for ALBUNEX.
Physicians attempting to diagnose female infertility must determine whether the
fallopian tubes are patent (open) or occluded (blocked). The two primary
procedures used to assess FTP are hysterosalpingography ("HSG") and
chromolaparoscopy. HSG involves the injection of an x-ray contrast agent or dye
into the uterus to allow observation and evaluation by x-ray of the flow through
the fallopian tubes. This procedure exposes the patient to radiation, which may
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cause an adverse reaction, and also frequently requires sedation or
anesthesia. If HSG is inconclusive, a chromolaparoscopy may be ordered. This
procedure exposes the patient to the risk of bleeding, infection, injury to
internal structures, and reaction to the anesthetic.
ALBUNEX may permit the use of ultrasound imaging to assess FTP, potentially
avoiding both surgery and the introduction of radiation into the patient's
reproductive system. In February of 1997, Mallinckrodt received unanimous
recommendation for approval from the Radiology Device Advisory Panel of the
United States Food and Drug Administration for ALBUNEX for assessment of FTP.
Mallinckrodt received market clearance in June 1997 from the FDA for ALBUNEX for
the assessment of FTP and Mallinckrodt is currently selling ALBUNEX for that
purpose.
OPTISON
OPTISON is the first perfluorocarbon based agent to have been approved for
sale in the United States by the U.S. Food and Drug Administration. In May
1998, OPTISON became the first perfluorocarbon based agent to receive final
marketing authorization by the European Agency for the Evaluation of Medicinal
Products for use in patients with suspected or known cardiovascular disease.
OPTISON consists of octafluoropropane-filled albumin microspheres of
approximately the same size and concentration as ALBUNEX. Because
octafluoropropane is insoluble in blood, the microspheres in OPTISON have
greater durability and remain intact in the bloodstream for over 5 minutes,
versus 35 to 40 seconds for ALBUNEX. This greater durability permits more of the
microspheres to pass from the right side of the heart, through the
microvasculature of the lungs, and into the left side of the heart. As a result,
OPTISON is superior to ALBUNEX in its ability to measure endocardial border
delineation and regional wall motion using ultrasound. More importantly, the
durability of the OPTISON microspheres enable them to circulate into the heart
muscle and may permit the assessment of myocardial perfusion using ultrasound.
CARDIAC FUNCTION. Clinical studies have demonstrated that OPTISON is
effective in visualizing blood flow in the chambers of the heart, including the
delineation of endocardial borders and the assessment of regional wall motion.
In 15-20% of the echocardiograms performed annually in the United States, the
location of the wall of the left ventricle, or "endocardial border," cannot be
satisfactorily visualized or its location appears ambiguous. Clinical studies
demonstrated a high success rate for this indication in cases of suboptimal
chamber wall imaging in both stressed and non-stressed patients. When sufficient
numbers of OPTISON microspheres reach the left ventricle, the acoustical
reflectivity of OPTISON in the chamber permits the endocardial border to be seen
by defining the walls of the chamber, or "endocardial border delineation." This
delineation in turn permits visualization of the movement of the walls of the
chamber as the heart beats, or "regional wall motion." Information regarding
endocardial border delineation and regional wall motion are important for
diagnostic purposes. If the chamber walls appear thicker than normal or are not
moving normally, it is a potential indicator that the surrounding heart muscle
is not receiving sufficient blood or is abnormal in some other way, which, in
turn, may indicate an infarction (heart attack), stenosis (partial blockage of
an artery) or other abnormal condition. OPTISON has demonstrated efficacy at a
much lower dose than is required for ALBUNEX, with an equivalent safety profile.
The Company received FDA approval for OPTISON in December 1997.
MYOCARDIAL PERFUSION. Clinical studies indicate that the longer circulation
time of the octafluoropropane-filled microspheres in OPTISON may allow a
physician to assess myocardial perfusion using ultrasound. The Company conducted
a Phase 1 safety study which demonstrated a safe dosing range of many times the
expected efficacious dose and also showed myocardial perfusion in healthy
patients using a dose as low as 0.5 cc. Analysis of Phase 2 results indicated a
92% concordance between diagnoses of patients with known or suspected heart
disease made using dipyridamole-stress nuclear imaging, the current perfusion
"gold standard," and dipyridamole-stress harmonic ultrasound imaging using
OPTISON. In June 1998, the Company announced that results from Phase 2
myocardial perfusion clinical trials for OPTISON indicate that it may be a
useful contrast agent for the evaluation of myocardial perfusion. The Company's
future Phase 3 studies will be designed to evaluate, among other things,
myocardial perfusion in cardiac patients using ultrasound at both fundamental
and harmonic frequencies.
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Myocardial perfusion is important because it provides oxygenated blood to the
heart muscle. If OPTISON is not detected in a portion of the heart muscle, or
not detected with the expected level of intensity, it means that a portion of
the muscle is not receiving enough blood ("ischemia"). This finding may be
diagnostic of several conditions, including coronary arterial stenosis and
myocardial infarction.
The ability to rapidly assess the condition of the heart using OPTISON may
also prove efficacious and cost-effective in the emergency room and in the
subsequent treatment of heart attacks. For example, a patient arriving at the
emergency room complaining of chest pain may be quickly assessed using
ultrasound with OPTISON. If no perfusion defect is seen in the heart, a
myocardial infarction may be ruled out. Where a perfusion defect is detected
using OPTISON, the Company believes that information regarding its severity,
size and location may assist the physician in determining the patient's
condition. A patient with an extensive infarction may be sent immediately for an
angiogram and even emergency angioplasty. A patient with a less severe
infarction may be given a thrombolytic (clot-dissolving) agent. This patient may
then undergo an additional OPTISON echocardiogram to see whether the affected
area of the heart muscle has reperfused; that is, whether the thrombolytic agent
was successful in treating the condition. If the OPTISON echocardiogram shows
that the muscle has reperfused, the physician would not have to order any
additional emergency procedures and conventional treatment might begin.
Subsequent OPTISON echocardiograms may be used to assess the effectiveness of
the post-emergency-room treatment; for example, how the heart muscle has
responded to different medications, changes in diet, exercise program, weight
loss and other therapies.
The Company believes that the assessment of myocardial perfusion may also be
important in screening high-risk patients prior to general surgery or other
potentially stressful treatment regimens. For example, a surgeon may wish to
assess whether an elderly or weakened patient is capable of undergoing a
particular surgery or treatment without a cardiac incident. An OPTISON
echocardiogram may be safely administered to assist the physician in making this
determination.
Commercialization of OPTISON for myocardial perfusion may require the
conversion of present ultrasound equipment to harmonic imaging frequencies.
Although the Company is aware of efforts to develop commercial harmonic modules
for attachment to existing ultrasound machines as well as efforts to develop new
harmonic imaging machinery by several hardware manufacturers, there can be no
assurance that any of these current efforts will be successfully commercialized.
See "Industry Background - Ultrasound Imaging."
RADIOLOGY INDICATIONS. The stability of the OPTISON microspheres renders the
product potentially suitable for a much greater range of indications than
ALBUNEX. In preclinical studies, OPTISON has been shown to perfuse the liver,
which may permit the detection of tumors and lesions using ultrasound.
Preliminary animal studies have shown OPTISON is able to perfuse the kidneys,
ovaries, prostate, testes and peripheral intracranial vessels. Clinical studies
are planned to evaluate the use of OPTISON in the detection of liver pathology
relative to the current imaging "gold standard" for analyzing liver pathology.
OPTISON enjoys several other potential advantages. In clinical studies,
OPTISON has achieved greater efficacy at a fraction of the dose of ALBUNEX
required for the assessment of cardiac function. The Company expects that this
low dosage will make OPTISON attractive to the patient as well as the doctor. In
addition, OPTISON uses a 1% albumin solution, compared to a 5% albumin solution
required for ALBUNEX. The lower dose required and the lesser amount of albumin
used may lower MBI's per-unit manufacturing cost and may allow for the
production of more doses of OPTISON than ALBUNEX using equivalent manufacturing
capacity.
ORALEX
The Company is developing ORALEX, an oral ultrasound contrast agent intended
to enhance images of the abdomen, including the small bowel, stomach lining and
structures adjoining the stomach, in particular the pancreas.
Gas in the stomach interferes with ultrasound images of the abdominal area by
reflecting nearly all of the sound waves. If the ultrasound "noise" caused by
this gas can be removed, the stomach wall can be more effectively
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visualized and the stomach itself can become an "acoustic window" to organs
next to it which are difficult to visualize, such as the pancreas. ORALEX is
a polydextrose solution which is administered orally and which may displace
gas in the stomach for up to 30 minutes. This period of displacement could be
sufficient to permit effective ultrasound imaging. The Company is evaluating
the use of ORALEX to make ultrasound imaging as useful for diagnostic
purposes as costlier and more complex procedures such as CT and more invasive
procedures such as endoscopy.
The ability to view the pancreas is of particular interest to physicians
because pancreatic cancer is very difficult to detect at an early stage, and
current imaging modalities are not effective for this purpose. By the time
pancreatic cancer tumors are sufficiently large to be detected using CT, for
example, the cancer has progressed to the point where the patient's condition is
terminal. In 1998, there will be approximately 28,900 deaths in the United
States from pancreatic cancer.
In April 1998, MBI announced completion of its Phase 2 clinical trial of
ORALEX. The preliminary evaluation of data from this study indicates that
ORALEX provides significant diagnostic utility as compared with non-contrast and
water-contrast imaging.
MBI has entered into a strategic alliance with Chugai to develop and
commercialize ORALEX in Japan, Taiwan and South Korea. See "General." In the
United States, the Company is seeking a partner for continued development of
ORALEX. Because of the Company's primary commitment to OPTISON and related
products, it has determined that it will begin Phase 3 clinical trials for
ORALEX only when it has found a collaborative partner to fund a significant
portion of the necessary clinical and regulatory activities in the United
States.
OTHER RESEARCH AND DEVELOPMENT
The Company's research and development activities seek improvements to
existing products and development of new contrast agents. The Company also
continues to develop process improvements to secure the efficient supply of its
products for developmental and commercial use.
MBI is developing a novel contrast agent, MB-840, which employs iodinated
triglycerides ("ITG") to target hepatocytes (liver cells), thereby providing a
site-specific contrast agent for CT. Current CT imaging is not effective in
identifying the very early stages of liver cancer even with the use of
traditional iodinated x-ray contrast agents. The Company believes that MB-840
may make possible consistent early identification of liver cancer by CT. At
present, the Company is preparing to begin pre-clinical trials for MB-840.
MBI holds an exclusive license from the University of Michigan for patents
relating to the ITG technology which requires the Company to exercise
diligence in the development and commercialization of ITG. If the Company
does not enter into a collaborative development relationship with a partner
or determines that it will no longer invest its own resources in the
development of ITG, the Company's license from the University of Michigan
will terminate at the University's option. At present, the Company continues
to develop the product and will not actively pursue a marketing and
development partner until a more optimal point in the development phase.
MARKETING AND LICENSE AGREEMENTS
MALLINCKRODT, INC. MBI's distribution agreement with Mallinckrodt forms the
basis of its product development and marketing program for products containing
albumin microspheres such as OPTISON and ALBUNEX.
In December 1988, the Company entered into a distribution agreement with
Mallinckrodt granting it the exclusive marketing and distribution rights for
ALBUNEX as defined and gas-filled albumin microspheres in North and South
America. Mallinckrodt paid the Company $6.0 million and agreed to pay the
Company a further $21.0 million based on the successful completion of certain
product development and regulatory milestones. Mallinckrodt also paid the
Company $3.0 million for 181,818 unregistered shares of the Company's Common
Stock. Under the distribution agreement, the Company is responsible for
conducting clinical trials and securing regulatory approvals of the licensed
products in the United States for cardiac indications, and Mallinckrodt is
responsible for conducting
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clinical trials and securing regulatory approvals in the United States for
non-cardiac indications and is responsible for conducting all clinical trials
and securing approvals in the other countries in Mallinckrodt's territory.
The Company manufactures all licensed products for sale to Mallinckrodt at a
price generally equal to 40% of Mallinckrodt's quarterly average selling price
to end users. If the Company declines to manufacture OPTISON or ALBUNEX for
Mallinckrodt because the quarterly average selling price falls below a level
specified in the Company's distribution agreement with Mallinckrodt or the
proposed initial price in a new market or for a new indication is below the
specified level, or if the Company is unable to manufacture OPTISON or ALBUNEX
in sufficient quantities to satisfy Mallinckrodt's orders on a timely basis,
Mallinckrodt may exercise certain contingent manufacturing rights. MBI will
receive a royalty of 5-10% on Mallinckrodt's sales of OPTISON or ALBUNEX which
Mallinckrodt has manufactured.
The distribution agreement lasts for the life of the licensed patents and,
prior to amendment in September 1995, granted Mallinckrodt exclusive rights for
five years following the first commercial sale of ALBUNEX in the United States,
after which MBI was granted the assignable right to co-market the licensed
products. In accordance with the distribution agreement, the Company undertook
to acquire license rights from a third party to a United States patent for
certain related technology. The Company acquired these rights in February 1991,
and in connection with this acquisition the Company and Mallinckrodt agreed to
pay royalties to the licensor of 0.8% and 1.2%, respectively, on the net sales
of ALBUNEX in the United States.
The Company's relationship with Mallinckrodt was strengthened and expanded in
September 1995 when the parties entered into an Amended and Restated
Distribution Agreement ("ARDA"). ARDA expands the geographic scope of
Mallinckrodt's exclusive right to market the licensed products to include all of
the countries of the world other than those covered by the Company's then
existing license agreements with Shionogi and Nycomed and extends the duration
of Mallinckrodt's exclusive rights to the later of July 1, 2003 or three years
after the date that the Company obtains approval from the FDA to market OPTISON
for an intravenous myocardial perfusion indication. Mallinckrodt agreed to pay
the Company $20.0 million over four years beginning in October 1995 to support
clinical trials of OPTISON, related regulatory submissions and associated
product development and to pay up to an additional $9.5 million upon the
satisfaction of certain territorial and product development milestones.
ARDA requires the Company to spend at least $10.0 million for clinical trials
to support regulatory filings with the FDA for cardiac indications of OPTISON.
The Company's expenditures will be made in accordance with the directions of a
joint steering committee which the Company and Mallinckrodt have established in
order to coordinate the development and regulatory approval of OPTISON.
Under a related investment agreement, Mallinckrodt purchased 1,118,761 shares
of the Company's Common Stock for $13.0 million at a premium of 40% above the
then-prevailing market price. In addition, ARDA grants the Company the option to
repurchase all of the shares of the Company's Common Stock that Mallinckrodt
purchased under the related investment agreement for $45.0 million, subject to
various price adjustments. This option is exercisable from the later of July 1,
2000, or the date that the FDA approves OPTISON for a myocardial perfusion
indication, through the later of the third anniversary of such approval or June
30, 2003. If the Company exercises this option, the Company or its assignee may
co-market licensed products in all of the countries covered by ARDA.
In December 1996, the Company and Mallinckrodt amended ARDA to expand the
geographical scope of Mallinckrodt's exclusive marketing and distribution rights
for OPTISON, ALBUNEX and related products. The amendment extended
Mallinckrodt's exclusive territory to include the territory that the Company had
formerly licensed to Nycomed consisting of Europe, Africa, India and parts of
Asia. Under the amendment to ARDA, Mallinckrodt agreed to pay fees of up to
$12.9 million plus 40 percent of product sales to cover royalties and
manufacturing. Mallinckrodt made an initial payment of $7.1 million, consisting
of reimbursement to the Company of $2.7 million that the Company paid to Nycomed
to reacquire the exclusive product rights in Nycomed's territory, payment of $3
million to the Company under the terms of ARDA upon the extension of
Mallinckrodt's exclusive rights to Nycomed's former territory, and payment of
$1.4 million to Nycomed in satisfaction of the Company's obligation to pay 45%
of any amounts that the Company receives in excess of $2.7 million upon the
licensing of the former Nycomed territory to a third party. Of the remaining
$5.8 million that may be paid, Mallinckrodt will pay $4
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million to the Company (upon the achievement of the specified product
development milestone) and $1.8 million to Nycomed (representing 45% of the
$4 million payment to the Company). There can be no assurance, however, that
this milestone will be satisfied.
SHIONOGI & CO., LTD. In March 1989, the Company entered into a license and
cooperative development agreement with Shionogi, of Osaka, Japan. Under this
agreement, the Company granted Shionogi exclusive marketing and distribution
rights for ALBUNEX and other gas-filled albumin microsphere products in Japan,
Taiwan and South Korea. In September 1996, the Company and Shionogi entered
into an agreement pursuant to which the Company reacquired all product rights
from Shionogi. See "Item 3 -- Legal Proceedings."
CHUGAI PHARMACEUTICAL CO., LTD. In an agreement dated March 31, 1998, the
Company entered into a cooperative development and marketing agreement with
Chugai Pharmaceutical Co., Ltd. ("Chugai") of Japan. The parties entered into
this strategic alliance which covers Japan, Taiwan and South Korea, to develop
OPTISON (which may be marketed under a different name) and ORALEX, as well as
related products. The Company granted Chugai an exclusive license to develop,
manufacture, and market these products in the subject territory, for which the
Company received an upfront license fee of $14 million. With respect to
licensed products manufactured by Chugai, Chugai will pay the Company a royalty
on net sales. For licensed products manufactured by the Company, the Company
will receive royalties on net sales, depending upon the sales volume, in
addition to a transfer price based on average net sales per unit from the
previous quarter. Additionally, Chugai purchased 691,883 shares of the Company's
common stock at a premium of 40% over the then-prevailing market price. The
equity investment was valued at $8.3 million. The Company is also eligible to
receive milestone payments of up to $20 million based on Chugai's achievement of
certain Japanese product development and regulatory goals.
NYCOMED IMAGING AS. In December 1987, the Company entered into a license
agreement with Nycomed's predecessor, Nycomed AS, of Oslo, Norway. Under this
agreement, the Company granted Nycomed exclusive developmental,
manufacturing, and marketing rights for ALBUNEX and other gas-filled albumin
microsphere ultrasound imaging agents in the territory comprising Europe, the
former Soviet Union, Africa and the Middle East. India was later added to
this territory. While Nycomed performed manufacturing and clinical
development work on ALBUNEX (called "Infoson" by Nycomed), the Company and
Nycomed concluded that their respective strategic interests were best served
by the Company's reacquisition of Nycomed's product rights, and in October
1995 the parties entered into an amendment of their agreement that
effectively returned these rights to the Company. The Company agreed to pay
Nycomed $2.7 million plus 45% of any amounts in excess of $2.7 million that
the Company receives in payment for the transfer of marketing rights in the
former Nycomed territory to a third party. The Company also agreed to pay
Nycomed a royalty of 2-1/2% on the first $30.0 million of annual sales of
licensed products and 3-1/2% on any annual sales in excess of $30.0 million.
FEINSTEIN LICENSE. 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 patents and applications owned by Stephen B.
Feinstein, M.D. covering sonicated gas-filled albumin microspheres used for
imaging and any future related patents and applications. In June 1989, this
agreement was restructured. The Company paid the licensor $4.5 million as an
additional license fee and $2.0 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, and the royalty rate on sales of licensed products was reduced
from 6% to 3% on worldwide net sales by the Company (and United States sales
by a sublicensee) and from 2-1/2% to 1-1/4% on net sales by sublicensees
outside of the United States. Under the restructured agreement, the Company
is required to pay minimum royalties each year, increasing from $100,000 in
1994 to $600,000 in 1999 and subsequent years.
ITG AGENT. In November 1991, the Company entered into an exclusive license
agreement with the University of Michigan for certain patents relating to the
Company's ITG CT agent, MB-840, under development. The Company paid a license
fee of $20,000 and pays an annual license maintenance fee of $15,000. The
Company agreed to pay a royalty of from 2-1/2% to 6% on net sales of licensed
products, depending upon the jurisdiction and status of the particular
product, and also agreed to make annual minimum royalty payments increasing
from $25,000 to $150,000.
PATENTS AND TRADEMARKS
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The Company considers the protection of its proprietary technologies to be
material to its business prospects. The Company pursues a comprehensive
program of patent and trademark prosecution for its products both in the
United States and in other countries where the Company believes that
significant market opportunities exist.
The Company has an exclusive license to certain United States and foreign
patents relating to gas-filled sonicated albumin microspheres from Steven B.
Feinstein, M.D. See "Marketing and Licensing Agreements - Feinstein
License." The Company itself owns additional United States and foreign
patents covering ALBUNEX that broaden the product coverage of its license.
Certain of these additional patents cover the Company's continuous flow
sonication manufacturing process. The European equivalents of these
manufacturing patents were challenged in an opposition proceeding brought by
Andaris Ltd. which was decided in the Company's favor in January 1996.
Andaris has appealed the decision. Andaris has also filed an opposition
against the Company's ALBUNEX composition patent in Europe, and Andaris and
two other parties have filed a similar opposition in Japan. No hearing date
has been set in these latter two oppositions.
The Company has received a patent covering its method of manufacturing
gas-filled albumin microspheres using a milling process under development.
The Company believes that this process may be more efficient than the
sonication process that the Company currently uses. The Company has also
received patents on other perfluorocarbon-based technology relating to
ultrasound contrast agents.
The Company owns a United States patent covering ORALEX and has several
foreign applications pending. The Company has also filed patent applications
relating to several early-stage development products. The Company is
uncertain whether these applications will result in issued patents or whether
the covered products can or will be commercialized.
The last-to-expire of the Company's key United States patents covering
OPTISON and ALBUNEX expires in 2008, and subject to the outcome of the
oppositions previously described, the last-to-expire of the Company's key
European patents covering OPTISON and ALBUNEX expires in 2009.
The patent position of medical and pharmaceutical companies is highly
uncertain and involves complex legal and factual questions. There can be no
assurance that the Company will receive patents for all or any of the claims
included in its pending or future patent applications, that any issued
patents will provide the Company with competitive advantages or will not be
challenged by third parties, or that existing or future patents of third
parties will not have an adverse effect on the Company's ability to
commercialize its products. Moreover, there can be no assurance that third
parties will not independently develop similar products, duplicate one or
more of the Company's products or design around the Company's patents.
The Company's commercial success also will depend in part upon the Company
not infringing patents issued to third parties. There can be no assurance
that patents issued to third parties will not require the Company to alter
its products or manufacturing processes, pay licensing fees, or cease
development of its current or future products.
Litigation or administrative proceedings may be necessary to enforce the
Company's patents, to defend the Company against infringement claims or to
determine the priority, scope and validity of the proprietary rights of third
parties. See "Legal Proceedings." Any such litigation or administrative
proceedings could result in substantial costs to the Company, and an
unfavorable outcome could have a material adverse effect on the Company's
business, financial condition and results of operation. Moreover, there can
be no assurance that, in the event of an unfavorable outcome in any
litigation or administrative proceedings involving infringement claims
against the Company, the Company would be able to license any proprietary
rights that it requires on acceptable terms or at all. The Company's failure
to obtain a license that it requires to commercialize one of its products
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has become aware of several United States patents issued to
other companies purportedly covering various attributes of
perfluorocarbon-containing imaging agents such as OPTISON. Certain of these
companies also are pursuing foreign patent protection. Some of these
companies are developing or may be
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developing ultrasound contrast imaging agents that would compete with
OPTISON. The patents and patent applications of these other companies
involve a number of complex legal and factual issues that are currently
unresolved. The Company believes that there may be a substantial overlap
among many of the claims in their patents and is currently involved in
various administrative proceedings and litigation in the United States and
Europe to adjudicate their conflicting rights.
The Company believes that, for a variety of reasons, its commercialization
of OPTISON will not infringe any valid patent held by any of these other
companies. Depending upon the particular patent claim, these reasons
include, but are not limited to (i) differences between OPTISON and the
subject of the claim, (ii) the invalidity of the claim due to the existence
of prior art, (iii) the inadequacy of the claim's specifications, (iv) lack
of enablement, (v) inequitable conduct by patentee, and (vi) various other
defenses as allowed by law. The Company intends to challenge the validity of
any such patent granted to one of the other companies if the patent is
asserted against the Company, and the Company will enforce its own patents if
any product of one of the other companies infringes the Company's patent
claims. See "Legal Proceedings."
The Company has obtained registered trademarks for "ORALEX" and "ALBUNEX"
in the United States and in selected foreign countries. Additionally
Mallinckrodt has filed for the trademark for "OPTISON" in various countries
throughout the world. There can be no assurance that the Company's
registered or unregistered trademarks and trade names will not infringe on
the proprietary rights of third parties.
The Company also relies on unpatented trade secrets, proprietary know-how
and continuing technological innovation which it seeks to protect by, in
part, confidentiality agreements with its employees, consultants,
investigators and others. There can be no assurance that these agreements
will not be breached, that the Company would have an adequate remedy for any
breach or that the Company's trade secrets or know-how will not otherwise
become known or independently discovered by third parties.
MANUFACTURING
The Company manufactures OPTISON and ALBUNEX for commercial sale in the
United States in its aseptic plant at its principal San Diego facility. The
plant employs the Company's patented continuous-flow sonication process in
which a mixture of sterile albumin solution and gas is subjected to
ultrasonic energy. This treatment denatures the albumin protein and
facilitates a process known as "cavitation" in which the stable gas-filled
microspheres are created. The Company believes that its current facilities
will provide sufficient production capacity for the foreseeable future.
The Company has been able to meet all orders for OPTISON and ALBUNEX
received to date from Mallinckrodt. The Company believes that its
manufacturing reliability will continue to improve and that it will not
experience any significant difficulty in manufacturing products in compliance
with the FDA's Good Manufacturing Practices.
The Company is also developing a method of manufacturing gas-filled albumin
microspheres using a milling process. The Company believes that this patented
process may be more efficient than the sonication process that it presently
uses. The milling process is in the last stages of development. There can be
no assurance that the process will be successfully developed, that it can be
successfully integrated with the Company's operations, or that the FDA will
approve the process.
COMPETITION
In general, competition in the field of contrast agents is based on such
factors as product performance and safety, product acceptance by physicians,
patent protection, manner of delivery, ease of use, price, distribution and
marketing. The Company's products compete or may compete with new or improved
contrast agents.
The Company anticipates that it will face increased competition in the
future as new products enter the market and advanced technologies become
available. The Company expects to compete against a number of companies,
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many of which have substantially greater financial, technical and human
resources than the Company and may be better able to develop, manufacture and
market products. In addition, many of the Company's existing or potential
competitors have extensive experience in research, preclinical testing and
human clinical trials, obtaining FDA and other regulatory approvals, and
manufacturing and marketing their products, or are allied with major
pharmaceutical companies that can afford them these advantages. As a result,
competitors may develop and introduce competitive or superior products more
rapidly than the Company. While the Company was the first to obtain FDA
approval of ultrasound contrast agents, OPTISON and ALBUNEX, the Company
expects that one or more of these competitors will develop products that will
be approved for an indication or indications covered by OPTISON or ALBUNEX,
including the assessment of cardiac function and myocardial perfusion. There
can be no assurance that existing products or new products developed by the
Company's competitors will not be more effective than any products that may
be developed by the Company. Competitive products may render the Company's
technology and products obsolete or noncompetitive.
Any product developed by the Company that gains regulatory approval will
have to compete for market acceptance and market share. An important factor
in such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speed with which the Company can develop
products, complete clinical testing and the regulatory approval process, gain
reimbursement acceptance and supply commercial quantities of the product for
distribution to the market are expected to be important competitive factors.
In addition, the Company believes that the primary competitive factors in the
market for ultrasound imaging agents are safety, efficacy, ease of delivery,
reliability, innovation and price. The Company also believes that physician
relationships and customer support are important competitive factors.
GOVERNMENT REGULATION
The Company's diagnostic products are subject to substantial regulation by
the FDA and comparable agencies in foreign countries. Pursuant to the federal
Food, Drug and Cosmetic Act, as amended, and the regulations promulgated
thereunder, the FDA regulates the research, development, clinical testing,
manufacture, labeling, distribution and promotion of medical products.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, refusal by the FDA to review New Drug
Applications ("NDA"), withdrawal of marketing approvals, a recommendation by
the FDA that the Company not be permitted to enter into government contracts,
and criminal prosecution.
The process of obtaining FDA approval of new products like OPTISON, ORALEX
and MB840 involves many steps. Results of laboratory and animal tests to
determine efficacy and safety, including potential toxicity, are submitted to
the FDA as part of an application for an Investigational New Drug ("IND")
before clinical trials on humans can begin. After completion of clinical
trials, an NDA, in the case of drugs, must be submitted to the FDA for review
and approval before commercial marketing and sale may begin for a new
indication.
Classified as drugs by the FDA, OPTISON and ALBUNEX are required to undergo
the NDA process. An NDA must be supported by valid scientific evidence that
typically includes extensive data, including preclinical and human clinical
trial data to demonstrate the safety and efficacy of the drug. If human
clinical trials of a drug are required, the sponsor of the trial is required
to file an Investigational New Drug ("IND") Application with the FDA prior to
beginning human clinical trials. The IND application must be supported by
data, typically including the results of animal and laboratory testing. If
the IND application is approved by the FDA and the appropriate institutional
review boards, human clinical trials may begin at a specific site with a
specific number of patients, as specified in the approved protocol. An IND
supplement must be submitted to and approved by the FDA before a sponsor or
an investigator may make any change to the investigational plan that may
affect its scientific soundness or the rights, safety or welfare of human
subjects.
In addition to the results of clinical trials, the NDA must also contain
the results of all relevant bench tests, laboratory and animal studies, a
complete description of the drug and its components, and a detailed
description of the methods, facilities and controls used to manufacture the
drug. In addition, the submission must include the proposed labeling,
advertising literature and any relevant training methods. Upon receipt of an
NDA application, the
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FDA makes a threshold determination whether the application is sufficiently
complete to permit a substantive review. If the FDA determines that the NDA
is sufficiently complete to permit a substantive review, the FDA will accept
the application for filing. Once the submission is accepted for filing, the
FDA begins an in-depth review of the NDA. An FDA review of an NDA application
generally takes one to two years from the date that the NDA application is
accepted for filing, but may take significantly longer. The review time is
often significantly extended as a result of the FDA asking for more
information or for clarification of information already provided in the
submission. During the review period, an advisory committee, typically a
panel of clinicians, will likely be convened to review and evaluate the
application and provide recommendations to the FDA as to whether the drug
should be approved. The FDA is not bound by the recommendations of the
advisory panel. Toward the end of the review process, the FDA generally will
conduct an inspection of the manufacturer's facilities to ensure that the
facilities are in compliance with the applicable Good Manufacturing Practices
("GMP") requirements.
If the FDA's evaluations of both the NDA application and the manufacturing
facilities are favorable, the FDA will either issue an approval letter or, in
some cases, an "approvable letter" containing a number of conditions which
must be met in order to obtain final approval of the NDA. When and if those
conditions have been fulfilled to the satisfaction of the FDA, the agency
will issue an NDA approval letter authorizing commercial marketing of the
drug for the specified indications. If the FDA's evaluation of the NDA
applications or manufacturing facilities is not favorable, the FDA will deny
approval of the NDA application or issue a "not approvable" letter. The FDA
may also determine that additional clinical trials are necessary, in which
case NDA approval could be delayed for several years while additional
clinical trials are conducted and submitted in an amendment to the NDA. The
NDA process can be expensive, uncertain and lengthy, and a number of drugs
for which approval has been sought by other companies have never been
approved for marketing.
Any drugs manufactured or distributed by the Company pursuant to FDA
approvals are subject to pervasive and continuing regulations by the FDA and
certain state agencies. The FDA often requires drug manufacturers to conduct
post marketing surveillance studies following approval to further evaluate
the safety and effectiveness of the drug. Foreign and domestic regulatory
approvals, if granted, may include significant limitations on the indicated
use for which the product may be marketed. In addition, the FDA and certain
foreign regulatory authorities impose numerous other requirements with which
medical drug manufacturers must comply. Product approvals could be withdrawn
for failure to comply with regulatory standards or as a result of the
occurrence of unforeseen safety or effectiveness problems following initial
marketing. The Company will also be required to adhere to applicable FDA
regulations setting forth current GMP requirements, which include testing,
control and documentation requirements. The Company is also required to
register with the FDA and with state agencies such as the California
Department of Health Services as a drug manufacturer and to list its products
with the FDA. Ongoing compliance with GMP and other applicable regulatory
requirements is monitored through periodic inspections by state and federal
agencies, including the FDA, and by comparable agencies in other countries.
Changes in existing regulations or adoption of new regulations could prevent
the Company from obtaining, or affect the timing of, future approvals or
clearances.
The FDA and equivalent foreign agencies have significant discretion in
their conduct of each stage of the regulatory process. Adverse decisions are
effectively unappealable, and agency delays are an unfortunate fact of life
for the companies they regulate.
The Company also intends to sell OPTISON and ALBUNEX in foreign countries.
The time required to obtain approval for sale in foreign countries may be
longer or shorter than that required for FDA approval, and the requirements
may differ.
Labeling, advertising and other promotional activities are subject to
scrutiny by the FDA and in certain instances by the Federal Trade Commission.
The FDA actively enforces regulations prohibiting marketing of products for
unapproved uses, sometimes called "off-label" uses. The Company and its
products are also subject to a variety of state laws and regulations in those
states or localities where its products are or will be marketed. Any
applicable state or local regulations may hinder the Company's ability to
market its products in those states or localities.
The Company is also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
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potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations now or in the future or that such laws or regulations will not
have a material adverse effect upon the Company's ability to do business.
Changes in existing requirements or the adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company will
not be required to incur significant costs to comply with laws and
regulations in the future or that laws or regulations will not have a
material adverse effect on the Company's business, financial condition, or
results of operations.
THIRD PARTY REIMBURSEMENT
In the United States, the Company's products will be purchased primarily by
medical institutions that will then bill various third-party payors such as
Medicare, Medicaid and other government programs and private insurance plans.
In considering reimbursement for a new medical product, these payors must
decide both whether to cover the product and how much to pay for it.
In general, to be covered by Medicare, a health care product or service
must be "reasonable and necessary" for the diagnosis or treatment of an
illness or injury. This requirement has been interpreted to mean that the
product or service must be safe and effective, not experimental or
investigational (except under certain limited circumstances involving drugs
furnished pursuant to a FDA-approved clinical trial), and appropriate.
Medicaid, Blue Cross and Blue Shield plans, commercial insurers and other
third-party payors generally have limitations on coverage which are similar
to those of Medicare.
Even if a drug has received approval or clearance for marketing by the FDA,
there is no assurance that Medicare or other third-party payors will cover
the drug or related services. The Company is aware that certain third party
payors are providing reimbursement for OPTISON contrast echocardiography
procedures. Plans and programs are in place to develop expanded coverage
among third party payors. However, the Company also acknowledges that these
payors may place certain restrictions on the circumstances in which coverage
will be available. In making such coverage determinations, the Health Care
Financing Administration ("HCFA"), which administers the Medicare program,
and HCFA's contractors consider, among other things, peer-reviewed articles
concerning the safety and effectiveness of the drug, the opinions of medical
specialty societies, and input from the FDA, the National Institutes of
Health, and other government agencies. There is no assurance that the
Company's products will be covered by Medicare and other third-party payors.
Failure by hospitals and physicians to receive what they consider to be
adequate reimbursement for procedures in which the Company's products are
used would have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
As of March 31, 1998, the Company had 148 full-time employees, including 6
officers. Approximately 29 of the Company's employees were involved directly
in scientific research and development activities. Of these employees, 13
held Ph.D. or M.D. degrees. The Company considers its relations with its
employees to be good, and none of its employees is a party to a collective
bargaining agreement.
ITEM 2. PROPERTIES
17
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The Company's corporate offices and laboratory, manufacturing and warehouse
facilities occupy a total of 74,097 square feet in San Diego, California. The
Company owns a 44,000 square-foot building purchased in 1989 and leases an
additional 30,097 square-foot facility under an agreement expiring in
February 2000. In addition, during fiscal 1998, the Company leased a 50,000
square-foot facility under an agreement which was effectively terminated May
31, 1998. The Company anticipates that its current facilities will be
sufficient to meet its needs into the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
In April 1997, separate lawsuits were filed by Bracco Diagnostics, Inc.
("Bracco"), DuPont Merck Pharmaceutical Co. ("DuPont Merck"), ImaRx
Pharmaceutical Corp. ("ImaRx"), and Sonus Pharmaceuticals, Inc. ("Sonus")
against the United States Food and Drug Administration (the "FDA") seeking a
preliminary and permanent injunction to keep the FDA from approving the
Company's pre-market approval application ("PMA") for the Company's
second-generation ultrasound imaging agent, OPTISON, until the FDA resolved
the merits of citizen petitions that the plaintiffs previously filed with the
FDA. These petitions requested the FDA to regulate all ultrasound imaging
contrast agents either as drugs (as the plaintiffs' contrast agents under
development are currently classified) or as medical devices (as both the
Company's OPTISON and ALBUNEX were then classified). The lawsuits (the "FDA
Cases") alleged that the FDA acted in an arbitrary and capricious manner in
its review of the parties' ultrasound contrast agents and requested the FDA
to review all ultrasound contrast agents in a consistent manner.
In response, the United States District Court entered an order enjoining
the FDA from continuing any approval or review procedures relating the
Company's PMA for OPTISON until ten days after the FDA ruled on the
plaintiffs' citizen petitions. In February 1997, the FDA's advisory
Radiological Devices Panel had recommended approval of the Company's PMA for
OPTISON as a device.
On July 29, 1997, the FDA ruled that OPTISON could be properly classified
as a drug under the applicable sections of the Food and Drug Act and FDA
regulations and for administrative reasons transferred review of the
Company's PMA for OPTISON from the Center for Devices and Radiological Health
("CDRH") to the Center for Drug Evaluation and Research ("CDER").
On December 31, 1997, the Company's new drug application for OPTISON, the
Company's second generation contrast agent for cardiac ultrasound imaging,
was approved by the FDA. This approval permits the marketing of OPTISON in
the United States for use in patients with suboptimal echocardiograms to
opacify the left ventricle and to improve the delineation of the left
ventricular endocardial borders.
On July 31, 1997 the Company and its marketing partner, Mallinckrodt, Inc.
("Mallinckrodt") filed suit (the "MBI Case") in United States District Court
for the District of Columbia against four potential competitors - Sonus,
Nycomed Imaging AS ("Nycomed"), ImaRx and its marketing partner DuPont Merck
and Bracco - seeking declarations that certain of their ultrasound contrast
agent patents are invalid. On the same day, the Company and Mallinckrodt
filed counterclaims in cases filed against the FDA by Bracco, Sonus, ImaRx
and DuPont Merck in which the Company had intervened as a defendant seeking
the same relief as in the MBI Case. The court subsequently dismissed these
counterclaims following the FDA's reclassification ruling (as reported
above), and resulting mootness of the proceedings against the FDA.
The complaint filed by the Company and Mallinckrodt in the MBI Case alleges
that each of the defendants' patents is invalid on a variety of independent
grounds under U.S. patent law. In addition to requesting that all of the
patents in question be declared invalid, the complaint requests a declaration
that, contrary to defendants' contentions, the Company and Mallinckrodt do
not infringe the defendants' patents, and asks that defendants be enjoined
from proceeding against the Company and Mallinckrodt for infringement until
the status of defendants' patents has been determined by the court or the
U.S. Patent and Trademark Office ("PTO"). The complaint alleges
18
<PAGE>
that each defendant has claimed or is likely to claim that its patent or
patents cover OPTISON, the Company's second generation ultrasound contrast
agent, and will attempt to prevent its commercialization.
All of the defendants except Nycomed filed motions to dismiss the complaint
on juridictional grounds. In January 1998, the court hearing the MBI Case
dismissed each of the defendants except Nycomed, ruling that the court lacked
jurisdiction over those defendants with respect to the Company's claims of
patent invalidity and non infringement. The court's ruling does not purport
to rule on the merits of the Company's claims; the dismissal was based solely
on jurisdictional grounds.
Following Sonus's dismissal as a defendant in the MBI Case, Sonus activated
the patent infringement lawsuit (the "Sonus Case") which it had filed in
August 1997 against the Company and Mallinckrodt in the United States
District Court for the Western District of Washington. Sonus's complaint
alleges that the manufacture and sale of OPTISON by the Company and
Mallinckrodt infringe two patents owned by Sonus. As in the original MBI
case, MBI counterclaimed for a declaration of invalidity and non-infringement
with respect to the Sonus patents. These two patents are the same patents
for which the Company was seeking a declaration of invalidity in the MBI
Case. As discussed below, in conjunction with the reexamination proceedings,
the PTO has issued a final rejection of all claims of the patents involved in
the Sonus case. Although the complaint was filed in August 1997, Sonus had
agreed not to proceed with the Sonus Case until the jurisdictional motions
were decided in the MBI Case.
Beginning in July 1997, the Company received the first of five notices from
the PTO granting the Company's petitions for reexamination which it had filed
with respect to five patents held by three potential competitors, Sonus,
Nycomed and ImaRx. Each of the five notices stated there was a substantial
new question of patentability raised by the Company's petitions with respect
to all claims of the patents. Each of the patents in the reexamination
process is related to the use of perfluorocarbon gases in ultrasound contrast
agents and is included among the patents for which the Company was seeking a
declaration of invalidity in the MBI Case (and for which the Company is
continuing to seek a declaration of invalidity in the case of Nycomed's
patents).
In late 1997 and early 1998, the PTO issued office actions in connection
with the Company's patent reexamination petitions filed against Sonus,
Nycomed and ImaRx. The PTO office actions rejected all relevant claims of
these patents based on prior art not previously disclosed to the PTO by
Sonus, Nycomed or ImaRx during prosecution of their patent applications. In
June 1998, the PTO issued a final rejection of all claims of the two Sonus
patents involved in the Sonus Case. If the PTO's rejection is maintained on
any appeal subsequently filed by Sonus, the two Sonus patents will be
invalid. If the PTO rejection of the Nycomed patent is maintained through
further proceedings before the patent examiner and on any appeal, the PTO
rejection will invalidate the patent which Nycomed is attempting to assert
against the Company and Mallinckrodt to block the manufacture and sale of
OPTISON.
Litigation or administrative proceedings relating to these matters could
result in a substantial cost to the Company; and given the complexity of the
legal and factual issues, the inherent vicissitudes and uncertainty of
litigation, and other factors, there can be no assurance of a favorable
outcome. An unfavorable outcome could have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover,
there can be no assurance that, in the event of an unfavorable outcome, the
Company would be able to obtain a license to any proprietary rights that may
be necessary to commercialize OPTISON, either on acceptable terms or at all.
If the Company were required to obtain a license necessary to commercialize
OPTISON, the Company's failure or inability to do so would have a material
adverse effect on the Company's business, financial condition and results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
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The following information concerning the names, ages and titles of the
Company's executive officers as of the date of this report, is included in
accordance with General Instruction G(3) of Form 10-K:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Kenneth J. Widder, M.D. . . . . 45 Chairman of the Board
Bobba Venkatadri. . . . . . . . 54 President and Chief Executive Officer
Gerard A. Wills . . . . . . . . 41 Vice President, Finance and Chief
Financial Officer
Thomas Jurgensen. . . . . . . . 41 Vice President, Legal and General Counsel
William I. Ramage, D. Phil. . . 44 Vice President, Marketing
Howard Dittrich, M.D. . . . . . 44 Vice President, Research/Medical &
Regulatory Affairs
Joni Harvey . . . . . . . . . . 44 Vice President, Operations
</TABLE>
KENNETH J. WIDDER, M.D., a founder of the Company, has served as the
Company's Chairman of the Board since July 1981. Prior to May 1997, Dr.
Widder also served as the Company's Chief Executive Officer. He currently
serves as a director of Titan Pharmaceuticals, Wilshire Technologies, and
Digivision, Inc.
BOBBA VENKATADRI has served as the Company's President and Chief
Executive Officer since May 1997. He served as the Company's President and
Chief Operating Officer from October 1995 until May 1997. Mr. Venkatadri
served as Executive Vice President of the Pharmaceutical Division of
Centocor, Inc., from September 1992 until he joined the Company, and as Vice
President - Operations of Centocor's Pharmaceutical Division from March 1992
to September 1992. He was employed by Warner-Lambert Company from 1967 until
February 1992, most recently serving as Senior Director, Pharmaceutical
Operations, at its manufacturing facility in Vegabaja, Puerto Rico.
GERARD A. WILLS has served as the Company's Vice President, Finance and
Chief Financial Officer since January 1995. He served as the Company's Chief
Financial Officer from August 1994 to January 1995 and as its Controller from
February 1993 to August 1994. From 1990 until joining the Company in
February 1993, Mr. Wills served as the Corporate Manager of Finance for
Maxwell Laboratories, Inc. From 1986 through 1990, Mr. Wills was employed by
Intermark, Inc. where he last served as the Corporate Controller.
THOMAS E. JURGENSEN, ESQ. has served as the Company's Vice President of
Legal and General Counsel since December of 1997. From 1993 to 1997, he was
employed by Ligand Pharmaceuticals, initially as the Assistant General
Counsel, then as the Associate General Counsel. He served as an Intellectual
Property Counsel at the 3M Company from 1991 to 1993, and was an associate at
the firm of Merchant and Gould from 1989 to 1991.
WILLIAM I. RAMAGE, D. PHIL., has served as the Company's Vice President
- - Marketing since September 1996. From 1979 to 1996, he was employed by
DuPont Merck Pharmaceutical Company where he served as Vice President of
Business Development and Customer Services of the Radiopharmaceutical
Division from 1995 to 1996 and Director of Business Segments from 1994 to
1995. From 1979 to 1994, he served in other management positions with DuPont
Merck in Billerica, MA, Houston, TX and Wilmington, DE.
HOWARD DITTRICH, M.D., has served as the Company's Vice President
- - Research/Medical & Regulatory Affairs since November 1996. He served as the
Company's Executive Director of Medical Affairs from May 1996 to November
1996. He served as a Consultant to the Company from 1989 to 1996. Dr.
Dittrich was a full-time faculty member of the University of California, San
Diego, Department of Medicine from 1984 to May 1996. Currently, Dr. Dittrich
practices part-time with the University of California, San Diego where he
holds an appointment as Clinical Professor of Medicine.
JONI HARVEY has served as Vice President of Operations since April 1998.
She served as the Company's Executive Director of Operations from November
1996 to April 1998. From September 1995 to November 1996, she served as
Director of Manufacturing. Ms. Harvey served with Genzyme from February 1995
until rejoining the
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Company in September 1995. From March 1994 to January 1995, Ms. Harvey was
Associate Director of Manufacturing for the Company. She originally joined
the Company in October 1988 as Manager of Manufacturing. From 1980 until
October 1988, Ms. Harvey held various supervisory positions in Quality and
Manufacturing with Baxter Healthcare.
21
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "MB." As of June 16, 1998, there were approximately 1,719 holders of
record of the Company's Common Stock, representing approximately 10,679
beneficial owners. The Company has not paid dividends on its Common Stock. The
following table sets forth the quarterly high and low last sale price for a
share of the Company's Common Stock for the three fiscal years ended March 31,
1998, 1997, and 1996, respectively, as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
<S> <C> <C>
FISCAL 1998 HIGH LOW
-------- -------
First Quarter (4/1 to 6/30) 10 6-5/8
Second Quarter (7/1 to 9/30) 11-15/16 8-5/16
Third Quarter (10/1 to 12/31) 12-3/8 7-7/8
Fourth Quarter (1/1 to 3/31) 10-3/4 7-1/8
FISCAL 1997 HIGH LOW
-------- -------
First Quarter (4/1 to 6/30) 11-7/8 8-1/2
Second Quarter (7/1 to 9/30) 9-1/8 7-1/2
Third Quarter (10/1 to 12/31) 8-3/4 6-1/2
Fourth Quarter (1/1 to 3/31) 14-1/2 7
FISCAL 1996 HIGH LOW
-------- -------
First Quarter (4/1 to 6/30) 8 6-1/4
Second Quarter (7/1 to 9/30) 10 6-1/4
Third Quarter (10/1 to 12/31) 9-1/2 6
Fourth Quarter (1/1 to 3/31) 10 6-3/8
</TABLE>
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Selected Financial Data
FISCAL YEARS ENDED MARCH 31, 1994 1995 1996 1997 1998
- ---------------------------- ---------------------------------------------------------------------
(In thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues:
Revenues under collaborative
Agreements $ 5,713 $ 15,132 $ 2,412 $ 4,500 $ 5,095
Product and royalty revenues 1,056 1,769 647 626 1,151
License Fees 2,015 40 25 5,725 -
---------------------------------------------------------------------
Total Revenues 8,784 16,941 3,084 10,851 6,246
Operating expenses:
Research and development costs 18,110 18,743 13,588 9,902 11,078
Costs of products sold 580 1,608 1,553 4,748 5,791
Selling, general and
administrative expenses 5,743 5,864 5,862 8,052 11,912
Other nonrecurring charges 4,726 3,403 3,110 3,000 -
---------------------------------------------------------------------
Total Expenses 29,159 29,618 24,113 25,702 28,781
Loss from operations (20,375) (12,677) (21,029) (14,851) (22,535)
Interest expense (327) (694) (786) (810) (721)
Interest income 1,902 1,189 1,102 2,377 1,996
(Provision) credit for income taxes - - - - -
---------------------------------------------------------------------
Net loss $ (18,800) $ (12,182) $ (20,713) $ (13,284) $ (21,260)
---------------------------------------------------------------------
---------------------------------------------------------------------
Loss per common share - Basic and diluted $ (1.58) $ (1.02) $ (1.62) $ (0.78) $ (1.19)
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average common
Shares outstanding 11,905 11,999 12,758 16,926 17,793
AS OF MARCH 31, 1994 1995 1996 1997 1998
- -------------- ---------------------------------------------------------------------
Consolidated Balance Sheet Data:
Cash, cash equivalents and
marketable securities $ 29,500 $ 19,718 $ 20,570 $ 41,414 $ 21,338
Working capital 28,117 20,927 18,601 43,843 21,066
Total assets 56,051 50,639 43,829 70,159 51,318
Long-term debt 3,917 8,408 8,610 7,349 6,082
Total stockholders' equity 48,076 36,424 28,962 51,746 31,164
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(REFERENCES TO YEARS ARE TO THE COMPANY'S FISCAL YEARS ENDED MARCH 31.)
OVERVIEW
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Molecular Biosystems, Inc. (the "Company") is a leader in the development,
manufacture and sale of ultrasound contrast imaging agents. These contrast
agents are used primarily to improve the real-time images ("moving pictures") of
organs and body structures, especially the heart, obtained through ultrasound
examinations. The Company's products are designed to increase the diagnostic
usefulness of ultrasound examinations through enhanced visualization of
structures and vasculature, and to reduce the need for diagnostic procedures
that may be more expensive, time-consuming, or invasive.
The Company is the first and only company to obtain marketing approval from
the United States Food and Drug Administration ("FDA") for ultrasound contrast
agents, having gained approvals for ALBUNEX-Registered Trademark- in 1994 and
OPTISON-TM-_ (the Company's second-generation agent) in 1997. In May 1998,
OPTISON received final marketing authorization by the European Agency for the
Evaluation of Medicinal Products ("EMEA") for use in patients with suspected or
known cardiovascular disease. The authorization covers all 15 member states of
the European Union.
OPTISON, a significant improvement over ALBUNEX in terms of efficacy, is
used to detect heart disease by assessing blood flow within the heart
chambers and by identifying the location of the chamber borders and the
movement of the chamber walls ("cardiac function"). To increase the potential
applications of OPTISON, MBI is conducting Phase 2 clinical trials to
evaluate the product's efficacy in determining whether the heart muscle is
receiving an adequate blood supply ("myocardial perfusion"). The multiple
Phase 2 trials include use of OPTISON in the emergency room for patients
presenting with chest pain, and in various forms of stress echocardiography.
Results using OPTISON in each of these applications suggest a close agreement
with nuclear SPECT imaging for the detection of ischemia by wall motion and
perfusion. Furthermore, the results indicate that use of OPTISON could help
to "rescue" a large proportion of uninterpretable non-contrast studies,
thereby reducing the need for additional, more expensive and time consuming
testing. The Company believes the information regarding perfusion will
enable cardiologists to diagnose heart attacks and coronary artery disease
more accurately and safely than is currently feasible. MBI is also conducting
Phase 2 clinical studies using OPTISON to detect abnormalities in other
organs, such as the liver.
Operating losses may occur for at least the next several years due to
continued requirements for research and development including preclinical
testing and clinical trials, regulatory activities and the costs of
commercializing new products. The magnitude of the losses and the time required
by the Company to achieve profitability are highly dependent on the market
acceptance of OPTISON and are therefore uncertain. There can be no assurance
that the Company will be able to achieve profitability on a sustained basis or
at all. Results of operations may vary significantly from quarter to quarter
depending on, among other things, the progress, if any, of the Company's
research and development efforts, the timing of milestone payments, the timing
of certain expenses and the establishment of collaborative research agreements.
REVENUE RECOGNITION
Historically the Company has earned revenues from three primary sources:
revenues under collaborative agreements, product revenues and license fee
revenues.
REVENUES UNDER COLLABORATIVE AGREEMENTS. Revenues under collaborative
agreements have been the primary source of revenues for the Company in the past.
They consist of two types of revenues: (i) milestone payments which are earned
on the achievement of certain product development and territorial milestones,
(ii) payments received from Mallinckrodt, Inc. ("Mallinckrodt") under the
Company's Amended and Restated Distribution Agreement ("ARDA") to support
clinical trials, regulatory submissions and product development.
PRODUCT AND ROYALTY REVENUES. Product revenues are based upon the Company's
sales to Mallinckrodt and are recognized upon shipment of the product. Product
revenues in 1996 and 1997 also included sales to Shionogi & Co., Ltd.
("Shionogi"). The transfer prices for the Company's sales of ALBUNEX to
Mallinckrodt and Shionogi were determined under the respective agreements and
were approximately equal to 40% of Mallinckrodt's average net sales price to its
end users of the product and 30% of Shionogi's net sales to its end users.
The transfer price for the Company's sales of OPTISON to Mallinckrodt is
approximately equal to 40% of Mallinckrodt's average net sales price to its end
users of the product for the immediately preceding quarter. Pursuant to ARDA,
the average net sales price to end users is calculated by dividing the net sales
for the preceding quarter by the total number of units shipped to end users
whether paid for or shipped as samples. Consistent with industry practice, the
Company considers samples a marketing expense and as such the cost of samples is
recorded as selling, general and administrative expense.
24
<PAGE>
Royalty revenues are pursuant to a licensing agreement between the Company and
Abbott Laboratories.
LICENSE FEES. License fees are recognized at the time of receipt and are
generally received in conjunction with the grant of product development,
marketing, manufacturing and/or distribution rights to one of the Company's
technologies.
IMPACT OF THE YEAR 2000 ISSUE
The Company has conducted a comprehensive review of its computer systems
to identify the systems that could be affected by the "Year 2000" issue and
has implemented a plan to resolve the issue at a cost which is not expected
to be material. The Company is also in the process of doing a comprehensive
review of its vendors, service providers, and collaborative partners and will
address any issues that arise during this review. The Year 2000 problem is
the result of computer programs being written using two digits rather than
four digits to define the applicable year. Any of the Company's programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a major system failure
or miscalculations. The Company presently believes that the Year 2000 problem
will not pose significant operational problems for the Company's computer
systems.
RESULTS OF OPERATIONS
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997. Revenues under collaborative
agreements were $5.1 million for the fiscal year ended March 31, 1998, compared
to $4.5 million for the fiscal year ended March 31, 1997. This increase is
primarily due to an increase in the quarterly payments from Mallinckrodt to
$1.25 million over $1.0 million in the prior year's first two quarters. These
revenues in both years consist of quarterly payments to support clinical trials,
regulatory submissions and product development received from Mallinckrodt under
ARDA.
Product and royalty revenues were $1.2 million for fiscal year 1998, compared
to $626,000 for the prior year. Product revenues in the current year are based
on the Company's sales to Mallinckrodt and are recognized upon shipment of the
product. Product revenues in 1997 also included sales to Shionogi, also
recognized upon shipment of the product. The increase in product revenues for
fiscal year 1998 as compared to fiscal year 1997 results primarily from the
market introduction of OPTISON in the fourth quarter which added revenues of
approximately $700,000. Royalty revenues are pursuant to a license agreement
between the Company and Abbott Laboratories.
There were no license fees in fiscal year 1998 compared to $5.7 million in
fiscal year 1997. The revenues in the prior year consist of payments from
Mallinckrodt pursuant to an amendment to ARDA that the Company entered into with
Mallinckrodt in December 1996. The amendment extended Mallinckrodt's exclusive
territory to include the territory that the Company had formerly licensed to
Nycomed Imaging AS ("Nycomed") consisting of Europe, Africa, India and parts of
Asia.
Costs of products sold totaled $5.8 million for fiscal year 1998, resulting in
a negative gross profit margin. This negative gross profit margin was due to
the fact that the current low levels of production are insufficient to cover the
Company's fixed manufacturing overhead expenses. For fiscal year 1997, costs of
products sold totaled $4.7 million. The Company anticipates an increase in
gross profit margins if and when OPTISON sales volumes increase as OPTISON
obtains market acceptance. The increase in sales volume would permit the fixed
costs included in manufacturing overhead to be allocated over a larger number of
vials produced. Manufacturing fixed costs are currently running at an annual
rate of approximately $5.5 million. The amount of any increase in the Company's
margins and the time required by the Company to achieve higher margins are
highly dependent on the regulatory approval and market acceptance of current and
future products and are therefore uncertain.
The Company's research and development costs totaled $11.1 million for fiscal
year 1998 as compared to $9.9 million for fiscal year 1997. The increase of 12%
is due to additional research and development costs associated with the
Company's product development efforts.
Selling, general and administrative expenses totaled $11.9 million in fiscal
year 1998 as compared to $8.1 million in fiscal year 1997. This increase of 47%
is primarily due to increased legal expenses.
During fiscal year 1998, the Company did not incur other nonrecurring charges
compared to $3 million for the prior year related to the reacquisition of
license rights from Nycomed.
25
<PAGE>
Interest expense for fiscal years 1998 and 1997 amounted to $721,000 and
$810,000, respectively. Interest expense consists of mortgage interest on the
Company's manufacturing building and interest related to a note payable, secured
by the tangible assets of the Company, which bears interest at the prime rate
plus 1% and is payable in monthly installments of principal plus interest over
five years. The interest rate on the note was 9.5% in March 1998.
Interest income for fiscal year 1998 was $2.0 million compared to $2.4 million
in fiscal year 1997. This decrease is due to lower average cash balances and
marketable securities balances.
No tax benefit has been recognized for fiscal years 1998 or 1997 as the
Company had fully utilized its operating loss carryback ability in 1993. As of
March 31, 1998, the Company had federal and state operating loss carryforwards
of approximately $90.5 million and $27.2 million, respectively. Realization of
future tax benefits from utilization of net operating loss carryforwards is
uncertain.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996. Revenues under collaborative
agreements were $4.5 million for the fiscal year ended March 31, 1997, compared
to $2.4 million for the fiscal year ended March 31, 1996. This increase was due
to the receipt in 1997 of 4 quarterly payments from Mallinckrodt to support
clinical trials versus 2 quarterly payments in 1996. The revenues in 1997
consisted solely of quarterly payments to support clinical trials, regulatory
submissions and product development received from Mallinckrodt under ARDA.
Product and royalty revenues were $626,000 for fiscal year 1997, compared to
$647,000 for 1996. Product revenues were based on the Company's sales to
Mallinckrodt and Shionogi and were recognized upon shipment of the product.
Royalty revenues were pursuant to a license agreement between the Company and
Abbott Laboratories.
License fees were $5.7 million and $25,000 in fiscal year 1997 and 1996,
respectively. License fee revenues in fiscal year 1997 consisted of payments
from Mallinckrodt pursuant to the amendment to ARDA that the Company entered
into with Mallinckrodt in December 1996.
Costs of products sold totaled $4.7 million for fiscal year 1997, resulting in
a negative gross profit margin. This negative gross profit margin was due to
the fact that the low levels of production were insufficient to cover the
Company's fixed manufacturing overhead expenses. For the fiscal year ended
March 31, 1996, costs of products sold totaled $1.6 million. In fiscal year
1996, certain expenses related to the development of the manufacturing process
were recorded as research and development costs. Because the Company had left
the pilot manufacturing phase, these costs were classified as costs of goods
sold in fiscal 1997.
The Company's research and development costs totaled $9.9 million for the year
ended March 31, 1997 as compared to $13.6 million for the year ended March 31,
1996. The decrease of 27% was due to the classification in fiscal year 1996 of
certain expenses associated with the manufacturing of the product as research
and development costs as they represented the cost of developing the Company's
manufacturing process.
Selling, general and administrative expenses totaled $8.1 million in fiscal
year 1997 as compared to $5.9 million in fiscal year 1996. This increase was
due in part to increased litigation expenses in addition to increased
compensation costs.
During fiscal year 1997, the Company's other nonrecurring charges totaled
$3 million as compared to $3.1 million for the prior year. In December 1996,
the Company and Mallinckrodt amended ARDA to expand the geographical scope of
Mallinckrodt's exclusive marketing and distribution rights for ALBUNEX,
OPTISON and related products to include the territory the Company had
previously licensed to Nycomed. As a result of the amendment, the Company
recorded a one-time charge of $3 million related to the reacquisition of its
license rights from Nycomed. In fiscal year 1996, the Company recorded
one-time charges related to the conclusion of arbitration with Bracco S.p.A.,
the write off of license fees associated with discontinued products and a
write down to the sale price of two buildings that were subsequently sold in
March 1996.
Interest expense for fiscal years 1997 and 1996 amounted to $810,000 and
$786,000, respectively. Interest expense consisted of mortgage interest on the
Company's manufacturing building and interest related to a note payable which
bears interest at prime plus 1% and is payable in monthly installments of
principal plus interest over five years. The interest rate on the note was 9.50%
in March 1997.
26
<PAGE>
Interest income for fiscal year 1997 was $2.4 million compared to $1.1 million
in fiscal year 1996. This significant increase was due to the interest earned
related to higher average cash balances and marketable securities balances as a
result of the Company's public offering in May 1996.
No tax benefit was recognized for fiscal 1997 or 1996 as the Company had fully
utilized its operating loss carryback ability in 1993. As of March 31, 1997, the
Company had federal and state operating loss carryforwards of approximately
$84.4 million and $26.6 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had net working capital of $21.1 million
compared to $43.8 million at March 31, 1997. Cash, cash equivalents and
marketable securities were $21.3 million at March 31, 1998 compared to $41.4
million at March 31, 1997.
In an agreement dated March 31, 1998, the Company entered into a
cooperative development and marketing agreement with Chugai Pharmaceutical
Co., Ltd. ("Chugai") of Japan. The parties entered into this strategic
alliance which covers Japan, Taiwan and South Korea, to develop OPTISON
(which may be marketed under a different name) and ORALEX, as well as related
products. The Company granted Chugai an exclusive license to develop,
manufacture, and market these products in the subject territory, for which
the Company received an upfront license fee of $14 million. With respect to
licensed products manufactured by Chugai, Chugai will pay the Company a
royalty on net sales. For licensed products manufactured by the Company, the
Company will receive royalties on net sales, the amount of which will depend
upon the sales volume, in addition to a transfer price based on average net
sales per unit from the previous quarter. Additionally, Chugai purchased
691,883 shares of the Company's common stock at a premium of 40% over the
then-prevailing market price. The equity investment was valued at $8.3
million. The Company is also eligible to receive milestone payments of up to
$20 million based on Chugai's achievement of certain Japanese product
development and regulatory goals.
During fiscal year 1998, the Company used $17.5 million cash for operating
requirements, which was funded primarily by $20.6 million of marketable
securities that matured during fiscal 1998. Significant cash uses included an
increase in inventories of $1.6 million principally related to the commercial
launch of OPTISON in the U.S. and Europe, purchases of property and equipment of
$1.4 million, and $2.0 million for the reacquisition of license rights from
Shionogi. Cash was provided primarily by $1.3 million in proceeds from a
sale/leaseback transaction related to equipment financing, receipt of $1.6
million in contract revenue from Chugai, an increase of $2.8 million in accounts
payable and accrued liabilities related to research and development activity for
future products and an increase in legal activity.
On September 7, 1995, the Company entered into an Amended and Restated
Distribution Agreement ("ARDA") and a related investment agreement with
Mallinckrodt which will provide the Company with between $33.0 million and $42.5
million. Under the terms of the agreement, Mallinckrodt is obligated to make
payments to the Company totaling $20.0 million over four years to support
clinical trials, related regulatory submissions and associated product
development of the licensed products, which include, but are not limited to,
ALBUNEX and OPTISON. These payments will be made in 16 quarterly installments of
$1.0 million for the first four quarters, $1.25 million for the following eight
quarters and $1.5 million for the final four quarters. The payments may be
accelerated in the event that the Company's cumulative outlays for clinical
trials are in excess of the amounts received at any point in time. However, the
quarterly payments may not be postponed. The first 11 quarterly payments have
been received by the Company.
In September 1996, the Company entered into an agreement with Shionogi
pursuant to which the Company reacquired all rights to manufacture, market and
sell its ALBUNEX family of products in the territory, consisting of Japan,
Taiwan and South Korea, formerly exclusively licensed to Shionogi. Under the
agreement, the company paid $3 million to Shionogi and agreed to pay an
additional $5.5 million over the next three years, of which $2 million had been
paid at March 31, 1998.
Capital expenditures for facilities, laboratory equipment, furniture and
fixtures were $1.4 million, $726,000, and $2.4 million for fiscal years 1998,
1997 and 1996, respectively. Expenditures in all three fiscal years consisted
primarily of building improvements and equipment for aseptic manufacturing
facilities being constructed for the manufacture of OPTISON and other products.
In June 1997, the Company entered into an equipment leasing agreement with
Mellon US Leasing ("Mellon") for a lease line of $1.6 million with a term of 48
months. The outstanding balance on this line of credit at March 31, 1998 was
$1.3 million.
27
<PAGE>
The Company currently leases one of its operating facilities in San Diego. The
lease requires aggregate payments of approximately $648,000 through fiscal year
2000.
For the next several years, the Company expects to incur substantial
additional expenditures associated with product development. The Company
anticipates that its existing resources, plus payments under its collaborative
agreements, will enable the Company to fund its operations for at least the next
18 months. The Company continually reviews its product development activities in
an effort to allocate its resources to those products 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,
intellectual property rights 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. The Company may pursue a
number of options to raise additional funds, including borrowings; lease
arrangements; collaborative research and development arrangements; the licensing
of product rights to third parties; or additional public and private financing,
as 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.
The Company believes that inflation and changing prices have not had a
material effect on operations for fiscal years 1998, 1997 and 1996 and that the
impact of government regulation on the Company is not materially different from
the impact on other similar enterprises.
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <S>
Report of Independent Public Accountants 30
Consolidated Balance Sheets as of March 31, 1997 and 1998 31
Consolidated Statements of Operations for the Fiscal Years Ended
March 31, 1996, 1997 and 1998 32
Consolidated Statements of Stockholders' Equity for the Fiscal Years
Ended March 31, 1996, 1997 and 1998 33
Consolidated Statements of Cash Flows for the Fiscal Years Ended
March 31, 1996, 1997 and 1998 34
Notes to Consolidated Financial Statements 35
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Molecular Biosystems, Inc.:
We have audited the accompanying consolidated balance sheets of
Molecular Biosystems, Inc. (a Delaware corporation) and subsidiaries as of
March 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
in the period ended March 31, 1998. 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 subsidiaries as of March 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended March 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
May 18, 1998
30
<PAGE>
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 587 $ 1,064
Marketable securities, available-for-sale (Note 2) 40,827 20,274
Accounts and notes receivable 902 1,498
License rights (Note 7) 8,500 8,500
Inventories 342 1,902
Prepaid expenses and other assets 249 400
--------- ---------
Total current assets 51,407 33,638
--------- ---------
Property and equipment, at cost:
Building and improvements 14,544 14,412
Equipment, furniture and fixtures 4,567 4,364
Construction in progress 511 471
--------- ---------
19,622 19,247
Less: Accumulated depreciation and amortization 6,434 7,073
--------- ---------
Total property and equipment 13,188 12,174
--------- ---------
Other assets:
Patents and license rights, net of amortization
$1,114 and $87, respectively (Notes 5 and 8) 341 320
Certificate of deposit, pledged (Notes 2 and 4) 3,000 3,000
Other assets, net 2,223 2,186
--------- ---------
Total other assets 5,564 5,506
--------- ---------
$ 70,159 $ 51,318
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,267 $ 1,272
Accounts payable and accrued liabilities (Notes 1
and 5) 4,684 7,498
Compensation accruals 1,613 2,227
Deferred Contract Revenue - 1,575
--------- ---------
Total current liabilities 7,564 12,572
--------- ---------
Long-term debt, net of current portion (Note 4) 7,349 6,082
--------- ---------
Other noncurrent liabilities 3,500 1,500
--------- ---------
Commitments and contingencies (Note 5)
Stockholders' equity (Note 6):
Common Stock, $.01 par value, 40,000,000 shares
Authorized, 17,745,897 and 17,846,237 shares
Issued and outstanding, respectively 177 178
Additional paid-in capital 127,483 128,145
Accumulated deficit (75,469) (96,729)
Unrealized loss on available-for-sale securities (82) (67)
Less 40,470 shares of treasury stock, at cost (363) (363)
--------- ---------
Total stockholders' equity 51,746 31,164
--------- ---------
$ 70,159 $ 51,318
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
31
<PAGE>
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
----------------------------------------
1996 1997 1998
<S> <C> <C> <C>
Revenues (Note 7):
Revenues under collaborative agreements $ 2,412 $ 4,500 $ 5,095
Product and royalty revenues 647 626 1,151
License fees 25 5,725 -
-------- -------- --------
3,084 10,851 6,246
-------- -------- --------
Operating expenses:
Research and development costs (Note 7) 13,588 9,902 11,078
Costs of products sold 1,553 4,748 5,791
Selling, general and administrative expenses 5,862 8,052 11,912
Other nonrecurring charges (Note 8) 3,110 3,000 -
-------- -------- --------
24,113 25,702 28,781
-------- -------- --------
Loss from operations (21,029) (14,851) (22,535)
Interest expense (786) (810) (721)
Interest income 1,102 2,377 1,996
-------- -------- --------
Net loss $(20,713) $(13,284) $(21,260)
-------- -------- --------
-------- -------- --------
Loss per common share - Basic and diluted $ (1.62) $ (0.78) $ (1.19)
-------- -------- --------
-------- -------- --------
Weighted average common shares
Outstanding 12,758 16,926 17,793
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
32
<PAGE>
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
COMPREHENSIVE ---------------------- PAID-IN ACCUMULATED TREASURY
LOSS SHARE AMOUNT CAPITAL DEFICIT STOCK
--------------- --------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 11,999,561 $ 120 $ 78,422 $ (41,472) $ (59)
Comprehensive Loss
Net loss $ (20,713) -- -- -- (20,713) --
Unrealized gain on available-for-sale
securities (Note 2) 112 -- -- -- -- --
---------------
Comprehensive Loss (20,601)
---------------
Purchase of treasury stock (Note 6) -- -- (79) -- (108)
Issuance of shares in settlement of
stockholder suit 172,414 2 1,498 -- --
Proceeds from sale of Common Stock
(Note 7) 1,118,761 11 11,591 -- --
Exercise of stock options 5,450 -- 36 -- --
--------- ----- ----------- ------------- -----
Balance at March 31, 1996 13,296,186 $ 133 $ 91,468 $ (62,185) $ (167)
Comprehensive Loss
Net loss (13,284) -- -- -- (13,284) --
Unrealized loss on available-for-sale
securities (Note 2) (76) -- -- -- -- --
---------------
Comprehensive Loss (13,360)
---------------
Proceeds from Public Offering 4,140,000 41 34,045 -- --
Purchase of treasury stock (Note 6) -- -- (85) -- (196)
Exercise of stock options 295,500 3 1,928 -- --
Issuance of stock grants 14,211 -- 127 -- --
--------- ----- ----------- ------------- -----
Balance at March 31, 1997 17,745,897 $ 177 $ 127,483 $ (75,469) $ (363)
Comprehensive Loss
Net loss (21,260) -- -- -- (21,260) --
Unrealized gain on available-for-sale
securities (Note 2) 15 -- -- -- -- --
---------------
Comprehensive Loss (21,245)
---------------
Exercise of stock options 100,340 1 662 -- --
--------------- --------- ----- ----------- ------------- -----
Balance at March 31, 1998 17,846,237 $ 178 $ 128,145 $ (96,729) $ (363)
--------- ----- ----------- ------------- -----
--------- ----- ----------- ------------- -----
<CAPTION>
NOTES
ACCUMULATED OTHER RECEIVABLE FROM
COMPREHENSIVE SALE OF COMMON
INCOME (LOSS) STOCK TOTAL
----------------- --------------- ---------
<S> <C> <C> <C>
Balance at March 31, 1995 $ (118) $ (469) $ 36,424
Comprehensive Loss
Net loss -- -- (20,713)
Unrealized gain on available-for-sale
securities (Note 2) 112 -- 112
----- ----- ---------
Comprehensive Loss
Purchase of treasury stock (Note 6) -- 188 1
Issuance of shares in settlement of
stockholder suit -- -- 1,500
Proceeds from sale of Common Stock
(Note 7) -- -- 11,602
Exercise of stock options -- -- 36
----- ----- ---------
Balance at March 31, 1996 $ (6) $ (281) $ 28,962
Comprehensive Loss
Net loss -- -- (13,284)
Unrealized loss on available-for-sale
securities (Note 2) (76) -- (76)
----- ----- ---------
Comprehensive Loss
Proceeds from Public Offering (Note 6) -- -- 34,086
Purchase of treasury stock (Note 6) -- 281 --
Exercise of stock options -- -- 1,931
Issuance of stock grants -- -- 127
----- ----- ---------
Balance at March 31, 1997 $ (82) $ -- $ 51,746
Comprehensive Loss
Net loss -- -- (21,260)
Unrealized gain on available-for-sale
securities (Note 2) 15 -- 15
----- ----- ---------
Comprehensive Loss
----- ----- ---------
Exercise of stock options -- -- 663
----- ----- ---------
Balance at March 31, 1998 $ (67) $ -- $ 31,164
----- ----- ---------
----- ----- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
33
<PAGE>
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
----------------------------
<S> <C> <C> <C>
1996 1997 1998
Cash flows from operating activities:
Net loss $ (20,713) $ (13,284) $ (21,260)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,217 1,435 1,085
Loss on disposals/write-downs of property and equipment 680 1 20
Loss on write-off of license fees related to discontinued products 1,025 - -
Write-off of former Nycomed territory license rights - 3,000 -
Forgiveness of note receivable from sale of Common Stock 56 109 -
Changes in operating assets and liabilities:
Receivables 4,863 29 (702)
Inventories 773 280 (1,560)
Prepaid expenses and other assets 36 (623) (45)
Accounts payable and accrued liabilities (1,626) 721 2,814
Deferred contract revenue - - 1,575
Compensation accruals 620 582 614
---------- ---------- --------
Cash used in operating activities (12,069) (7,750) (17,459)
---------- ---------- --------
Cash flows from investing activities:
Purchases of property and equipment (2,397) (726) (1,387)
Proceeds from sale of property and equipment 6,484 4 -
Write off of patents and license rights - - 17
Additions to patents and license rights (1,045) (226) (32)
Acquisition of license rights from Shionogi - (3,000) (2,000)
Acquisition of license rights from Nycomed - (2,000) -
(Increase) decrease in other assets (28) (269) 37
(Increase) decrease in marketable securities 4,920 (32,876) 20,569
---------- ---------- --------
Cash provided by (used for) investing activities 7,934 (39,093) 17,204
---------- ---------- --------
Cash flows from financing activities:
Proceeds from sale/leaseback transaction - - 1,331
Net proceeds from public offering of Common Stock - 34,086 -
Net proceeds from issuance of Common Stock 11,638 2,058 663
Long-term debt proceeds 1,438 - -
Principal payments on long-term debt (281) (1,256) (1,262)
---------- ---------- --------
Cash provided by financing activities 12,795 34,888 732
---------- ---------- --------
Increase (decrease) in cash and cash equivalents 8,660 (11,955) 477
Cash and cash equivalents, beginning of year 3,882 12,542 587
---------- ---------- --------
Cash and cash equivalents, end of year $ 12,542 $ 587 $ 1,064
---------- ---------- --------
---------- ---------- --------
Supplemental cash flow disclosures:
Interest income received $ 1,141 $ 1,609 $ 2,101
---------- ---------- --------
---------- ---------- --------
Interest paid $ 780 $ 804 $ 715
---------- ---------- --------
---------- ---------- --------
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS-
Molecular Biosystems, Inc. ("MBI" or the "Company") discovers, develops
and manufactures proprietary diagnostic ultrasound imaging agents. The
Company's continuing operations have been unprofitable since 1992.
Operating losses may occur for at least the next several years due to
continued requirements for research and development, including
preclinical testing and clinical trials, regulatory activities and the
high costs of commercialization activities. The magnitude of the losses
and the time required by the Company to achieve profitability are highly
dependent on the market acceptance of OPTISON-TM-_and other future
products and are therefore uncertain. The Company does not foresee
product revenues from sales of ALBUNEX-Registered Trademark-, the
Company's first product and the first ultrasound imaging agent available
in the United States, as resulting in profitable operations for the
Company. There is no assurance that the Company will be able to achieve
profitability on a sustained basis or at all.
PRINCIPLES OF CONSOLIDATION-
The Consolidated Financial Statements include the accounts of Molecular
Biosystems, Inc. and its wholly owned subsidiaries. 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.
USE OF ESTIMATES-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
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, which have been the primary source
of revenues for the Company, consist of two types of revenues. The first
type, milestone payments, is earned in connection with research activities
performed under the terms of research and development license agreements.
Revenue is recognized on the achievement of certain milestones, some of
which relate to obtaining regulatory approvals. Accordingly, the estimated
dates of the milestone achievements are subject to revision based on
periodic evaluations by the Company and its partners of the attainment of
specified milestones, including the status of the regulatory approval
process. Advance payments received in excess of amounts earned are
classified as deferred contract revenues and the resulting revenues are
recognized based on work performed at a predetermined rate or level of
expense reimbursement.
Additionally, under the terms of the Amended and Restated Distribution
Agreement ("ARDA") entered into in September 1995, Mallinckrodt, Inc.
("Mallinckrodt") will pay the Company $20.0 million over four years to
further the development of OPTISON (the Company's second-generation
product) and related products. These payments will be made in 16 quarterly
installments starting at $1.0 million for the first four quarters, $1.25
million for the following eight quarters and $1.5 million for the final
four quarters. Pursuant to the agreement, half of each payment is
designated for clinical development expenses and will be recorded as
deferred revenue until such expenses are incurred, and the remaining half
of each payment will be recognized as research revenue when received.
35
<PAGE>
REVENUE RECOGNITION FOR PRODUCT SOLD-
The Company recognizes revenue when goods are shipped to its customer,
Mallinckrodt. The transfer price for the Company's sales of OPTISON to
Mallinckrodt is equal to 40% of Mallinckrodt's average net sales price
to its end users of the product for the immediately preceding quarter.
Pursuant to ARDA, the average net sales price to end users is calculated
by dividing the net sales for the preceding quarter by the total number
of units shipped to end users whether paid for or shipped as samples.
Consistent with industry practice, the Company considers samples a
marketing expense and as such the cost of samples is recorded as
selling, general and administrative expense.
REVENUE RECOGNITION FOR LICENSE FEES-
The Company recognizes revenue when license fees are received, provided
the Company has no future obligations.
INCOME TAXES-
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for
Income Taxes." 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
differently in the Company's financial statements or tax returns.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
CASH EQUIVALENTS-
Cash equivalents include marketable securities with original maturities
of three months or less when acquired. The Company has not realized any
losses on its cash equivalents.
MARKETABLE SECURITIES
In accordance with Statement of Financial Accounting Standards ("SFAS")
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.
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
reviewed and modified to take advantage of trends in yields and interest
rates.
INVENTORIES-
Inventories are stated at lower of cost (first-in, first-out) or market,
and consist of the following major classes (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1997 1998
<S> <C> <C>
Raw materials and supplies $ 253 $ 1,639
Work in process 45 74
Finished goods 44 189
------ -------
$ 342 $ 1,902
------ -------
------ -------
</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, 31 years for buildings and improvements and the
term of the lease for leasehold improvements.
36
<PAGE>
PATENTS AND LICENSE RIGHTS AND OTHER ASSETS-
Patents and license rights are amortized on the straight-line method
over their estimated useful lives of five to ten years.
In June 1989, the Company prepaid $2.0 million in royalties on the first
$66.6 million of sales of ALBUNEX and OPTISON in the United States.
Included in other assets at March 31, 1997 and 1998 is approximately
$1.9 million which is the portion of this prepayment which has not yet
been expensed. Additionally, other assets at March 31, 1997 and 1998
include $300,000 of real estate investment related to an employment
agreement with one of the Company's officers.
The Company periodically reevaluates the original assumptions and
rationale utilized in the assessment of the carrying value and estimated
lives of these and other long-lived assets. The determinants used for
this evaluation include management's estimate of the asset's ability to
generate positive income and cash flow as well as the strategic
significance of the respective assets.
IMPAIRMENT OF LONG-LIVED ASSETS-
The Company accounts for long lived assets in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121).
The statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES-
Accounts payable and accrued liabilities consist of the following major
classes (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1998
<S> <S> <C>
Accrued legal and professional fees 1,250 1,540
License rights payable and related fees (Note 7) 2,000 2,000
Accounts payable - trade 1,162 3,394
Other miscellaneous accruals 272 565
------ ------
$ 4,684 $ 7,499
------ ------
------ ------
</TABLE>
STOCK BASED COMPENSATION-
The Company has elected to adopt the disclosure only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). Accordingly the Company accounts
for its stock based compensation plans under the provisions of APB No.
25.
LOSS PER SHARE-
Basic and diluted loss per common share has been computed by dividing the
loss by the weighted average number of common shares outstanding during the
years. Warrants and options do not impact the per share loss since they
would be antidilutive. In March 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128, "Earnings
per Share" (SFAS 128), which changes the method of calculating earnings per
share. SFAS 128 is effective for financial statements issued after
December 15, 1997. The earnings per share of the Company for the years
ended March 31, 1996, 1997 and 1998 would not be materially different under
SFAS 128 as that presented therein.
37
<PAGE>
COMPREHENSIVE INCOME-
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," was issued. The Company has adopted
this standard which requires the display of comprehensive income and its
components in the financial statements. The Company has chosen to disclose
Comprehensive Loss, which encompasses net loss and unrealized gains and
losses on available-for-sale securities, in the Consolidated Statements of
Stockholders' Equity. Prior years have been restated to conform to the
SFAS No. 130 requirements.
2. MARKETABLE SECURITIES
Investments are recorded at estimated fair market value, and consist
primarily of treasury securities, government agency securities and
corporate obligations. The Company has classified all of its investments
as available-for-sale securities. The following table summarizes available-
for-sale securities at March 31, 1997 (in thousands):
<TABLE>
<CAPTION>
COST NET OF
PREMIUMS/ GROSS GROSS ESTIMATED
DISCOUNTS UNREALIZED UNREALIZED FAIR
AMORTIZED GAINS LOSSES VALUE
------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. treasury securities and obligations
of U.S. government agencies $ 3,503 $ - $ (8) $ 3,495
Corporate obligations 37,406 - (74) 37,332
------------- ---------- ---------- ----------
Marketable securities available-for-sale $ 40,909 $ - $ (82) $ 40,827
------------- ---------- ---------- ----------
------------- ---------- ---------- ----------
</TABLE>
The following table summarizes available-for-sale securities at March 31,
1998 (in thousands):
<TABLE>
<CAPTION>
COST NET OF
PREMIUMS/ GROSS GROSS ESTIMATED
DISCOUNTS UNREALIZED UNREALIZED FAIR
AMORTIZED GAINS LOSSES VALUE
------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. treasury securities and obligations
of U.S. government agencies $ 4,501 $ - $ (6) $ 4,495
Corporate obligations 15,840 - (61) 15,779
------------- ---------- ---------- ----------
Marketable securities available-for-sale $ 20,341 $ - $ (67) $ 20,274
------------- ---------- ---------- ----------
------------- ---------- ---------- ----------
</TABLE>
There were no gross realized gains or losses on sales of available-for-sale
securities for the year ended March 31, 1998.
The amortized cost and estimated fair value of debt and marketable
securities at March 31, 1998, 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
PREMIUMS/ ESTIMATED
DISCOUNTS FAIR
AMORTIZED VALUE
<S> <C> <C>
Due in one year or less $ 17,665 $ 17,601
Due after one year through three years 2,676 2,673
--------- ---------
$ 20,341 $ 20,274
--------- ---------
</TABLE>
38
<PAGE>
At March 31, 1998 a $3 million certificate of deposit was held as a
compensating balance under the Company's debt agreement (see note 4).
3. INCOME TAXES
As described in Note 1, the Company uses the asset and liability method of
computing deferred income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
The effective income tax rate on the loss before income taxes differs from
the statutory U.S. federal income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
--------------------------------------
1996 1997 1998
<S> <C> <C> <C>
Computed statutory tax $(7,036) $(4,517) $(7,342)
State income taxes (1,270) (843) (1,275)
Tax exempt interest (74) (29) (64)
Losses without income tax benefit 8,376 5,362 8,634
Other 4 27 47
-------- -------- --------
Provision for income taxes $ - $ - $ -
-------- -------- --------
</TABLE>
At March 31, 1998, the Company has deferred tax assets of approximately
$38.3 million relating to the following tax loss carryforwards for income
tax purposes (in thousands):
<TABLE>
<CAPTION>
EXPIRATION
AMOUNT DATES
----------- ----------
<S> <C> <C>
Federal ($90,480) and state ($27,170) net operating losses $ 117,650 1998-2013
Research and development credit - federal 2,150 1998-2013
Research and development credit - state 976 1998-2013
Alternative minimum tax credit 300 Indefinite
</TABLE>
For financial reporting purposes, a valuation allowance has been recognized
to offset the deferred tax assets related to the carryforwards. If
realized, approximately $1.0 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.
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1998
<S> <C> <C>
Note payable - due 2004 $ 3,816 $ 3,754
Note payable - due 2001 4,800 3,600
-------- --------
8,616 7,354
Less - current portion 1,267 1,272
-------- --------
$ 7,349 $ 6,082
-------- --------
-------- --------
</TABLE>
39
<PAGE>
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 8 percent
at March 31, 1997 and 1998. 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. As of March
31, 1998, maturities of this note in each of the next five fiscal years
are: $72,000, $79,000, $85,000, $92,000 and $100,000.
The note payable due in 2001 bears interest at the prime rate plus one
percent (9.50 percent at March 31, 1998) and is payable in monthly
installments of $100,000 plus accrued interest through April, 2001. The
loan contains covenants relating to cashflow coverage, minimum cash
balances and requires a compensating balance of $3.0 million. The loan is
secured by the tangible assets of the Company.
5. COMMITMENTS AND CONTINGENCIES
LEASES
The Company conducts certain of its operations in leased premises and also
leases equipment through lease financing. Terms of the leases, including
renewal options, vary by lease. Future minimum rental commitments for all
noncancelable operating leases that have initial or remaining lease terms
in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, AMOUNT
<S> <C>
1999 $ 730
2000 673
2001 378
2002 234
2003 2
--------
Total minimum lease payments $ 2,017
--------
--------
</TABLE>
In fiscal 1998, the Company entered into a new lease for its corporate
headquarters. The lease expires in February 2000. The Company is
obligated to pay real estate taxes, insurance and utilities on its portion
of the leased property. Rental expense for the years ended March 31, 1996,
1997 and 1998 was $350,000, $194,000 and $245,000, respectively.
In June 1997, the Company entered into an equipment leasing agreement with
Mellon US Leasing ("Mellon") for a lease line of $1.6 million with a term
of 48 months. The outstanding balance on this line of credit at March 31,
1998 was $1.3 million.
LICENSE AGREEMENTS
The Company has entered into license agreements requiring future royalty
payments ranging from 1 1/4% to 3% of specified product sales relating to
the licensed technologies. Additionally, there is a minimum royalty
payment of $600,000 due to one licensor in each calendar year.
In April 1998, the Company and Chugai Pharmaceutical Co., Ltd.
("Chugai") entered into a strategic alliance to develop and
commercialize OPTISON (which may be marketed under a different name) and
ORALEX-Registered Trademark- in Japan, Taiwan and South Korea. In
exchange for granting to Chugai a royalty-based license to market these
products in the named countries, MBI received an upfront license fee
from Chugai of $14 million. In addition, Chugai made an equity
investment in MBI common stock. MBI is eligible to receive milestone
payments of up to $20 million based on the achievement of certain
product development goals and will receive royalties from Chugai from
the sale of commercialized products in the territory.
PATENT MATTERS
The Company considers the protection of its proprietary technologies to be
material to its business prospects. The Company pursues a comprehensive
program of patent and trademark prosecution for its products both in the
United States and in other countries where the Company believes that
significant market opportunities exist.
40
<PAGE>
The Company has an exclusive license to certain United States and foreign
patents relating to gas-filled sonicated albumin microspheres from Steven
B. Feinstein, M.D. (see - Business - Marketing and Licensing Agreements -
Feinstein License) The Company itself owns additional United States and
foreign patents covering ALBUNEX that broaden the product coverage of its
license. Certain of these additional patents cover the Company's continuous
flow sonication manufacturing process. The European equivalents of these
manufacturing patents were challenged in an opposition proceeding brought
by Andaris Ltd. which was decided in the Company's favor in January 1996.
Andaris has appealed the decision. Andaris has also filed an opposition
against the Company's ALBUNEX composition patent in Europe, and Andaris
and two other parties have filed a similar opposition in Japan. No hearing
date has been set in these latter two oppositions.
The Company has received a patent covering its method of manufacturing
gas-filled albumin microspheres using a milling process under development.
The Company believes that this process may be more reliable and efficient
than the sonication process that the Company currently uses. The Company
has also received patents on other perfluorocarbon-based technology
relating to ultrasound contrast agents.
The Company owns a United States patent covering ORALEX and has several
foreign applications pending. The Company has also filed patent
applications relating to several early-stage development products. The
Company is uncertain whether these applications will result in issued
patents or whether the covered products can or will be commercialized.
The last-to-expire of the Company's key United States patents covering
ALBUNEX and OPTISON expires in 2008, and subject to the outcome of the
oppositions previously described, the last-to-expire of the Company's key
European patents covering ALBUNEX and OPTISON expires in 2009.
The patent position of medical and pharmaceutical companies is highly
uncertain and involves complex legal and factual questions. There can be
no assurance that the Company will receive patents for all or any of the
claims included in its pending or future patent applications, that any
issued patents will provide the Company with competitive advantages or will
not be challenged by third parties, or that existing or future patents of
third parties will not have an adverse effect on the Company's ability to
commercialize its products. Moreover, there can be no assurance that third
parties will not independently develop similar products, duplicate one or
more of the Company's products or design around the Company's patents.
The Company's commercial success also will depend in part upon the Company
not infringing patents issued to third parties. There can be no assurance
that patents issued to third parties will not require the Company to alter
its products or manufacturing processes, pay licensing fees, or cease
development of its current or future products.
Litigation or administrative proceedings may be necessary to enforce the
Company's patents, to defend the Company against infringement claims or to
determine the priority, scope and validity of the proprietary rights of
third parties. See Item 3, "Legal Proceedings". Any such litigation or
administrative proceedings could result in substantial costs to the
Company, and an unfavorable outcome could have a material adverse effect on
the Company's business, financial condition and results of operation.
Moreover, there can be no assurance that, in the event of an unfavorable
outcome in any litigation or administrative proceedings involving
infringement claims against the Company, the Company would be able to
license any proprietary rights that it requires on acceptable terms or at
all. The Company's failure to obtain a license that it requires to
commercialize one of its products could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company has become aware of several United States patents issued to
other companies purportedly covering various attributes of
perfluorocarbon-containing imaging agents such as OPTISON. Certain of
these companies also are pursuing foreign patent protection. Some of
these companies are developing or may be developing ultrasound contrast
imaging agents that would compete with OPTISON. The patents and patent
applications of these other companies involve a number of complex legal and
factual issues that are currently unresolved. The Company believes that
there may be a substantial overlap among many of
41
<PAGE>
the claims in their patents and is currently involved in various
administrative proceedings and litigation in the United States and Europe
to adjudicate their conflicting rights.
The Company believes that, for a variety of reasons, its commercialization
of OPTISON will not infringe any valid patent held by any of these other
companies. Depending upon the particular patent claim, these reasons
include, but are not limited to, (i) differences between OPTISON and the
subject of the claim, (ii) the invalidity of the claim due to the existence
of prior art, (iii) the inadequacy of the claim's specifications, (iv) lack
of enablement, (v) inequitable conduct by patentee, and (vi) various other
defenses as allowed by law. The Company intends to challenge the validity
of any such patent granted to one of the other companies if the patent is
asserted against the Company, and the Company will enforce its own patents
if any product of one of the other companies infringes the Company's patent
claims.
The Company has obtained registered trademarks for "ALBUNEX" and "ORALEX"
in the United States and in selected foreign countries. Additionally
Mallinckrodt has filed for the trademark for "OPTISON" in various countries
throughout the world. There can be no assurance that the Company's
registered or unregistered trademarks and trade names will not infringe on
the proprietary rights of third parties.
The Company also relies on unpatented trade secrets, proprietary know-how
and continuing technological innovation which it seeks to protect by, in
part, confidentiality agreements with its employees, consultants,
investigators and others. There can be no assurance that these agreements
will not be breached, that the Company would have an adequate remedy for
any breach or that the Company's trade secrets or know-how will not
otherwise become known or independently discovered by third parties.
OTHER
The Company is periodically a defendant in other legal actions incidental
to its business activities. While any litigation has an element of
uncertainty, the Company believes that the outcome of any of these actions
or all of them combined will not have a materially adverse effect on its
financial condition or results of operations.
42
<PAGE>
6. STOCKHOLDERS' EQUITY
Mallinckrodt has certain registration rights with respect to the
Common Stock issued and issuable to them.
In April 1998, the Company entered into a Common Stock Purchase
Agreement with Chugai. Under this agreement, the Company sold to Chugai
691,883 shares of common stock for $12.00 per share which represented a
40% premium over the then-prevailing market price for a total equity
investment of $8.3 million. These shares are subject to certain
covenants and restrictions, including "standstill" rights of the
Company, a market stand-off provision and restrictions on
transferability.
COMMON SHARES RESERVED
Common shares were reserved for the following purposes (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1997 1998
<S> <C> <C>
Options granted 2,685 3,139
Future grants of options 994 488
----- -----
3,679 3,627
----- -----
----- -----
</TABLE>
STOCK OPTIONS-
In fiscal 1998, the Board of Directors and the shareholders of the
Company approved the 1997 Directors' Option Plan and authorized the
issuance of options for 300,000 shares pursuant to the plan. The Plan
provides for the grant of both qualified incentive stock options and
nonstatutory stock options to purchase Common Stock to non-employee
directors of the Company 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.
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
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.
During fiscal 1997, the shareholders approved the Company's Board of
Directors recommendation to amend the Company's 1993 Stock Option Plan
to increase the maximum number of shares from 2,500,000 shares to
3,250,000 shares.
1984 PLAN
The Company had an Incentive Stock Option Plan and Nonstatutory Stock
Option Plan (together, the 1984 Plan) which provided 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 were exercisable per the
terms specified in each individual option, but not before one year
(unless the option exercisability was accelerated by the Company's Board
of Directors) or later than five years from the date of grant. The 1984
Plan expired in July 1994 and there are no shares reserved for future
grants.
43
<PAGE>
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 believed
retaining key employees was 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 believed 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
pursuant to the terms in the applicable plan. The options were granted
at amounts per share which were not less than the fair market value at
the date of grant.
Additional information with respect to the Company's option plans is as
follows:
<TABLE>
<CAPTION>
EMPLOYEE'S OPTION PLANS DIRECTORS' OPTION PLANS
------------------------------------ -------------------------------------
OPTION PRICE OPTION PRICE
SHARES PER SHARE SHARES PER SHARE
---------- -------------------- -------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding at Mar 31, 1995 2,072,479 $ 7.00 - $ 31.13 40,000 $ 8.13 - $ 17.00
Granted 723,602 6.00 - 8.63 20,000 8.63
Exercised (5,450) 6.38 - 7.38 -
Expired or lapsed (622,676) 6.38 - 28.75 -
--------- ------- -------- ------- ------- --------
Options Outstanding at Mar 31, 1996 2,167,955 6.00 - 31.13 60,000 8.13 - 17.00
Granted 914,375 6.50 - 11.13 15,000 6.88
Exercised (295,500) 6.00 - 10.63 -
Expired or lapsed (176,760) 6.00 - 31.13 -
--------- ------- -------- ------- ------- --------
Options Outstanding at Mar 31, 1997 2,610,070 6.00 - 22.25 75,000 6.88 - 17.00
--------- ------- -------- ------- ------- --------
Granted 724,100 6.63 10.38 78,000 9.13 9.25
Exercised (100,340) 6.00 8.63 -
Expired or lapsed (248,250) 6.25 22.25 -
--------- ------- -------- ------- ------- --------
Options Outstanding at Mar 31, 1998 2,985,580 6.00 - 22.25 153,000 6.88 17.00
--------- ------- -------- ------- ------- --------
Options exercisable at Mar 31, 1998 1,542,605 114,000
--------- -------
Reserved for future grants at
Mar 31, 1998 266,280 222,000
--------- -------
</TABLE>
The following table summarizes information about fixed stock options
outstanding at March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ---------------------------
Weighted-Avg Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 3/31/98 Life (years) Price at 3/31/98 Price
--------------- ----------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
6.00 - 7.4375 1,259,067 8.34 7.0954 481,192 6.8427
7.50 - 10.625 1,000,863 8.24 8.3310 524,963 8.1261
10.75 - 22.25 878,650 6.85 14.7428 650,450 16.0119
--------- -------- -------- --------- -------
6.00 - 22.25 3,138,580 7.88 9.6342 1,656,605 10.8496
</TABLE>
As permitted, the Company has adopted the disclosure only provisions of
SFAS 123 effective April 1, 1996. Accordingly, no compensation expense
has been recognized for the stock option plans. Had compensation cost
for the Company's 1998 grants for stock-based compensation plans been
determined consistent with SFAS 123, the Company's net loss, net loss
applicable to common share owners, and net
44
<PAGE>
loss per common share for March 31, 1996, 1997 and 1998 would approximate
the pro forma amounts below (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Fiscal Years Ended, March 31,
-------------------------------------
1996 1997 1998
<S> <C> <C> <C>
Net income (loss) - as reported $(20,173) $(13,284) $(21,260)
Net income (loss) - pro forma $(21,274) $(14,559) $(23,877)
Earning per share (loss) - as reported $(1.62) $(0.78) $(1.19)
Earning per share (loss) - pro forma $(1.67) $(0.86) $(1.34)
</TABLE>
Because the SFAS 123 method of accounting has not been applied to
options granted prior to April 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years. The fair value of each option grant was estimated on the
date of grant using the Black Scholes option-pricing model with the
following weighted average assumptions used for grants in fiscal year
1998: risk free rate of 5.39%, expected option life of 4 years, expected
volatility of 58% and a dividend rate of zero. The weighted average
fair value of options granted from the Employee stock option plans
during fiscal 1996, 1997 and 1998 was $6.93, $9.29 and $7.85,
respectively. The weighted average fair value of options granted from
the Outside Director stock option plan during fiscal 1996, 1997 and 1998
was $8.63, $6.88 and $9.19, respectively.
NOTES RECEIVABLE FROM SALE OF COMMON STOCK-
During fiscal year 1997, the Company repurchased 21,500 shares of
Common Stock and forgave notes receivable from related parties of
approximately $390,000 relating to the exercise of options to purchase
common stock of the Company by officers and other employees. Of this
amount, approximately $109,000 was 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
stockholders' equity.
During fiscal year 1996, the Company repurchased 15,000 shares of Common
Stock in a similar transaction whereby the Company forgave notes
receivable of $244,000. Of this amount, approximately $56,000 was
included in accounts receivable that related to taxes payable by the
individuals at the time of the option exercise date, accrued interest
thereon, and accrued interest on the notes receivable.
7. 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 Original Agreements) with Nycomed A.S.
(Nycomed), a Norwegian corporation, Mallinckrodt, 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 Original Agreements, as amended, the Company
earned and received license fees of $6.5 million. The Original
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 contrast agents for vascular applications. These
45
<PAGE>
amounts are to be received in installments based on the
achievement of certain milestones by the Company.
In September 1995, the Company entered into an Amended and Restated
Distribution Agreement ("ARDA"), as well as a related investment
agreement, with Mallinckrodt. Under ARDA, the geographical scope of
Mallinckrodt's exclusive right was expanded to include all of the
countries of the world other than those covered by the Company's license
agreements with Shionogi and Nycomed. Additionally, the duration of
Mallinckrodt's exclusive right was also extended from October 1999 until
the later of July 1, 2003 or three years after the date that the Company
obtains approval from the United States Food and Drug Administration
("FDA") to market OPTISON for an intravenous myocardial perfusion
indication.
The agreement provides the Company with between $33.0 million and $42.5
million in financing (including the $13.0 million common stock
investment discussed below). Under the terms of the agreement,
Mallinckrodt must make guaranteed payments to the Company totaling $20.0
million over four years to support clinical trials, related regulatory
submissions and associated product development of the licensed products,
which include but are not limited to ALBUNEX and OPTISON. These
payments will be made in 16 quarterly installments of $1.0 million for
the first four quarters, $1.25 million for the following eight quarters
and $1.5 million for the final four quarters. The payments may be
accelerated in the event that the Company's cumulative outlays for
clinical trials are in excess of the amounts received at any point in
time. However, the quarterly payments may not be postponed. As of
March 31, 1998 the first ten quarterly payments had been received by the
Company.
ARDA requires the Company to spend at least $10.0 million of the $20.0
million it receives over four years on clinical trials to support
regulatory filings with the FDA for cardiac indications of the licensed
products. The Company's expenditure of this $10.0 million will be made
in accordance with the directions of a joint steering committee which
the Company and Mallinckrodt established in order to expedite the
development and regulatory approval of OPTISON by enabling the parties
to share their expertise relating to clinical trials and the regulatory
approval process. The Company and Mallinckrodt have each appointed
three of the six members of the joint steering committee.
In connection with ARDA, the Company also entered into an investment
agreement whereby the Company sold 1,118,761 unregistered shares of its
common stock to Mallinckrodt for $13.0 million, or a price of $11.62 per
share before related costs. Combined with the 181,818 shares of the
Company's common stock that Mallinckrodt acquired in December 1988,
Mallinckrodt currently owns approximately 7.3% of the Company's issued
and outstanding shares.
In addition, ARDA grants the Company the option (at its own discretion)
to repurchase all of the shares of the Company's common stock that
Mallinckrodt purchased under the investment agreement for $45.0 million,
subject to various price adjustments. This option is exercisable
beginning the later of July 1, 2000 or the date that the Company obtains
approval from the FDA to market OPTISON for an intravenous myocardial
perfusion indication and ending on the later of June 30, 2003 or three
years after the date that the Company obtains approval from the FDA to
market OPTISON for an intravenous myocardial perfusion. If the Company
exercises this option, the Company may co-market ALBUNEX, OPTISON and
related products in all of the countries covered by the amended
distribution agreement.
In December 1996, the Company and Mallinckrodt amended ARDA to expand
the geographical scope of Mallinckrodt's exclusive marketing and
distribution rights for ALBUNEX, OPTISON and related products. The
amendment extended Mallinckrodt's exclusive territory to include the
territory that the Company had formerly licensed to Nycomed consisting
of Europe, Africa, India and parts of Asia. Under the amendment to ARDA,
Mallinckrodt agreed to pay fees up to $12.9 million plus 40 percent of
product sales to cover royalties and manufacturing. Mallinckrodt made an
initial payment of $7.1 million, consisting of reimbursement to the
Company of $2.7 million that the Company paid to Nycomed to reacquire
the exclusive product rights in Nycomed's territory, payment of $3
million to the Company under the terms of ARDA upon the extension of
Mallinckrodt's exclusive rights to Nycomed's former territory, and
payment of $1.4 million to Nycomed in satisfaction of the Company's
obligation to pay 45 percent of any amounts that the Company receives in
excess of $2.7 million upon the licensing of the former Nycomed
territory to a third party. Of the remaining $5.8 million that may be
paid, Mallinckrodt will pay $4 million to the Company (upon the
achievement of the specified product development milestone) and $1.8
million to Nycomed (representing 45% of the $4 million payment to the
Company).
46
<PAGE>
There can be no assurance, however, that this milestone will be
satisfied. The Company has included all costs related to the
reacquisition of its license rights from Nycomed in other nonrecurring
charges in the financial statements. Of these costs, approximately $1
million was paid in fiscal 1996 and the remainder was paid in fiscal
1997.
Mallinckrodt is the Company's principal strategic marketing partner for
its ALBUNEX and OPTISON ultrasound contrast agents. Under the Company's
arrangements with Mallinckrodt, Mallinckrodt has substantial control
over all aspects of marketing the Company's product in its territories.
In October 1995, the Company entered into an agreement whereby it
reacquired all rights to INFOSON (the European designation for ALBUNEX),
OPTISON and related products from Nycomed, the Company's European
licensee. The Company agreed to pay Nycomed $2.7 million and 45% of any
amounts in excess of $2.7 million that the Company receives in payment
for the transfer of marketing rights in the former Nycomed territory to
a third party. The Company also agreed to pay Nycomed a royalty based
on future sales, as defined in the agreement. As stated above, the
license rights were resold to Mallinckrodt for amounts stipulated in the
amendment to ARDA.
In September 1996, the Company entered into an agreement with Shionogi
pursuant to which the Company reacquired all rights to manufacture,
market and sell its ALBUNEX family of products in the territory
consisting of Japan, Taiwan and South Korea, formerly exclusively
licensed to Shionogi. This agreement settled an outstanding dispute
between the two companies concerning the license and distribution
agreement for ALBUNEX and resulted in the dismissal of all claims raised
by the companies against each other. Under the agreement the Company
paid $3 million to Shionogi and will pay an additional $5.5 million over
the next three years.
In April 1998, the Company and Chugai entered into a strategic alliance
to develop and commercialize OPTISON (which may be marketed under a
different name) and ORALEX in Japan, Taiwan and South Korea. In
exchange for granting to Chugai a royalty-based license to market these
products in the named countries, MBI received an upfront license fee
from Chugai of $14 million. In addition, Chugai made an equity
investment in the Company's common stock. The Company is eligible to
receive milestone payments of up to $20 million based on the achievement
of certain product development goals and will receive royalties from
Chugai from the sale of commercialized products in the territory.
During the years ended March 31, 1996, 1997 and 1998, the Company
received contract research payments and earned revenue under the above
agreements as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
-------------------------------------
1996 1997 1998
<S> <C> <C> <C>
Contract payments received:
Chugai $ - $ - $ 1,575
US Government - - 95
Mallinckrodt 6,257 10,200 5,000
-------- -------- --------
Total $ 6,257 $ 10,200 $ 6,670
-------- -------- --------
-------- -------- --------
Contract payments earned:
Chugai $ - $ - $ -
US Government - - 95
Mallinckrodt 2,412 10,200 5,000
-------- -------- --------
Total $ 2,412 $ 10,200 $ 5,095
-------- -------- --------
-------- -------- --------
</TABLE>
8. OTHER NONRECURRING CHARGES
Other nonrecurring charges include the following for the years
presented:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
----------------------------------
1996 1997 1998
<S> <C> <C> <C>
47
<PAGE>
Write-off of license rights of former
Nycomed territory (Note 7) $ - $3,000 $ -
Write-off of license fees related to
discontinued products 1,025 - -
Legal settlements and related costs
(Note 5) 1,418 - -
Loss on sale of real estate 667 - -
------- ------ -----
$ 3,110 $3,000 $ -
------- ------ -----
------- ------ -----
</TABLE>
In September 1996, the Company entered into an agreement with Nycomed for
the repurchase of the rights to manufacture, market and sell its ALBUNEX
family of products in the territory formerly exclusively licensed to
Nycomed (see note 7). As a result, during fiscal year 1997 the Company
wrote off the license rights of the former Nycomed territory in the
amount of $3 million.
The Company recorded one-time charges in fiscal year 1996 related to the
conclusion of arbitration with Bracco S.p.A., the write off of license
fees associated with discontinued products and a write down to the sale
price of two buildings that were subsequently sold in March 1996.
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, 1998 and 1997 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
QUARTER ENDED: JUN 30 SEP 30 DEC 31 MAR 31
-------------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Fiscal 1998
Revenues $ 1,474 $ 1,426 $ 1,373 $ 1,973
Research and Development Costs 2,185 2,680 2,939 3,274
Total Operating Costs and Expenses 6,736 6,401 7,517 8,127
Net Loss (4,799) (4,621) (5,903) (5,937)
Loss Per Common Share (0.27) (0.26) (0.33) (0.33)
Weighted Average Common Shares
Outstanding 17,752 17,768 17,813 17,838
QUARTER ENDED: JUN 30 SEP 30 DEC 31 MAR 31
------- ------ ------ -------
Fiscal 1997
Revenues $ 1,178 $ 1,216 $ 7,007 $ 1,450
Research and Development Costs 2,636 2,328 2,354 2,584
Total Operating Costs and Expenses 5,691 5,465 8,298 6,248
Net Loss (4,384) (3,693) (879) (4,328)
Loss Per Common Share (.30) (.21) (.05) (.24)
Weighted Average Common Shares
Outstanding 14,787 17,560 17,572 17,711
</TABLE>
10. SUBSEQUENT EVENTS
In April 1998, the Company and Chugai entered into a strategic alliance
to develop and commercialize OPTISON (which may be marketed under a
different name) and ORALEX in Japan, Taiwan and South Korea. In
exchange for granting to Chugai a royalty-based license to market these
products in the named countries, MBI received an upfront license fee
from Chugai of $14 million. Additionally, Chugai purchased 691,883
shares of the Company's common stock at a premium of 40% over the
then-prevailing market price. The equity investment was valued at $8.3
million. The Company is eligible to receive milestone payments of up to
$20 million based on the achievement of certain product development
goals and will receive royalties from Chugai from the sale of
commercialized products in the territory.
48
<PAGE>
On May 18, 1998, OPTISON, the Company's second-generation contrast agent
for cardiac ultrasound imaging, received final marketing authorization
by the European Agency for the Evaluation of Medicinal Products for use
in patients with suspected or known cardiovascular disease. The
authorization covers all 15 member states of the European Union.
49
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors is incorporated in this report by
reference to the information contained under the caption "Election of Directors"
in the Company's definitive proxy statement for the 1998 Annual Meeting of
Stockholders to be held on August 13, 1998 ("1998 Proxy Statement").
Information concerning executive officers is included in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated in this
report by reference to the information contained under the caption "Executive
Compensation" in the Company's 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership is incorporated in this report by
reference to the information contained under the caption "Stock Ownership" in
the Company's 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
incorporated in this report by reference to the information contained under the
caption "Certain Relationships and Related Transactions" in the Company's 1998
Proxy Statement.
50
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(2) The financial statements and financial statement schedules
filed as a part of this Report are listed in the "Index to
Consolidated Financial Statements and Schedules" on page 29.
(3) Exhibits -Exhibits marked with an asterisk are filed with
this Report; all other Exhibits are incorporated by
reference. Exhibits marked with a dagger are management
contracts or compensatory plans or arrangements.
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 Amendment to Certificate of Incorporation of
Molecular Biosystems, Inc. dated August 20, 1996.
3.3 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.)
3.4 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).
3.5 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.)
3.6 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
51
<PAGE>
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 15, 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 Amendment No. 3 to License and Cooperative Development Agreement
dated October 24, 1995 between the Company and Nycomed
Imaging AS. (Incorporated by reference from Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q/A for the
quarterly period ended December 31, 1995.)
10.6 Amended and Restated Distribution Agreement dated September 7,
1995 between the Company and Mallinckrodt Medical, Inc.
(Incorporated by reference from Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1995.)
10.7 Amendment to Amended and Restated Distribution Agreement
dated November 4, 1996 between the Company and Mallinckrodt
Medical, 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, 1997.)
10.8 Investment Agreement dated December 7, 1988 between the
Company and Mallinckrodt Medical, Inc.(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.)
10.9 Investment Agreement dated September 7, 1995 between
the Company and Mallinckrodt Medical, Inc. (Incorporated by
reference from Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q/A for the quarterly period ended
December 31, 1995.)
10.10 Cooperative Development and Marketing Agreement
effective March 31, 1998 between the Company and Chugai
Pharmaceutical Co., Ltd. (Incorporated by reference from
Exhibit 2.1 to the Company's Current Report on Form 8-K
dated April 7, 1998)
10.11 Common Stock Purchase Agreement effective March 31,
1998 between the Company and Chugai Pharmaceutical Co., Ltd.
(Incorporated by reference from Exhibit 2.2 to the Company's
Current Report on Form 8-K dated April 7, 1998)
10.12 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.)
10.13 Settlement Agreement and Mutual Release dated September 10, 1996
between the Company and Shionogi & Co., Ltd. (Incorporated by
reference from Exhibit 10.11 to the Company's Annual Report
of Form 10-K for the fiscal year ended March 31, 1997.)
10.14 Exclusive License Agreement dated April 1, 1992 between
the Company and The Regents of the University of California.
(Incorporated by reference from Exhibit
52
<PAGE>
10.30 to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1992.)
10.15 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.)
10.16 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.)
10.17 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.)
10.18 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+ 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.)
10.20+ 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.)
10.21+ 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.)
10.22+ 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.)
10.23+ 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.)
10.24+ 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.)
10.25+ 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.)
53
<PAGE>
10.26+ 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.)
10.27+ 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.)
10.28+ 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.)
10.29+ Form of Stock Option Agreement used with the Company's 1993 Outside
Directors Stock Option Plan. (Incorporated by reference from Exhibit
10.35 to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1994.)
10.30 First Amendment to the Molecular Biosystems, Inc. 1993 Stock Option
Plan (Incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-8 filed on September 15, 1997
(Registration No. 333-35633.)
10.31 Molecular Biosystems, Inc. 1997 Outside Directors Stock Option Plan
(Incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-8 filed on September 15, 1997
(Registration No. 333-35631.)
10.32+* Second Amendment to 1993 Stock Option Plan
10.33+* Third Amendment to 1993 Stock Option Plan
10.34+ Employment Agreement dated April 25, 1995 between the Company and
Kenneth J. Widder, M. D. (Incorporated by reference from Exhibit
10.30 to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995.)
10.35+ Employment Agreement dated November 1, 1995 between the Company and
Bobba Venkatadri. (Incorporated by reference from Exhibit 10.41 to
the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996.)
10.36+ First Amendment to Employment Agreement dated April 30, 1996
between the Company and Bobba Venkatadri. (Incorporated by reference
from Exhibit 10.34 to the Company's Annual Report of Form 10-K for
the fiscal year ended March 31, 1997.)
10.37 Partnership Agreement dated October 18, 1996 between the Company
and Bobba and Annapurna Venkatadri. (Incorporated by reference
from Exhibit 10.36 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1997).
10.38+* Employment Agreement dated as of September 1, 1997 between the
Company and Gerard A. Wills.
54
<PAGE>
10.39+* Employment Agreement dated as of September 1, 1997 between the
Company and William I. Ramage.
10.40+* Employment Agreement dated as of December 1, 1997 between the
Company and Thomas Jurgensen.
10.41+* Employment Agreement dated as of September 1, 1997 between the
Company and Joni Harvey.
10.42+* Employment Agreement dated as of September 1, 1997 between the
Company and Howard Dittrich.
10.43+* Separation Agreement effective May 30, 1997 between the Company
and Allan Mizoguchi, Ph.D.
10.44+* Separation Agreement effective May 30, 1997 between the Company and
James Barnhart, Ph.D.
10.45 Triple Net Lease dated June 19, 1995 between the Company and
Radnor/Collins/Sorrento Partnership. (Incorporated by reference from
Exhibit 10.43 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995.)
10.46* First Amendment to Sublease dated February 27, 1998 between the
Company and Dura Pharmaceuticals, Inc.
10.47* Sublease dated October 1, 1997 between the Company and Dura
Pharmaceuticals, Inc.
10.48* Equipment Lease Agreement dated June 30, 1997 between the Company
and Mellon US Leasing.
10.49* Sublease dated February 16, 1998 between the Company and ComStream
Corporation.
10.50 Promissory note dated December 31, 1993 between the Company and
James L. Barnhart. (Incorporated by reference from Exhibit 10.48 to
the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1994.)
10.51 Second Amendment to Promissory note dated June 24, 1996 between the
Company and James L. Barnhart. (Incorporated by reference from
Exhibit 10.52 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996.)
10.52 Promissory note dated December 31, 1993 between the Company and
John W. Young. (Incorporated by reference from Exhibit 10.49 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1994.)
19 Documents not previously filed are marked with an asterisk (*).
23* Consent of Arthur Andersen LLP.
(b) REPORTS ON FORM 8-K
55
<PAGE>
A Current Report on Form 8-K dated May 18, 1998, was filed on May 22,
1998, reporting final marketing authorization of OPTISON by the
European Agency for the Evaluation of Medicinal Products.
A Current Report on Form 8-K dated April 7,1998, was filed on April
22, 1998, reporting (1) a Cooperative Development and Marketing
Agreement effective March 31, 1998 between the Company and Chugai
Pharmaceutical Co., Ltd., and (2) a Common Stock Purchase Agreement
effective March 31, 1998 between the Company and Chugai Pharmaceutical
Co., Ltd.
56
<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 25, 1998.
MOLECULAR BIOSYSTEMS, INC.
By: /s/ Kenneth J. Widder, M.D.
--------------------------------
Kenneth J. Widder, M.D.
Chairman of the Board
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>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/ Kenneth J. Widder, M.D. Chairman of the Board June 25, 1998
- ------------------------------
Kenneth J. Widder, M.D.
/s/ Bobba Venkatadri President, Chief Executive June 25, 1998
- ------------------------------ Officer
Bobba Venkatadri
/s/ Gerard A. Wills Vice President - Finance June 25, 1998
- ------------------------------ and Chief Financial Officer
Gerard A. Wills (Principal Financial and
Accounting Officer
/s/ Robert W. Brightfelt Director June 25, 1998
- ------------------------------
Robert W. Brightfelt
/s/ Charles C. Edwards, M.D. Director June 25, 1998
- ------------------------------
Charles C. Edwards, M.D.
/s/ Gordon C. Luce Director June 25, 1998
- ------------------------------
Gordon C. Luce
/s/ David Rubinfien Director June 25, 1998
- ------------------------------
David Rubinfien
/s/ David W. Barry, M.D. Director June 25, 1998
- ------------------------------
David W. Barry, M. D.
/s/ Jerry Jackson Director June 25, 1998
- ------------------------------
Jerry Jackson
</TABLE>
57
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION OF
MOLECULAR BIOSYSTEMS, INC.
Molecular Biosystems, Inc. a corporation duly organized and existing under
the General Corporation Laws of the State of Delaware (the "Corporation"),
hereby certifies that:
FIRST. The Board of Directors of the Corporation, by unanimous vote of
its members at a meeting duly convened pursuant to the General Corporation
Law of the State of Delaware, at which a quorum of the members of the Board
of Directors was present in person, duly adopted a resolution proposing and
declaring advisable an amendment to the Corporation's Certificate of
Incorporation to amend Article 4(a) of the Corporation's Certificate of
Incorporation to read as follows:
"Paragraph 4(a). The Corporation shall have authority to
issue a total of 40,000,000 shares of common stock, par
value $.01 per share."
SECOND. This amendment was duly considered and approved by the majority
of the stockholders entitled to vote and voting at an annual meeting of the
stockholders held upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware.
THIRD. This amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned, Molecular Biosystems, Inc., has
caused this Certificate of Amendment to be signed by Kenneth J. Widder, M.D.,
its Chairman of the Board of Directors and Chief Executive Officer, and
attested to by Craig P. Colmar, Secretary, on this 20th day of August, 1996.
MOLECULAR BIOSYSTEMS, INC.
By: /s/ Kenneth J. Widder, M.D.
---------------------------------
Kenneth J. Widder, M.D., CHAIRMAN
OF THE BOARD AND CHIEF EXECUTIVE OFFICER
ATTEST:
Craig P. Colmar, SECRETARY
<PAGE>
EXHIBIT 10.32
SECOND AMENDMENT TO
MOLECULAR BIOSYSTEMS, INC. 1993 STOCK OPTION PLAN
The Molecular Biosystems, Inc. 1993 Stock Option Plan, as amended (the "Plan"),
is amended as follows pursuant to the authority of the Board of Directors of
Molecular Biosystems, Inc. under Paragraph 8.2 of the Plan:
1. PARAGRAPH 2.1A. The following provision is added as Paragraph 2.1a of
the Plan:
2.1a CHANGE OF CONTROL means an event or the last of a series of related
events by which:
(1) any Person directly or indirectly acquires or otherwise becomes
entitled to vote 25% or more of the Company's Common Stock (or, if in the
future the Company has more than one class of stock outstanding, any Person
directly or indirectly acquires or otherwise becomes entitled to vote stock
having 25% or more of the voting power in elections for Directors); or
(2) during any 24-month period a majority of the members of the Board of
Directors ceases to consist of Directors who were:
(a) Directors at the beginning of the period ("Continuing Directors"); or
(b) appointed to office after the start of the period by the Board of
Directors with the approval of two-thirds of the incumbent Continuing
Directors ("Appointed Directors"); or
(c) elected to office after the start of the period by the Company's
stockholders following nomination for election by the Board of Directors with
the approval of two-thirds of the incumbent Continuing Directors ("Elected
Directors"); or
(d) appointed to office after the start of the period by the Board of
Directors with the approval of two-thirds of the incumbent Continuing,
Appointed and Elected Directors; or
(e) elected to office after the start of the period by the Company's
stockholders following nomination for election by the Board of Directors with
the approval of two-thirds of the incumbent Continuing, Appointed and Elected
Directors; or
(3) the Company merges or consolidates with another corporation, and
holders of outstanding shares of the Company's Common Stock immediately prior
to the merger or consolidation do not own stock in the survivor of the merger
or consolidation having more than 75% of the voting power in elections for
directors; or
-1-
<PAGE>
(4) the Company sells all or a substantial portion of the consolidated
assets of the Company and its Subsidiaries, and the Company does not own
stock in the purchaser having more than 75% of the voting power in elections
for directors.
As used in this Paragraph 2.1a, a "Person" means any "person" as that term is
used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended, together with all of that person's "affiliates" and "associates" as
those terms are defined in Rule 12b-2 of the Securities and Exchange
Commission.
2. PARAGRAPH 6.2. Paragraph 6.2 of the Plan is amended to read as follows:
6.2 TERM. The Plan Committee shall determine (i) whether each Option shall
be exercisable in full at one time or in installments at different times and
(ii) the time or times at which the Option or Installments shall become and
remain exercisable. No Option or Installment shall be exercisable prior to
the first anniversary of the Grant Date (except as its exercisability is
accelerated by reason of a Change in Control or by action of the Plan
Committee) or have an Expiration Date later than the tenth anniversary of the
Grant Date.
Notwithstanding any limitation on exercisability in Paragraph 6.6 or anything
to the contrary in the underlying Option Agreement, each outstanding Option
or Installment shall become exercisable in full upon a Change in Control. In
addition, the Plan Committee, in its discretion, may accelerate the
exercisability of any Option or Installment at any time under any related or
other circumstances.
3. EFFECTIVE DATE. This Amendment shall become effective as of the date
of its approval by the Board of Directors of Molecular Biosystems, Inc.
-2-
<PAGE>
EXHIBIT 10.33
THIRD AMENDMENT TO
MOLECULAR BIOSYSTEMS, INC. 1993 STOCK OPTION PLAN
The Molecular Biosystems, Inc. 1993 Stock Option Plan, as amended (the "Plan"),
is amended as follows pursuant to the authority of the Board of Directors of
Molecular Biosystems, Inc. under Paragraph 8.2 of the Plan:
1. PARAGRAPH 2.5. Paragraph 2.5 of the Plan is amended to read as follows:
2.5 NON-EMPLOYEE DIRECTOR means a Director who (i) is not currently an
Officer or Employee, (ii) does not receive direct or indirect compensation
from the Company or any Subsidiary for services rendered as a consultant, or
in any capacity other than as a Director, in an amount for which disclosure
would be required under Item 404(a) of Regulation S-K of the Securities and
Exchange Commission ("Item 404(a)"), (iii) does not possess an interest in
any other transaction for which disclosure would be required under Item
404(a) and (iv) is not engaged in a business relationship for which
disclosure would be required under Item 404(a).
2. PARAGRAPH 2.14. Paragraph 2.14 of the Plan is amended to read as follows:
2.14 OFFICER means: (i) the Company's Chief Executive Officer; (ii) the
Company's Chief Operating Officer; (iii) the Company's President; (iv) any
Vice President of the Company; and (v) any other person who is considered an
"officer" of the Company for purposes of Rule 16a-1(f) under the Securities
Exchange Act of 1934.
3. PARAGRAPH 5.2. Paragraph 5.2 of the Plan is amended to read as follows:
5.2 OFFICER OPTIONS COMMITTEE. The Plan shall be administered by a
committee (the "Officer Options Committee") in respect of Officers. The
Officer Options Committee shall be or consist of (i) the Compensation
Committee of the Board, or (ii) if any member of the Compensation Committee
is not a Non-Employee Director, the members of the Compensation Committee who
are Non-Employee Directors, or (iii) if there are not at least two members of
the Compensation Committee who are Non-Employee Directors, the full Board.
4. EFFECTIVE DATE. This Amendment shall become effective as of the date of
its approval by the Board of Directors of Molecular Biosystems, Inc.
<PAGE>
EXHIBIT 10.38
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of September 1, 1997, 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 Vice
President, Finance and 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. I 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 I consider them patentable or not, made, developed,
perfected, devised, conceived or reduced to practice by me, either solely or
in collaboration with others, during the period of my employment by the
Company, and up to and including a period of twelve (12) months after
termination of my 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
me for the Company or with the equipment, supplies, facilities or
confidential information of the Company.
3. CONFIDENTIALITY. I recognize that my 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"). I shall at all times regard and preserve as
confidential such Confidential Information obtained by me from whatever
source and shall not, either during my employment or thereafter, publish or
disclose any part of such Confidential Information in any
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manner, or use the same except on behalf of the Company, without the prior
written consent of the Company. Further, I shall, during my 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. I hereby agree that any Inventions made,
developed, perfected, devised, conceived or reduced to practice by me during
the period of my employment by the Company, and any other Inventions made,
developed, perfected, devised, conceived or reduced to practice by me during
said period of twelve (12) months after termination of my 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 me for the Company or
with the equipment, supplies, facilities or Confidential Information of the
Company, are the sole property of the Company, and hereby assign and agree to
assign to the Company, its successors and assigns, all of my 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 my 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 me for the Company, as defined and provided
by Section 2870 of the California Labor Code.
5. COVENANT OF COOPERATION. I shall, at any time during employment or
thereafter, upon request and without further compensation therefor, but at no
expense to me, 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.
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 me during
the period of my employment by the
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Company, and up to and including a period of twelve (12) months after
termination of my employment, but which are claimed for any reason to belong
to an entity or person other than the Company, I 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, I agree 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 Judicial Arbitration and Mediation Services
then existing. The cost of arbitration shall be shared equally.
8. RECORD KEEPING. I 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, I will promptly surrender the same to it, or if not
previously surrendered, I will promptly surrender the same to the Company at
the conclusion of my employment.
9. RECORDS PROPERTY OF COMPANY. I agree 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 me or that come into
my possession by reason of my employment are the property of the Company and
shall be promptly surrendered to the Company at the conclusion of my
employment.
10. INDUCEMENT. I agree that I 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. I affirm that I have no agreement with any
other party that would preclude my compliance with my obligations under this
Agreement as set forth above.
12. CHANGE OF CONTROL.
a. DEFINITIONS. The following definitions shall apply with respect to
this "Change of Control" section only:
(1) AGREEMENT means the agreement governing Employee's employment by MBI
of which this Change of Control section forms a part and which may be
referred to as an Employment Agreement or an Invention and
Confidentiality Agreement or by some similar name.
(2) BASE SALARY means Employee's annual compensation, exclusive of
bonuses, stock options and other fringe benefits.
(3) CHANGE OF CONTROL means an event or the last of a series of related
events by which:
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(A) any person or group (as defined in Section 13(d) of the Exchange
Act) who, together with all affiliates and associates (as defined
in Rule 12b-2 under the Exchange Act) (an "Acquiring Person)
becomes the direct or indirect beneficial owner of 25% or more of
MBI's outstanding stock (or of 25% or more of MBI's outstanding
voting stock, if and when MBI has more than one class of stock
outstanding); OR
(B) Continuing Directors cease to comprise a majority of the Board of
Directors. A Continuing Director is any director who (while a
director) is not an Acquiring Person or an affiliate or associate
of an Acquiring Person or a representative thereof and who (A) is
a director as of the date that the Agreement (containing this
Change of Control section) is executed by both parties, or (B)
subsequently becomes a director and 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 the Continuing Directors or who is included as a
nominee in a proxy statement of MBI when a majority of the Board
consists of Continuing Directors.
(4) CONSTRUCTIVE TERMINATION means a termination of the Agreement by
Employee within 2 years after a Change of Control, during which 2-year
period any of the following events take place: (i) a material
reduction in the total annual compensation package paid to Employee
immediately prior to the Change of Control; (ii) a relocation (or
demand for relocation) of Employee's place of employment more than 30
miles from his current place of employment; or (iii) a significant
change in the nature or scope of Employee's job responsibilities or
the imposition of significant limitations on his autonomy in his
position as an employee of MBI, as compared to the nature, scope and
degree of autonomy prior to the Change of Control.
(5) EXCHANGE ACT means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
(6) INVOLUNTARY TERMINATION shall be deemed to have taken place if
Employee dies or if the Employee has a physical or mental condition as
a result of injury, illness or disease which prevents Employee from
performing substantially all of his duties or from working on a
substantially full-time basis, for a period of 24 consecutive weeks or
28 weeks out of any 52-week period.
(7) SEVERANCE PAYMENTS is defined in subsection (b) below.
(8) TERMINATION FOR CAUSE means a termination of the Agreement by MBI
because of any of the following conduct engaged in by Employee: (i)
the commission of a felony or a crime involving moral turpitude or the
commission of an act involving dishonesty or fraud with respect to MBI
or its affiliates, if any; (ii) conduct tending to bring MBI
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or its affiliates, if any, into substantial public disgrace or
disrepute; or (iii) substantial and repeated failure to perform
duties as reasonably directed by the Board of Directors or President
of MBI or its affiliates, if any.
(9) TERMINATION WITHOUT CAUSE means any termination of the Agreement by
MBI, other than a Termination for Cause or an Involuntary Termination.
b. SEVERANCE PAYMENTS AND OTHER BENEFITS IN THE EVENT OF TERMINATION.
In the event of the termination of the Agreement a result of (i) a
Termination Without Cause within 2 years following a Change of Control or
(ii) a Constructive Termination, MBI shall provide the payments and other
benefits specified below to Employee, in lieu of any other payments or
benefits which may (or may not) be provided for elsewhere in the Agreement.
(1) MBI shall make the following payments to Employee (or to his estate):
(a) ACCRUED SALARY. MBI shall pay Employee's Base Salary through the
effective date of termination of the Agreement.
(b) SEVERANCE PAYMENTS. MBI shall pay an amount equal to 1.5 times
(A) the Base Salary in effect immediately prior to the Change of
Control and (B) the higher of (x) 100% of Employee's target bonus as
determined under MBI's incentive compensation plan or (y) an average
of the three most recent bonuses awarded to Employee (collectively,
referred to as "Severance Payments").
(c) MANNER OF PAYMENT. Severance Payments shall be paid over an
18-month period in approximately equal consecutive bi-weekly
installments, with the first payment to be made no later than 30 days
following the effective date of termination of the Agreement.
(d) ABSOLUTE RIGHT TO SEVERANCE PAYMENTS. Employee's right to
Severance Payments shall not be conditioned upon compliance with any
non-competition provisions which may (or may not) exist elsewhere in
the Agreement.
(2) MBI shall provide the following benefits to Employee:
(1) COBRA BENEFITS. During the period of time in which Severance
Payments are being paid to the employee, MBI shall provide COBRA
continuation coverage to Employee and dependents of Employee who are
insured at the time of termination under its medical, dental and
vision insurance plans and shall assume the cost of continuation
coverage provided to Employee and covered dependent.
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(2) OUTPLACEMENT SERVICES. MBI will make available to Employee, upon
his request, outplacement services provided by a reputable
outplacement counselor selected by MBI for a period of 6 months
following his termination. MBI will assume the cost of all such
outplacement services.
c. ACCELERATION OF STOCK OPTIONS IN THE EVENT OF A CHANGE OF CONTROL.
In the event of a Change of Control (whether or not followed by termination
of the Agreement), all stock options under any MBI stock option plan which
Employee holds at the time of such Change of Control shall become fully
"vested" (I.E., immediately exercisable).
d. LIMITATIONS. The Severance Payments shall be reduced as necessary
so that the present value, as determined in accordance with Section
280G(d)(4) of the Internal Revenue Code, of the sum of (i) the Severance
Payments 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) of the
Internal Revenue Code in respect of Employee does not exceed 2.99 times
Employee's base amount, as "base amount" is defined in Section 280G(b)(3) of
the Internal Revenue Code.
13. EXCLUSIVITY. I shall not, while employed by the Company engage in
any other employment or business venture for my 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.
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. PROHIBITION AGAINST ASSIGNMENT. I agree that this Agreement and
the rights, interests and benefits hereunder shall not be assigned,
transferred, pledged or hypothecated in any way by me or any executor,
administrator, heir, legatee, distributee or any other person claiming under
me 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.
16. 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 my case to my last known place of residence as reflected on
the Company's records.
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17. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between me and the Company and contains all of the agreements between us with
respect to the subject matter hereof.
18. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of me and the Company and our respective heirs, legal
representatives, executors, administrators, and successors.
19. GOVERNING LAW. This Agreement shall be subject to and governed by
the laws of the State of California.
20. AMENDMENT OF AGREEMENT. No change or modification of this
Agreement shall be valid unless the same be in writing and signed by me and
the Company. No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the person or party to be charged.
21. 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 hereto.
22. BREACH. In the event I breach this Agreement and the Company
prevails in an action to enforce the terms of this Agreement, I agree 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 me as a result of any such breach.
23. HEADINGS. The headings of this Agreement are inserted for
convenience only and are not to be considered in construction of the
provisions hereof.
24. WAIVER OR 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.
25. PRIOR AGREEMENTS. This Agreement supersedes any and all prior
agreements between the Company and Employee with respect to the subject
matter hereof, including, but not limited to all Employment Agreements and/or
Invention and Confidentiality Agreements or any amendment thereto.
26. GENERIC DRUG ENFORCEMENT ACT CERTIFICATION. The undersigned,
certifies that he or she (1) has never been charged with or convicted of a
federal felony for conduct relating to the development, approval, or
regulation of any drug product or device regulated by the United States Food
and Drug Administration, and (2) has never been debarred or subject to a
debarment proceeding under the Generic Drug Enforcement Act of 1992.
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WHEREAS, the parties have executed this Agreement as of the date first
above written.
MOLECULAR BIOSYSTEMS, INC.
By: /s/ Bobba Venkatadri
------------------------
Bobba Venkatadri
Chief Executive Officer
By: /s/ Gerard A. Wills
------------------------
Gerard A. Wills
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EXHIBIT 10.39
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of September 1, 1997, between WILLIAM I.
RAMAGE, an individual ("Employee"), and MOLECULAR BIOSYSTEMS, INC., a
Delaware corporation ("the Company").
1. EMPLOYMENT. The Company hereby employs the Employee as its Vice
President, Marketing, 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. I 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 I consider them patentable or not,
made, developed, perfected, devised, conceived or reduced to practice by me,
either solely or in collaboration with others, during the period of my
employment by the Company, and up to and including a period of twelve (12)
months after termination of my 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 me for the Company or with the equipment, supplies,
facilities or confidential information of the Company.
3. CONFIDENTIALITY. I recognize that my 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"). I shall at all times regard and preserve as
confidential such Confidential Information obtained by me from whatever
source and shall not, either during my
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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, I shall, during
my 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. I hereby agree that any Inventions made,
developed, perfected, devised, conceived or reduced to practice by me during
the period of my employment by the Company, and any other Inventions made,
developed, perfected, devised, conceived or reduced to practice by me during
said period of twelve (12) months after termination of my 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 me for the Company or
with the equipment, supplies, facilities or Confidential Information of the
Company, are the sole property of the Company, and hereby assign and agree to
assign to the Company, its successors and assigns, all of my 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 my 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 me for the Company, as defined and provided
by Section 2870 of the California Labor Code.
5. COVENANT OF COOPERATION. I shall, at any time during employment
or thereafter, upon request and without further compensation therefor, but at
no expense to me, 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.
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.
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7. CLAIMS BY THIRD PARTY. As to any Inventions which were made,
developed, perfected, devised, conceived or reduced to practice by me during
the period of my employment by the Company, and up to and including a period
of twelve (12) months after termination of my employment, but which are
claimed for any reason to belong to an entity or person other than the
Company, I 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, I agree 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
Judicial Arbitration and Mediation Services then existing. The cost of
arbitration shall be shared equally.
8. RECORD KEEPING. I 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, I will promptly surrender the same to it, or if not
previously surrendered, I will promptly surrender the same to the Company at
the conclusion of my employment.
9. RECORDS PROPERTY OF COMPANY. I agree 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 me or that come into
my possession by reason of my employment are the property of the Company and
shall be promptly surrendered to the Company at the conclusion of my
employment.
10. INDUCEMENT. I agree that I 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. I affirm that I have no agreement with any
other party that would preclude my compliance with my obligations under this
Agreement as set forth above.
12. CHANGE OF CONTROL.
a. DEFINITIONS. The following definitions shall apply with respect to
this "Change of Control" section only:
(1) AGREEMENT means the agreement governing Employee's employment by MBI
of which this Change of Control section forms a part and which may be
referred to as an Employment Agreement or an Invention and
Confidentiality Agreement or by some similar name.
(2) BASE SALARY means Employee's annual compensation, exclusive of
bonuses, stock options and other fringe benefits.
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(3) CHANGE OF CONTROL means an event or the last of a series of related
events by which:
(A) any person or group (as defined in Section 13(d) of the Exchange
Act) who, together with all affiliates and associates (as defined
in Rule 12b-2 under the Exchange Act) (an "Acquiring Person)
becomes the direct or indirect beneficial owner of 25% or more of
MBI's outstanding stock (or of 25% or more of MBI's outstanding
voting stock, if and when MBI has more than one class of stock
outstanding); OR
(B) Continuing Directors cease to comprise a majority of the Board of
Directors. A Continuing Director is any director who (while a
director) is not an Acquiring Person or an affiliate or associate
of an Acquiring Person or a representative thereof and who (A) is
a director as of the date that the Agreement (containing this
Change of Control section) is executed by both parties, or (B)
subsequently becomes a director and 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 the Continuing Directors or who is included as a
nominee in a proxy statement of MBI when a majority of the Board
consists of Continuing Directors.
(4) CONSTRUCTIVE TERMINATION means a termination of the Agreement by
Employee within 2 years after a Change of Control, during which 2-year
period any of the following events take place: (I) a material
reduction in the total annual compensation package paid to Employee
immediately prior to the Change of Control; (ii) a relocation (or
demand for relocation) of Employee's place of employment more than 30
miles from his current place of employment; or (iii) a significant
change in the nature or scope of Employee's job responsibilities or
the imposition of significant limitations on his autonomy in his
position as an employee of MBI, as compared to the nature, scope and
degree of autonomy prior to the Change of Control.
(5) EXCHANGE ACT means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
(6) INVOLUNTARY TERMINATION shall be deemed to have taken place if
Employee dies or if the Employee has a physical or mental condition as
a result of injury, illness or disease which prevents Employee from
performing substantially all of his duties or from working on a
substantially full-time basis, for a period of 24 consecutive weeks or
28 weeks out of any 52-week period.
(7) SEVERANCE PAYMENTS is defined in subsection (b) below.
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(8) TERMINATION FOR CAUSE means a termination of the Agreement by MBI
because of any of the following conduct engaged in by Employee: (I)
the commission of a felony or a crime involving moral turpitude or the
commission of an act involving dishonesty or fraud with respect to MBI
or its affiliates, if any; (ii) conduct tending to bring MBI or its
affiliates, if any, into substantial public disgrace or disrepute; or
(iii) substantial and repeated failure to perform duties as reasonably
directed by the Board of Directors or President of MBI or its
affiliates, if any.
(9) TERMINATION WITHOUT CAUSE means any termination of the Agreement by
MBI, other than a Termination for Cause or an Involuntary Termination.
b. SEVERANCE PAYMENTS AND OTHER BENEFITS IN THE EVENT OF TERMINATION. In
the event of the termination of the Agreement a result of (i) a Termination
Without Cause within 2 years following a Change of Control or (ii) a
Constructive Termination, MBI shall provide the payments and other benefits
specified below to Employee, in lieu of any other payments or benefits which may
(or may not) be provided for elsewhere in the Agreement.
(1) MBI shall make the following payments to Employee (or to his estate):
(a) ACCRUED SALARY. MBI shall pay Employee's Base Salary through the
effective date of termination of the Agreement.
(b) SEVERANCE PAYMENTS. MBI shall pay an amount equal to 1.5 times
(A) the Base Salary in effect immediately prior to the Change of
Control and (B) the higher of (x) 100% of Employee's target bonus as
determined under MBI's incentive compensation plan or (y) an average
of the three most recent bonuses awarded to Employee (collectively,
referred to as "Severance Payments").
(c) MANNER OF PAYMENT. Severance Payments shall be paid over an
18-month period in approximately equal consecutive bi-weekly
installments, with the first payment to be made no later than 30 days
following the effective date of termination of the Agreement.
(d) ABSOLUTE RIGHT TO SEVERANCE PAYMENTS. Employee's right to
Severance Payments shall not be conditioned upon compliance with any
non-competition provisions which may (or may not) exist elsewhere in
the Agreement.
(2) MBI shall provide the following benefits to Employee:
(1) COBRA BENEFITS. During the period of time in which Severance
Payments are being paid to the employee, MBI shall provide COBRA
continuation coverage to Employee and dependents of Employee who are
insured at the time of termination under its medical, dental and
vision insurance plans and shall assume the cost of
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continuation coverage provided to Employee and covered dependent.
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(2) OUTPLACEMENT SERVICES. MBI will make available to Employee, upon
his request, outplacement services provided by a reputable
outplacement counselor selected by MBI for a period of 6 months
following his termination. MBI will assume the cost of all such
outplacement services.
c. ACCELERATION OF STOCK OPTIONS IN THE EVENT OF A CHANGE OF CONTROL. In
the event of a Change of Control (whether or not followed by termination of the
Agreement), all stock options under any MBI stock option plan which Employee
holds at the time of such Change of Control shall become fully "vested" (I.E.,
immediately exercisable).
d. LIMITATIONS. The Severance Payments shall be reduced as necessary so
that the present value, as determined in accordance with Section 280G(d)(4) of
the Internal Revenue Code, of the sum of (I) the Severance Payments 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) of the Internal Revenue Code in
respect of Employee does not exceed 2.99 times Employee's base amount, as "base
amount" is defined in Section 280G(b)(3) of the Internal Revenue Code.
13. EXCLUSIVITY. I shall not, while employed by the Company engage in any
other employment or business venture for my 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.
14. ADDITIONAL PAYMENTS. Employee shall receive each month through March,
1998, an amount equal to Dupont's COBRA family coverage premium (grossed-up). In
addition, Employee shall receive a $20,000 cash bonus, minus applicable payroll
taxes, on April 1, in the years 1999, 2000 and 2001. Employee must be employed
with the Company on each of those dates to receive these bonus payments.
15. 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.
16. PROHIBITION AGAINST ASSIGNMENT. I agree that this Agreement and the
rights, interests and benefits hereunder shall not be assigned, transferred,
pledged or hypothecated in any way by me or any executor, administrator, heir,
legatee, distributee or any other person claiming under me 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
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relieve the Company of any and all liability hereunder.
17. 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 my case to my last known place of residence as reflected on
the Company's records.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between me and the Company and contains all of the agreements between us with
respect to the subject matter hereof.
19. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of me and the Company and our respective heirs, legal
representatives, executors, administrators, and successors.
20. GOVERNING LAW. This Agreement shall be subject to and governed by
the laws of the State of California.
21. AMENDMENT OF AGREEMENT. No change or modification of this Agreement
shall be valid unless the same be in writing and signed by me and the Company.
No waiver of any provision of this Agreement shall be valid unless in writing
and signed by the person or party to be charged.
22. 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 hereto.
23. BREACH. In the event of any controversy, claim, or dispute between
the parties hereto, arising out of or relating to this Agreement or breach
thereof, the prevailing party shall be entitled to recover from the losing
party, reasonable expenses, attorney's fees and costs.
24. HEADINGS. The headings of this Agreement are inserted for
convenience only and are not to be considered in construction of the provisions
hereof.
25. WAIVER OR 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.
26. PRIOR AGREEMENTS. This Agreement supersedes any and all prior
agreements between the Company and Employee with respect to the subject matter
hereof, including, but not limited to all Employment Agreements and/or Invention
and Confidentiality Agreements or any amendment thereto.
27. GENERIC DRUG ENFORCEMENT ACT CERTIFICATION. The undersigned,
certifies that he or
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she (1) has never been charged with or convicted of a federal felony for
conduct relating to the development, approval, or regulation of any drug
product or device regulated by the United States Food and Drug
Administration, and (2) has never been debarred or subject to a debarment
proceeding under the Generic Drug Enforcement Act of 1992.
WHEREAS, the parties have executed this Agreement as of the date first
above written.
MOLECULAR BIOSYSTEMS, INC.
By: /s/ Bobba Venkatadri
--------------------------------
Bobba Venkatadri
Chief Executive Officer
By: /s/ William I. Ramage
--------------------------------
William I. Ramage
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EXHIBIT 10.40
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("this Agreement') dated as of December 1, 1997,
between THOMAS JURGENSEN, an individual ("Employee"), and MOLECULAR
BIOSYSTEMS, INC., a Delaware corporation ("the Company").
1. EMPLOYMENT. The Company hereby employs the Employee as its Vice
President, Legal and General Counsel, 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. I 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 I consider them patentable or not,
made, developed, perfected, devised, conceived or reduced to practice by me,
either solely or in collaboration with others, during the period of my
employment by the Company, and up to and including a period of twelve (12)
months after termination of my 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 me for the Company or with the equipment, supplies,
facilities or confidential information of the Company.
3. CONFIDENTIALITY. I recognize that my 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"). I shall at all times regard and preserve as confidential such
Confidential Information obtained by me from whatever source and shall not,
either during my employment or thereafter, publish or disclose any part of such
Confidential Information in any
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manner, or use the same except on behalf of the Company, without the prior
written consent of the Company. Further, I shall, during my 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. I hereby agree that any Inventions made,
developed, perfected, devised, conceived or reduced to practice by me during
the period of my employment by the Company, and any other Inventions made,
developed, perfected, devised, conceived or reduced to practice by me during
said period of twelve (12) months after termination of my 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 me for the Company or
with the equipment, supplies, facilities or Confidential Information of the
Company, are the sole property of the Company, and hereby assign and agree to
assign to the Company, its successors and assigns, all of my 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 my 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 me for the Company, as defined and provided
by Section 2870 of the California Labor Code.
5. COVENANT OF COOPERATION. I shall, at any time during employment
or thereafter, upon request and without further compensation therefor, but at
no expense to me, 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.
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 me during the
period of my employment by the
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Company, and up to and including a period of twelve (12) months after
termination of my employment, but which are claimed for any reason to belong
to an entity or person other than the Company, I 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, I agree 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 Judicial Arbitration and Mediation Services
then existing. The cost of arbitration shall be shared equally.
8. RECORD KEEPING. I 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, I will promptly surrender the same to it, or if not
previously surrendered, I will promptly surrender the same to the Company at
the conclusion of my employment.
9. RECORDS PROPERTY OF COMPANY. I agree 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 me or that come into
my possession by reason of my employment are the property of the Company and
shall be promptly surrendered to the Company at the conclusion of my
employment.
10. INDUCEMENT. I agree that I 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. I affirm that I have no agreement with any
other party that would preclude my compliance with my obligations under this
Agreement as set forth above.
12. CHANGE OF CONTROL.
a. DEFINITIONS. The following definitions shall apply with respect to
this "Change of Control" section only:
(1) AGREEMENT means the agreement governing Employee's employment by MBI
of which this Change of Control section forms a part and which may be
referred to as an Employment Agreement or an Invention and
Confidentiality Agreement or by some similar name.
(2) BASE SALARY means Employee's annual compensation, exclusive of
bonuses, stock options and other fringe benefits.
(3) CHANGE OF CONTROL means an event or the last of a series of related
events by which:
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(A) any person or group (as defined in Section 13(d) of the Exchange
Act) who, together with all affiliates and associates (as defined
in Rule 12b-2 under the Exchange Act) (an "Acquiring Person)
becomes the direct or indirect beneficial owner of 25% or more of
MBI's outstanding stock (or of 25% or more of MBI's outstanding
voting stock, if and when MBI has more than one class of stock
outstanding); OR
(B) Continuing Directors cease to comprise a majority of the Board of
Directors. A Continuing Director is any director who (while a
director) is not an Acquiring Person or an affiliate or associate
of an Acquiring Person or a representative thereof and who (A) is
a director as of the date that the Agreement (containing this
Change of Control section) is executed by both parties, or (B)
subsequently becomes a director and 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 the Continuing Directors or who is included as a
nominee in a proxy statement of MBI when a majority of the Board
consists of Continuing Directors.
(4) CONSTRUCTIVE TERMINATION means a termination of the Agreement by
Employee within 2 years after a Change of Control, during which 2-year
period any of the following events take place: (i) a material
reduction in the total annual compensation package paid to Employee
immediately prior to the Change of Control; (ii) a relocation (or
demand for relocation) of Employee's place of employment more than 30
miles from his current place of employment; or (iii) a significant
change in the nature or scope of Employee's job responsibilities or
the imposition of significant limitations on his autonomy in his
position as an employee of MBI, as compared to the nature, scope and
degree of autonomy prior to the Change of Control.
(5) EXCHANGE ACT means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
(6) INVOLUNTARY TERMINATION shall be deemed to have taken place if
Employee dies or if the Employee has a physical or mental condition as
a result of injury, illness or disease which prevents Employee from
performing substantially all of his duties or from working on a
substantially full-time basis, for a period of 24 consecutive weeks or
28 weeks out of any 52-week period.
(7) SEVERANCE PAYMENTS is defined in subsection (b) below.
(8) TERMINATION FOR CAUSE means a termination of the Agreement by MBI
because of any of the following conduct engaged in by Employee: (i)
the commission of a felony or
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a crime involving moral turpitude or the commission of an act
involving dishonesty or fraud with respect to MBI or its affiliates,
if any; (ii) conduct tending to bring MBI or its affiliates, if any,
into substantial public disgrace or disrepute; or (iii) substantial
and repeated failure to perform duties as reasonably directed by the
Board of Directors or President of MBI or its affiliates, if any.
(9) TERMINATION WITHOUT CAUSE means any termination of the Agreement by
MBI, other than a Termination for Cause or an Involuntary Termination.
b. SEVERANCE PAYMENTS AND OTHER BENEFITS IN THE EVENT OF TERMINATION.
In the event of the termination of the Agreement a result of (i) a
Termination Without Cause within 2 years following a Change of Control or
(ii) a Constructive Termination, MBI shall provide the payments and other
benefits specified below to Employee, in lieu of any other payments or
benefits which may (or may not) be provided for elsewhere in the Agreement.
(1) MBI shall make the following payments to Employee (or to his estate):
(a) ACCRUED SALARY. MBI shall pay Employee's Base Salary through
the effective date of termination of the Agreement.
(b) SEVERANCE PAYMENTS. MBI shall pay an amount equal to 1.5 times
(A) the Base Salary in effect immediately prior to the Change of
Control and (B) the higher of (x) 100% of Employee's target bonus as
determined under MBI's incentive compensation plan or (y) an average
of the three most recent bonuses awarded to Employee (collectively,
referred to as "Severance Payments").
(c) MANNER OF PAYMENT. Severance Payments shall be paid over an
18-month period in approximately equal consecutive bi-weekly
installments, with the first payment to be made no later than 30 days
following the effective date of termination of the Agreement.
(d) ABSOLUTE RIGHT TO SEVERANCE PAYMENTS. Employee's right to
Severance Payments shall not be conditioned upon compliance with any
non-competition provisions which may (or may not) exist elsewhere in
the Agreement.
(2) MBI shall provide the following benefits to Employee:
(1) COBRA BENEFITS. MBI shall provide COBRA continuation coverage
to Employee under its medical, dental and vision insurance plans and
shall assume the cost of continuation coverage provided to Employee
(but not to his family). In the event that Employee maintains family
coverage under any of the aforementioned plans or policies, Employee
shall be responsible for payment of the difference in cost between
individual coverage and family coverage, which amount may be deducted
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by MBI from the Change of Control Severance Payments. In the event
that Change of Control Severance Payments have ceased, Employee shall
reimburse MBI for the difference in cost between individual coverage
and family coverage by the first day of each month that continuation
coverage benefits are provided.
(2) OUTPLACEMENT SERVICES. MBI will make available to Employee, upon
his request, outplacement services provided by a reputable
outplacement counselor selected by MBI for a period of 6 months
following his termination. MBI will assume the cost of all such
outplacement services.
c. ACCELERATION OF STOCK OPTIONS IN THE EVENT OF A CHANGE OF CONTROL.
In the event of a Change of Control (whether or not followed by termination
of the Agreement), all stock options under any MBI stock option plan which
Employee holds at the time of such Change of Control shall become fully
"vested" (I.E., immediately exercisable).
d. LIMITATIONS. The Severance Payments shall be reduced as necessary
so that the present value, as determined in accordance with Section
280G(d)(4) of the Internal Revenue Code, of the sum of (i) the Severance
Payments 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) of the
Internal Revenue Code in respect of Employee does not exceed 2.99 times
Employee's base amount, as "base amount" is defined in Section 280G(b)(3) of
the Internal Revenue Code.
13. EXCLUSIVITY. I shall not, while employed by the Company engage in
any other employment or business venture for my 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.
14. SEVERANCE. In the event Employee is involuntarily terminated for
reasons other than for cause, Employee shall receive as a severance, payable
in bi-weekly installments, six months' salary at the then-current rate. This
paragraph shall not be applicable if Employee's termination is as a result of
a Change of Control as decribed in Paragraph 12.
15. 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.
16. PROHIBITION AGAINST ASSIGNMENT. I agree that this Agreement and
the rights, interests and benefits hereunder shall not be assigned,
transferred, pledged or hypothecated in any way by me or any executor,
administrator, heir, legatee, distributee or any other person claiming
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under me 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.
17. 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 my case to my last known place of residence as reflected
on the Company's records.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between me and the Company and contains all of the agreements between us with
respect to the subject matter hereof.
19. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of me and the Company and our respective heirs, legal
representatives, executors, administrators, and successors.
20. GOVERNING LAW. This Agreement shall be subject to and governed by
the laws of the State of California.
21. AMENDMENT OF AGREEMENT. No change or modification of this
Agreement shall be valid unless the same be in writing and signed by me and
the Company. No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the person or party to be charged.
22. 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 hereto.
23. BREACH. In the event I breach this Agreement and the Company
prevails in an action to enforce the terms of this Agreement, I agree 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 me as a result of any such breach.
24. HEADINGS. The headings of this Agreement are inserted for
convenience only and are not to be considered in construction of the
provisions hereof.
25. WAIVER OR 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.
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26. PRIOR AGREEMENTS. This Agreement supersedes any and all prior
agreements between the Company and Employee with respect to the subject
matter hereof, including, but not limited to all Employment Agreements and/or
Invention and Confidentiality Agreements or any amendment thereto.
27. GENERIC DRUG ENFORCEMENT ACT CERTIFICATION. The undersigned,
certifies that he or she (1) has never been charged with or convicted of a
federal felony for conduct relating to the development, approval, or
regulation of any drug product or device regulated by the United States Food
and Drug Administration, and (2) has never been debarred or subject to a
debarment proceeding under the Generic Drug Enforcement Act of 1992.
WHEREAS, the parties have executed this Agreement as of the date first
above written.
MOLECULAR BIOSYSTEMS, INC.
By: /s/ Bobba Venkatadri
-----------------------
Bobba Venkatadri
Chief Executive Officer
By: /s/ Thomas Jurgensen
-----------------------
Thomas Jurgensen
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EXHIBIT 10.41
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of September 1, 1997, between JONI HARVEY,
an individual ("Employee"), and MOLECULAR BIOSYSTEMS, INC., a Delaware
corporation ("the Company").
1. EMPLOYMENT. The Company hereby employs the Employee as its
Executive Director, 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. I 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 I consider them patentable or not, made, developed,
perfected, devised, conceived or reduced to practice by me, either solely or
in collaboration with others, during the period of my employment by the
Company, and up to and including a period of twelve (12) months after
termination of my 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
me for the Company or with the equipment, supplies, facilities or
confidential information of the Company.
3. CONFIDENTIALITY. I recognize that my 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"). I shall at all times regard and preserve as
confidential such Confidential Information obtained by me from whatever
source and shall not, either during my
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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, I shall, during
my 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. I hereby agree that any Inventions made,
developed, perfected, devised, conceived or reduced to practice by me during
the period of my employment by the Company, and any other Inventions made,
developed, perfected, devised, conceived or reduced to practice by me during
said period of twelve (12) months after termination of my 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 me for the Company or
with the equipment, supplies, facilities or Confidential Information of the
Company, are the sole property of the Company, and hereby assign and agree to
assign to the Company, its successors and assigns, all of my 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 my 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 me for the Company, as defined and provided
by Section 2870 of the California Labor Code.
5. COVENANT OF COOPERATION. I shall, at any time during employment or
thereafter, upon request and without further compensation therefor, but at no
expense to me, 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.
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.
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7. CLAIMS BY THIRD PARTY. As to any Inventions which were made,
developed, perfected, devised, conceived or reduced to practice by me during
the period of my employment by the Company, and up to and including a period
of twelve (12) months after termination of my employment, but which are
claimed for any reason to belong to an entity or person other than the
Company, I 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, I agree 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
Judicial Arbitration and Mediation Services then existing. The cost of
arbitration shall be shared equally.
8. RECORD KEEPING. I 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, I will promptly surrender the same to it, or if not
previously surrendered, I will promptly surrender the same to the Company at
the conclusion of my employment.
9. RECORDS PROPERTY OF COMPANY. I agree 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 me or that come into
my possession by reason of my employment are the property of the Company and
shall be promptly surrendered to the Company at the conclusion of my
employment.
10. INDUCEMENT. I agree that I 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. I affirm that I have no agreement with any
other party that would preclude my compliance with my obligations under this
Agreement as set forth above.
12. CHANGE OF CONTROL.
a. DEFINITIONS. The following definitions shall apply with respect to
this "Change of Control" section only:
(1) AGREEMENT means the agreement governing Employee's employment by MBI
of which this Change of Control section forms a part and which may be
referred to as an Employment Agreement or an Invention and
Confidentiality Agreement or by some similar name.
(2) BASE SALARY means Employee's annual compensation, exclusive of
bonuses, stock options and other fringe benefits.
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(3) CHANGE OF CONTROL means an event or the last of a series of related
events by which:
(A) any person or group (as defined in Section 13(d) of the Exchange
Act) who, together with all affiliates and associates (as defined
in Rule 12b-2 under the Exchange Act) (an "Acquiring Person)
becomes the direct or indirect beneficial owner of 25% or more of
MBI's outstanding stock (or of 25% or more of MBI's outstanding
voting stock, if and when MBI has more than one class of stock
outstanding); OR
(B) Continuing Directors cease to comprise a majority of the Board of
Directors. A Continuing Director is any director who (while a
director) is not an Acquiring Person or an affiliate or associate
of an Acquiring Person or a representative thereof and who (A) is
a director as of the date that the Agreement (containing this
Change of Control section) is executed by both parties, or (B)
subsequently becomes a director and 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 the Continuing Directors or who is included as a
nominee in a proxy statement of MBI when a majority of the Board
consists of Continuing Directors.
(4) CONSTRUCTIVE TERMINATION means a termination of the Agreement by
Employee within 2 years after a Change of Control, during which 2-year
period any of the following events take place: (i) a material
reduction in the total annual compensation package paid to Employee
immediately prior to the Change of Control; (ii) a relocation (or
demand for relocation) of Employee's place of employment more than 30
miles from his current place of employment; or (iii) a significant
change in the nature or scope of Employee's job responsibilities or
the imposition of significant limitations on his autonomy in his
position as an employee of MBI, as compared to the nature, scope and
degree of autonomy prior to the Change of Control.
(5) EXCHANGE ACT means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
(6) INVOLUNTARY TERMINATION shall be deemed to have taken place if
Employee dies or if the Employee has a physical or mental condition as
a result of injury, illness or disease which prevents Employee from
performing substantially all of his duties or from working on a
substantially full-time basis, for a period of 24 consecutive weeks or
28 weeks out of any 52-week period.
(7) SEVERANCE PAYMENTS is defined in subsection (b) below.
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(8) TERMINATION FOR CAUSE means a termination of the Agreement by MBI
because of any of the following conduct engaged in by Employee: (i)
the commission of a felony or a crime involving moral turpitude or the
commission of an act involving dishonesty or fraud with respect to MBI
or its affiliates, if any; (ii) conduct tending to bring MBI or its
affiliates, if any, into substantial public disgrace or disrepute; or
(iii) substantial and repeated failure to perform duties as reasonably
directed by the Board of Directors or President of MBI or its
affiliates, if any.
(9) TERMINATION WITHOUT CAUSE means any termination of the Agreement by
MBI, other than a Termination for Cause or an Involuntary Termination.
b. SEVERANCE PAYMENTS AND OTHER BENEFITS IN THE EVENT OF TERMINATION.
In the event of the termination of the Agreement a result of (i) a
Termination Without Cause within 2 years following a Change of Control or
(ii) a Constructive Termination, MBI shall provide the payments and other
benefits specified below to Employee, in lieu of any other payments or
benefits which may (or may not) be provided for elsewhere in the Agreement.
(1) MBI shall make the following payments to Employee (or to his estate):
(a) ACCRUED SALARY. MBI shall pay Employee's Base Salary through the
effective date of termination of the Agreement.
(b) SEVERANCE PAYMENTS. MBI shall pay an amount equal to 1.5 times
(A) the Base Salary in effect immediately prior to the Change of
Control and (B) the higher of (x) 100% of Employee's target bonus as
determined under MBI's incentive compensation plan or (y) an average
of the three most recent bonuses awarded to Employee (collectively,
referred to as "Severance Payments").
(c) MANNER OF PAYMENT. Severance Payments shall be paid over an
18-month period in approximately equal consecutive bi-weekly
installments, with the first payment to be made no later than 30 days
following the effective date of termination of the Agreement.
(d) ABSOLUTE RIGHT TO SEVERANCE PAYMENTS. Employee's right to
Severance Payments shall not be conditioned upon compliance with any
non-competition provisions which may (or may not) exist elsewhere in
the Agreement.
(2) MBI shall provide the following benefits to Employee:
(1) COBRA BENEFITS. During the period of time in which Severance
Payments are being paid to the employee, MBI shall provide COBRA
continuation coverage to Employee and dependents of Employee who are
insured at the time of termination under its medical, dental and
vision insurance plans and shall assume the cost of
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continuation coverage provided to Employee and covered dependent.
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(2) OUTPLACEMENT SERVICES. MBI will make available to Employee, upon
his request, outplacement services provided by a reputable
outplacement counselor selected by MBI for a period of 6 months
following his termination. MBI will assume the cost of all such
outplacement services.
c. ACCELERATION OF STOCK OPTIONS IN THE EVENT OF A CHANGE OF CONTROL.
In the event of a Change of Control (whether or not followed by termination
of the Agreement), all stock options under any MBI stock option plan which
Employee holds at the time of such Change of Control shall become fully
"vested" (I.E., immediately exercisable).
d. LIMITATIONS. The Severance Payments shall be reduced as necessary
so that the present value, as determined in accordance with Section
280G(d)(4) of the Internal Revenue Code, of the sum of (i) the Severance
Payments 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) of the
Internal Revenue Code in respect of Employee does not exceed 2.99 times
Employee's base amount, as "base amount" is defined in Section 280G(b)(3) of
the Internal Revenue Code.
13. EXCLUSIVITY. I shall not, while employed by the Company engage in
any other employment or business venture for my 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.
14. SEVERANCE. In the event Employee is involuntarily terminated for
any reason except dishonesty, defalcation, or gross misconduct, Employee
shall receive as a severance, payable in bi-weekly installments, six months'
salary at her then-current rate, but in no event at a rate less than her rate
at her date of hire. This paragraph shall not be applicable if Employee's
termination is as a result of a Change of Control as decribed in Paragraph 12.
15. 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.
16. PROHIBITION AGAINST ASSIGNMENT. I agree that this Agreement and
the rights, interests and benefits hereunder shall not be assigned,
transferred, pledged or hypothecated in any way by me or any executor,
administrator, heir, legatee, distributee or any other person claiming under
me 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
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relieve the Company of any and all liability hereunder.
17. 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 my case to my last known place of residence as reflected
on the Company's records.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between me and the Company and contains all of the agreements between us with
respect to the subject matter hereof.
19. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of me and the Company and our respective heirs, legal
representatives, executors, administrators, and successors.
20. GOVERNING LAW. This Agreement shall be subject to and governed by
the laws of the State of California.
21. AMENDMENT OF AGREEMENT. No change or modification of this
Agreement shall be valid unless the same be in writing and signed by me and
the Company. No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the person or party to be charged.
22. 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 hereto.
23. BREACH. In the event I breach this Agreement and the Company
prevails in an action to enforce the terms of this Agreement, I agree 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 me as a result of any such breach.
24. HEADINGS. The headings of this Agreement are inserted for
convenience only and are not to be considered in construction of the
provisions hereof.
25. WAIVER OR 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.
26. PRIOR AGREEMENTS. This Agreement supersedes any and all prior
agreements between the Company and Employee with respect to the subject
matter hereof, including, but not limited to all Employment Agreements and/or
Invention and Confidentiality Agreements or any amendment thereto.
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27. GENERIC DRUG ENFORCEMENT ACT CERTIFICATION. The undersigned,
certifies that he or she (1) has never been charged with or convicted of a
federal felony for conduct relating to the development, approval, or
regulation of any drug product or device regulated by the United States Food
and Drug Administration, and (2) has never been debarred or subject to a
debarment proceeding under the Generic Drug Enforcement Act of 1992.
WHEREAS, the parties have executed this Agreement as of the date first
above written.
MOLECULAR BIOSYSTEMS, INC.
By: /s/ Bobba Venkatadri
-----------------------
Bobba Venkatadri
Chief Executive Officer
By: /s/ Joni Harvey
-----------------------
Joni Harvey
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EXHIBIT 10.42
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of September 1, 1997, between HOWARD C.
DITTRICH, an individual ("Employee"), and MOLECULAR BIOSYSTEMS, INC., a
Delaware corporation ("the Company").
1. EMPLOYMENT. The Company hereby employs the Employee as its Vice
President, Research, Clinical and Medical 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, other than as provided in paragraph 11 herein, devote his
full working time to such duties.
2. DISCLOSURES. I 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 I consider them patentable or not, made, developed,
perfected, devised, conceived or reduced to practice by me, either solely or
in collaboration with others, during the period of my employment by the
Company, and for a period of twelve (12) months after the termination of my
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 of the Company, or resulting from any work performed by me for
the Company or with the equipment, property, supplies, facilities or
confidential information of the Company.
3. CONFIDENTIALITY. I recognize that my employment with the
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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"). I shall at all times regard and
preserve as confidential such Confidential Information obtained by me from
whatever source and shall not, either during my 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, I shall, during my 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. I hereby agree that any inventions made,
developed, perfected, devised, conceived or reduced to practice by me during
the period of my employment by the Company, and any other inventions made,
developed, perfected devised, conceived or reduced to practice by me during
said period of twelve (12) months after the termination of my 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 of the Company, or resulting from any work performed by me for
the Company or with the equipment, supplies, facilities or Confidential
Information of the Company, are the sole property of the Company, and hereby
assign and agree to assign to the Company, its successors and assigns, all of
my 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 my 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 me for the Company, as defined and provided
by Section 2870 of the California Labor Code.
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5. COVENANT OF COOPERATION. I shall, at any time during employment or
thereafter, but at no expense to me, 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. In the event
Company requests such cooperation at any time following termination of
Employee, Company shall provide Employee with reasonable notice of not less
than ten business days prior to the actions requested of Employee. In
addition, Employee shall be entitled to reasonable compensation for any such
services, unless Employee is, at the time of the request by Company,
receiving Severance Payments as described in this Agreement, or unless such
compensation would prove prejudicial to the Company's enforcement of its
rights under any such Inventions. As used herein, reasonable compensation
shall be defined as the rate being paid to Employee by a subsequent employer
at the time of the request by Company, or if Employee is not employed at the
time of the request, the rate at which Company was compensating Employee
prior to his termination, provided, however, in no instance will the rate
exceed three hundred dollars ($300) per hour. In the event Employee resides
more than (fifty) 50 miles from Company's primary business offices, Company
shall pay for any reasonable travel expenses, including meals and lodging and
airfare at no higher than the prevailing coach rate. Arrangements for any
such further services shall be made in a manner which does not substantially
interfere with any new employment or enterprise of Employee.
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 me during the
period of my employment by the Company, and for a period of twelve (12) months
after the termination of my employment, but which are claimed for any
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reason to belong to an entity or a person other than the Company and shall
not disclose the same to others if the Company, within twenty (20) days
thereafter, shall claim ownership of, or an interest in, such Inventions
under the terms of this Agreement. If the Company makes such a claim, I
agree 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 Judicial Arbitration and Mediation Services
then existing. The cost of arbitration shall be shared equally. In the
event Employee is notified that a person or entity other than Employee, or a
company in which Employee has an ownership interest, or a new employer of
Employee, asserts a claim to such Inventions, Employee's sole responsibility
shall be to notify Company and otherwise provide cooperation in accordance
with Paragraph 5 of this Agreement.
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8. RECORD KEEPING. I 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, I will promptly surrender the same to it, or if not
previously surrendered, I will promptly surrender the same to the Company,
and all copies thereof, at the conclusion of my employment.
9. RECORDS PROPERTY OF COMPANY. I agree 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 me or that come into
my possession by reason of my employment are the property of the Company and
shall be promptly surrendered to the Company, including any and all copies
thereof, at the conclusion of my employment. Notwithstanding the foregoing,
I shall be entitled to remove any personal property; personal effects and
materials which I can demonstrate are owned by me.
10. INDUCEMENT. I agree that I 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. Employee warrants and represents that, other
than as provided herein, he has no agreement with any other party that would
preclude his compliance with his obligations under this Agreement as set
forth above. The Company hereby recognizes and approves of Employee's right
to (1) devote one-half day per week as a practicing cardiologist at UCSD
Medical Center, and to (2) devote a maximum of four (4) hours per month as
Medical Advisor to the Lifescreen company, and (3) to such other activities
approved in advance by the Company. Employee shall obtain the prior approval
of Company's CEO and President regarding the scope and timing, including any
changes thereof, of such extracurricular activities. Other than as provided
in this paragraph 11, Employee agrees to fully devote and apply as much of
his time, skill, experience, training and talents as is necessary in the
opinion of the Company to satisfy the duties of his employment with the
Company.
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12. CHANGE OF CONTROL.
a. DEFINITIONS. The following definitions shall apply with respect to
this "Change of Control" section only:
(1) AGREEMENT means the agreement governing Employee's employment by MBI
of which this Change of Control section forms a part and which may be
referred to as an Employment Agreement or an Invention and
Confidentiality Agreement or by some similar name.
(2) BASE SALARY means Employee's annual compensation, exclusive of
bonuses, stock options and other fringe benefits.
(3) CHANGE OF CONTROL means an event or the last of a series of related
events by which:
(A) any person or group (as defined in Section 13(d) of the Exchange
Act) who, together with all affiliates and associates (as defined
in Rule 12b-2 under the Exchange Act) (an "Acquiring Person)
becomes the direct or indirect beneficial owner of 25% or more of
MBI's outstanding stock (or of 25% or more of MBI's outstanding
voting stock, if and when MBI has more than one class of stock
outstanding); OR
(B) Continuing Directors cease to comprise a majority of the Board of
Directors. A Continuing Director is any director who (while a
director) is not an Acquiring Person or an affiliate or associate
of an Acquiring Person or a representative thereof and who (A) is
a director as of the date that the Agreement (containing this
Change of Control section) is executed by both parties, or (B)
subsequently becomes a director and 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 the Continuing Directors or who is included as a
nominee in a proxy statement of MBI when a majority of the Board
consists of Continuing Directors.
(4) CONSTRUCTIVE TERMINATION means a termination of the Agreement by
Employee within 2 years after a Change of Control, during which 2-year
period any of the following events take place: (I) a material
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reduction in the total annual compensation package paid to Employee
immediately prior to the Change of Control; (ii) a relocation (or
demand for relocation) of Employee's place of employment more than 30
miles from his current place of employment; or (iii) a significant
change in the nature or scope of Employee's job responsibilities or
the imposition of significant limitations on his autonomy in his
position as an employee of MBI, as compared to the nature, scope and
degree of autonomy prior to the Change of Control.
(5) EXCHANGE ACT means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
(6) INVOLUNTARY TERMINATION shall be deemed to have taken place if
Employee dies or if the Employee has a physical or mental condition as
a result of injury, illness or disease which prevents Employee from
performing substantially all of his duties or from working on a
substantially full-time basis, for a period of 24 consecutive weeks or
28 weeks out of any 52-week period.
(7) SEVERANCE PAYMENTS is defined in subsection (b) below.
(8) TERMINATION FOR CAUSE means a termination of the Agreement by MBI
because of any of the following conduct engaged in by Employee: (I)
the commission of a felony or a crime involving moral turpitude or the
commission of an act involving dishonesty or fraud with respect to MBI
or its affiliates, if any; (ii) conduct tending to bring MBI or its
affiliates, if any, into substantial public disgrace or disrepute; or
(iii) substantial and repeated failure to perform duties as reasonably
directed by the Board of Directors or President of MBI or its
affiliates, if any.
(9) TERMINATION WITHOUT CAUSE means any termination of the Agreement by
MBI, other than a Termination for Cause or an Involuntary Termination.
b. SEVERANCE PAYMENTS AND OTHER BENEFITS IN THE EVENT OF TERMINATION.
In the event of the termination of the Agreement a result of (I) a
Termination Without Cause within 2 years following a Change of Control or
(ii) a Constructive Termination, MBI shall provide the payments and other
benefits specified below to Employee, in lieu of any other payments or
benefits which may (or may not) be provided for elsewhere in the Agreement.
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(1) MBI shall make the following payments to Employee (or to his estate):
(a) ACCRUED SALARY. MBI shall pay Employee's Base Salary through the
effective date of termination of the Agreement.
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<PAGE>
(b) SEVERANCE PAYMENTS. MBI shall pay an amount equal to 1.5 times (A)
the Base Salary in effect immediately prior to the Change of Control
and (B) the higher of (x) 100% of Employee's target bonus as
determined under MBI's incentive compensation plan or (y) an average
of the three most recent bonuses awarded to Employee (collectively,
referred to as "Severance Payments").
(c) MANNER OF PAYMENT. Severance Payments shall be paid over an
18-month period in approximately equal consecutive monthly
installments, with the first payment to be made no later than 30
days following the effective date of termination of the Agreement
and the balance payable on the first day of each month beginning
with the second month following the month in which the effective
date of termination occurs.
(d) ABSOLUTE RIGHT TO SEVERANCE PAYMENTS. Employee's right to
Severance Payments shall not be conditioned upon compliance with any
non-competition or confidentiality provisions which may (or may not)
exist elsewhere in the Agreement.
(2) MBI shall provide the following benefits to Employee:
(1) COBRA BENEFITS. MBI shall provide COBRA continuation coverage to
Employee under its medical, dental and vision insurance plans and
shall assume the cost of continuation coverage provided to Employee
(but not to his family). In the event that Employee maintains family
coverage under any of the aforementioned plans or policies, Employee
shall be responsible for payment of the difference in cost between
individual coverage and family coverage, which amount may be deducted
by MBI from the Change of Control Severance Payments. In the event
that Change of Control Severance Payments have ceased, Employee shall
reimburse MBI for the difference in cost between individual coverage
and family coverage by the first day of each month that continuation
coverage benefits are provided.
(2) OUTPLACEMENT SERVICES. MBI will make available to Employee, upon
his request, outplacement services provided by a reputable
outplacement counselor selected by MBI for a period of 6 months
following his termination. MBI will assume the cost of all such
outplacement services.
9
<PAGE>
c. ACCELERATION OF STOCK OPTIONS IN THE EVENT OF A CHANGE OF CONTROL.
In the event of a Change of Control (whether or not followed by termination
of the Agreement), all stock options under any MBI stock option plan which
Employee holds at the time of such Change of Control shall become fully
"vested" (I.E., immediately exercisable).
d. LIMITATIONS. The Change of Control Severance Payments shall be
reduced as necessary so that the present value, as determined in accordance
with Section 280G(d)(4) of the Internal Revenue Code, of the sum of (I) the
Change of Control Severance Payments 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) of the Internal Revenue Code in respect of Employee does
not exceed 2.99 times Employee's base amount, as "base amount" is defined in
Section 280G(b)(3) of the Internal Revenue Code.
13. 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.
14. PROHIBITION AGAINST ASSIGNMENT. I agree that this Agreement and
the rights, interests and benefits hereunder shall not be assigned,
transferred, pledged or hypothecated in any way by me or any executor,
administrator, heir, legatee, distributee or any other person claiming under
me 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.
15. 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, attention: General Counsel, and in my case to my last known place
of residence as reflected on the Company's records.
10
<PAGE>
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between me and the Company and contains all of the agreements between us with
respect to the subject matter hereof.
17. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of me and the Company and our respective heirs, legal
representatives, executors, administrators, and successors.
18. GOVERNING LAW. This Agreement shall be subject to and governed by
the laws of the State of California.
19. AMENDMENT OF AGREEMENT. No change or modification of this
Agreement shall be valid unless the same be in writing and signed by me and
the Company. No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the person or party to be charged.
20. 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 hereto.
21. BREACH. In the event of any controversy, claim, or dispute between
the parties hereto, arising out of or relating to this Agreement or breach
thereof, the prevailing party shall be entitled to recover from the losing
party, reasonable expenses, attorney's fees and costs.
22. HEADINGS. The headings of this Agreement are inserted for
convenience only and are not to be considered in construction of the
provisions hereof.
23. WAIVER OR 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.
24. SEVERANCE. In the event Employee is involuntarily terminated for
reasons other than for cause, Employee shall receive as severance, payable in
bi-weekly installments, six months' salary at the then current rate. This
paragraph shall not be applicable if Employee's termination is as a result of a
Change in Control as described in Paragraph 12.
11
<PAGE>
25. PRIOR AGREEMENTS. This Agreement supersedes any and all prior
agreements between the Company and Employee with respect to the subject
matter hereof, including, but not limited to all Employment Agreements and/or
Invention and Confidentiality Agreements or any amendment thereto.
26. GENERIC DRUG ENFORCEMENT ACT CERTIFICATION. The undersigned,
certifies that he or she (1) has never been charged with or convicted of a
federal felony for conduct relating to the development, approval, or
regulation of any drug product or device regulated by the United States Food
and Drug Administration, and (2) has never been debarred or subject to a
debarment proceeding under the Generic Drug Enforcement Act of 1992.
WHEREAS, the parties have executed this Agreement as of the date first
above written.
MOLECULAR BIOSYSTEMS, INC.
By: /s/Bobba Venkatadri
-------------------
Bobba Venkatadri
President and Chief Executive
Officer
By: /s/Howard C. Dittrich
-------------------
Howard C. Dittrich
12
<PAGE>
Exhibit 10.43
May 30, 1997
Mr. Allan H. Mizoguchi, Ph.D.
Vice President, Clinical & Quality
Molecular Biosystems, Inc.
10030 Barnes Canyon Road
San Diego, California 92121
Re: Terms of Separation from MBI
----------------------------
Dear Al:
In accordance with our recent discussions, this letter ("Letter
Agreement") will set forth the terms of our agreement regarding your
voluntary departure from MBI.
1. DESCRIPTION. Both parties shall regard your departure as a
voluntary resignation to pursue personal goals and other opportunities.
2. TIMING. You shall resign as an employee and officer of MBI
effective as of May 30, 1997 ("Resignation Date"). Your resignation shall be
in the form attached hereto.
3. EFFECTIVE DATE. This Letter Agreement shall become effective on
the eighth day following your execution of the agreement, unless you have
revoked acceptance during the seven days prior thereto. (SEE Paragraph
15(b).) Regardless of when this takes place, the Agreement shall be deemed to
have been in effect retroactive to May 30, 1997. The Agreement shall not
become effective unless executed by you and MBI.
4. SEPARATION PAYMENTS. In consideration of your undertakings in this
Agreement, MBI shall provide you with severance benefits equivalent to one
year current salary. This amount shall be paid to you in bi-weekly
installments for the one year period following your Resignation Date (last
payment May 29, 1998). Taxes and other appropriate deductions will be
withheld, however, contributions to your 401(k) or any other benefit
deductions will not be allowed.
5. WELFARE BENEFITS. Regular medical, dental, vision, as well as
basic and optional life and accidental death and dismemberment insurance will
continue through May 31, 1997. Long-Term disability coverage will continue
through the Resignation Date and end thereafter. In addition:
(a) Medical, dental, and vision insurance under MBI's policies for
you and currently insured dependents will be extended through COBRA from June
1, 1997 through May 31, 1998 (unless you obtain other coverage during that
time, in which you must notify MBI) at MBI's expense. Thereafter, you may
elect to continue COBRA coverage at your expense for an additional six
months. (Maximum COBRA coverage is 18 months.)
(b) You will be provided the information needed to request the
option of converting the group life insurance and/or accidental death and
dismemberment insurance coverage to an individual
<PAGE>
Mr. Allan H. Mizoguchi, Ph.D.
May 30, 1997
Page 2
policy. You will work directly with CIGNA should you elect this option. You
would need to exercise this option within 31 days of the benefits termination
date, May 31, 1997.
<PAGE>
Mr. Allan H. Mizoguchi, Ph.D.
May 30, 1997
Page 3
(c) You will be provided the information needed to request the
option of converting the Long Term disability (LTD) insurance coverage to an
individual policy. You should work directly with UNUM should you elect this
option. You would need to exercise this option within 31 days of your
resignation date, May 30, 1997.
(d) Depending on the amount of your 401(k) plan balance, you may
either elect to remain in the plan with no further deposits (balance greater
than $3500), or elect a distribution of your funds (balance less than $3500).
You will notify CIGNA within 30 days of the Resignation Date as to how and to
whom your funds should be distributed. Information on how to initiate your
desired option will be provided by Human Resources.
(e) If you are a participant in the health care reimbursement
plan, you will have until the end of 1997 to request reimbursement for
charges incurred through the Resignation Date. Any such request should be
made directly to UNUM.
(f) You will be paid for all earned and unused vacation hours.
You will not accrue any additional vacation following the Resignation Date.
Representatives of Human Resources will be available to explain details of
the above items.
6. STOCK OPTIONS.
(a) CURRENT OPTIONS. You have been granted stock options as
described in the attached schedule. As of May 30, 1997 MBI will accelerate
the vesting of all unvested options. MBI will also extend the period of
exercisability of those options to the maximum period available under our
plans. (That is, the lapse dates in the charts, which are ALREADY at the
maximum, will not be reduced on account of your ceasing to be an employee.)
(b) RESTRICTIONS AND TRANSACTIONS. Until November 30, 1997
("Reporting Period"), you will be under the same constraints imposed by MBI
and securities laws on MBI vice presidents regarding the exercise of options
and the purchase and sale of MBI shares. During the Reporting Period, you
shall notify us of your intentions in this regard (including option
exercises) and shall execute such forms, if any, as MBI and the U.S.
securities laws require. If you wish, you may use the services of MBI's
Finance department to assist you in exercising your options and selling your
shares (if that is how you choose to proceed) during the Reporting Period.
You acknowledge that taxes and commissions will be withheld from any profit
you make on the sale of the stock following exercise and sale during the
Reporting Period. During the Reporting Period, you will be notified monthly,
along with other MBI Section 16(b) reporting persons, as to the current
trading status of MBI stock (i.e., "green light," "yellow light," or "red
light"). At no time -- presently, or at any future time, during or after the
Reporting Period -- may you trade on inside MBI information.
7. PLACEMENT. MBI will provide you with six months outplacement
counseling and services through Right Management Consultants. In addition,
MBI will also allow you to continue to use the company's phone voicemail
system and your current voice mailbox for a period of three months following
your Resignation Date.
<PAGE>
Mr. Allan H. Mizoguchi, Ph.D.
May 30, 1997
Page 4
8. COOPERATION; NO RAIDING; NON-DISPARAGEMENT. You shall cooperate
with MBI in any and all governmental and/or third-party proceedings,
including but not limited to lawsuits and other disputes. Following your
resignation such cooperation shall be at MBI's expense (except that MBI
cannot pay for the content of sworn testimony). You shall keep MBI advised
of contacts by governmental agencies and third parties, and shall reasonably
cooperate with MBI in handling any response. At your request, MBI shall
provide counsel to you, if the parties deem counsel necessary or desirable,
in any such proceeding. You shall not voluntarily cooperate with, testify
for, or otherwise assist parties adverse to MBI in a dispute, although you
may respond to compulsory process (i.e., a valid subpoena).
For a period of one year following the Resignation Date, you shall not
contact persons employed by MBI at the time to recruit them for your business
or any business by which you are employed or with which you are affiliated,
or otherwise encourage them to leave MBI.
You shall not materially disparage MBI, and MBI shall not materially
disparage you, to any third parties.
9. CONTACTS BY POTENTIAL EMPLOYERS. Potential employers contacting
MBI will be told only that your resignation was voluntary; your title; your
dates of employment; and your final salary. MBI will provide you with a
positive letter of reference. The letter will be agreed upon between you and
me.
10. CONFIDENTIALITY. You will not remove any MBI information,
documents, or other property from its premises, and you will return any MBI
information currently in your possession or control off MBI's premises. In
addition:
(a) You acknowledge that in the course of your employment with MBI
you have had and will have access to and familiarity with information of
substantial value to MBI which is not old or generally known to the public
and which gives MBI an advantage over its competitors who do not know or use
it, including but not limited to strategies, business plans, research,
formulas and formulations, techniques, designs, drawings, processes,
inventions, developments, equipment, prototypes, sales and customer
information, and financial information, relating to the business, products,
and practices of MBI (hereinafter referred to as "Confidential Information").
You agree at all times following your resignation to regard and preserve as
confidential such Confidential Information, and to refrain from publishing or
disclosing any part of such Confidential Information and from using it except
on behalf of MBI. You further agree at all times to refrain from any other
acts or omissions that would reduce the value of such Confidential
Information to MBI and to take all reasonably necessary and desirable
precautions to prevent such Confidential Information from being disseminated
to any third parties.
(b) You acknowledge that a breach of the terms of this paragraph
would threaten MBI with immediate and irreparable harm not readily
compensable in money damages, and that MBI would be entitled to injunctive
and declaratory relief to stop or prevent any such breach.
Nothing in this paragraph shall be construed to prevent you from using or
disclosing your general knowledge of the imaging industry (as opposed to
MBI-specific information) acquired at any time prior to or during the course
of your employment.
<PAGE>
Mr. Allan H. Mizoguchi, Ph.D.
May 30, 1997
Page 5
11. EMPLOYMENT BY COMPETITORS. This Letter Agreement does not limit
your ability to work for competitors of MBI, PROVIDED THAT for a period of
one year from the Resignation Date, reasonably in advance of accepting any
employment with any of the companies listed below ("Competitor"), you shall
notify the President and Chief Executive Officer of MBI.
Abbott Laboratories ImaRx Pharmaceutical
Accusphere Interactive Medical
Alliance Pharmaceuticals Technologies
Berlex Imaging Medisperse
Bracco Nycomed
Delta Biotechnology Schering
DuPont/Merck Sonus Pharmaceuticals
<PAGE>
Mr. Allan H. Mizoguchi, Ph.D.
May 30, 1997
Page 6
Prior to accepting any such employment, or promptly following your engagement
in any consulting relationship with a Competitor, you shall give MBI the
opportunity to discuss your plans with you in order to explore any possible
problems or conflicts. While MBI shall not disparage you or attempt to
dissuade any Competitor from employing or engaging you, you acknowledge that
MBI may contact such Competitor informing it truthfully of your
confidentiality obligations to MBI. MBI shall have no liability to you in
the event of a decision by a Competitor not to employ or engage you following
such contact by MBI. Failure to provide this notice to MBI during this
period shall be deemed a material breach of this Agreement.
You remain bound by your confidentiality obligations even if you work
for a Competitor.
12. RELEASE. In consideration for the payments, options, and other
consideration described in this Letter Agreement, you hereby unconditionally,
irrevocably, and absolutely release and discharge MBI, its employees,
officers, directors, agents, stockholders, independent contractors,
attorneys, consultants, predecessors, successors and assigns from any and all
claims related in any way to any acts, transactions, or occurrences between
you and MBI to date, including but not limited to all losses, liabilities,
claims, charges, demands and causes of action, known or unknown, suspected or
unsuspected, arising directly or indirectly out of, or in any way connected
with, your employment with or resignation from MBI. This includes, but is
not limited to, any claim of employment discrimination arising under federal,
state or local law, including the Age Discrimination in Employment Act of
1967, as amended, the Americans with Disabilities Act, the California Fair
Employment and Housing Act, any other statutory cause of action, and any tort
or contract claims.
WAIVER OF ADDITIONAL CLAIMS. Section 1542 of the Civil Code of the
State of California provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
You waive and relinquish any right or benefit which you may have under this
section or any other provision of the statutory or nonstatutory law or any
other jurisdiction to the full extent that you may lawfully waive all such
rights and benefits. In connection with such waiver and relinquishment, you
acknowledge that you are aware that you, your attorneys or agents may
hereafter discover claims or facts in addition to or different from those
which they now know or believe to exist, but that it is your intention
thereby fully, finally, and forever to release all claims, disputes, and
differences, known or unknown, suspected or unsuspected, which now exist, may
exist, or have existed between the parties, their employees, agents, assigns,
and other privies. Unless this provision shall have been procured by fraud,
the releases given herein shall be effective regardless of the discovery or
existence of any such claim or fact.
13. CONSEQUENCES OF BREACH. If you breach this Letter Agreement, MBI
may terminate it, cease providing payments and benefits hereunder, cancel
your stock options, and recover all payments and benefits already paid, in
addition to any other remedies it may have.
14. OTHER MATTERS. You will receive materials prepared by Human
Resources describing various rights and duties, including optional benefits,
which will come into effect following your resignation. You will also
receive instruments as are customarily submitted to resigning employees. You
will cooperate fully in these separation meetings and execute or complete
such instruments at the time of your resignation.
15. ACKNOWLEDGMENTS.
<PAGE>
Mr. Allan H. Mizoguchi, Ph.D.
May 30, 1997
Page 7
(a) NO PRE-EXISTING OBLIGATION. You acknowledge that but for the
entry by you and MBI into this Letter Agreement, you are not entitled to the
payments, stock options, and other consideration provided for in these
agreements (with the exception of federal rights such as COBRA).
(b) TIME FOR REVIEW; EFFECTIVE DATE. You acknowledge that you
have been given 21 days to consider the terms of this Letter Agreement. In
addition, both parties acknowledge that you may revoke your acceptance of
this Letter Agreement within seven days following your signature (which may
occur during the 21-day period).
(c) ADVICE OF COUNSEL AND OTHER PROFESSIONAL ADVISORS. You
acknowledge that you have been advised in writing to consult with an attorney
and an accountant or tax advisor before entering into these agreements. You
acknowledge either that you have done so and received counseling to your
satisfaction, or that you have declined to do so and voluntarily executed
this Letter Agreement without fraud or undue influence.
16. PROHIBITION AGAINST ASSIGNMENT. You shall not assign this Letter
Agreement or any of the rights, interests and benefits hereunder. However,
you may provide for the assignment, gift, bequest, or transfer of such
benefits under this Letter Agreement to your survivor(s), or to a trust for
their benefit, on your death, or in the event that you suffer a major
disability.
17. ENTIRE AGREEMENT. This Letter Agreement between the parties dated
May 30, 1997, constitutes the entire Agreement between the parties hereto and
contains all of the agreements between the parties with respect to its
subject matter. This Letter Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with
respect to their subject matter, PROVIDED THAT Paragraphs 3 (Confidentiality)
and 4-9 (relating to inventions made within a year of termination) of your
Employment Agreement dated August 1, 1994, shall remain in effect.
18. BINDING EFFECT. This Letter Agreement shall be binding upon and
inure to the benefit of both parties and their respective heirs, legal
representatives, executors, administrators, and successors.
19. GOVERNING LAW. This Letter Agreement shall be subject to and
governed by the laws of the State of California irrespective of the fact that
you may become a resident of a different state.
20. AMENDMENT OF LETTER AGREEMENT. No change or modification of this
Letter Agreement shall be valid unless the same be in writing and signed by
both parties. No waiver of any provision of this Letter Agreement shall be
valid unless in writing and signed by the person or party to be charged.
21. SEVERABILITY. If any portion or portions of this Letter 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 hereto.
22. HEADINGS. The headings of this Letter Agreement are inserted for
convenience only and are not to be considered in construction of the
provisions hereof.
<PAGE>
Mr. Allan H. Mizoguchi, Ph.D.
May 30, 1997
Page 8
23. 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 Letter Agreement.
24. INDEMNIFICATION. With respect to any claim against you arising out
of your work for MBI as an officer or employee, you shall have rights of
indemnification against MBI under MBI's certificate of incorporation and
bylaws equivalent to those of an MBI officer.
* * * *
If you are in agreement with these items, please execute the duplicate
originals of this Letter Agreement and return them to Pam Alexandra.
Let me take this opportunity to thank you for your services to MBI over
the past several years. We all wish you every success in your future
endeavors.
Sincerely,
/s/ Bobba Venkatadri
-------------------------
Bobba Venkatadri
President and Chief Executive Officer
AGREED TO BY:
/s/ Allan H. Mizoguchi
- --------------------------
Allan H. Mizoguchi
Date: June 3, 1997
<PAGE>
EXHIBIT 10.44
May 30, 1997
Mr. James L. Barnhart, Ph.D.
Vice President, Research and Development
Molecular Biosystems, Inc.
10030 Barnes Canyon Road
San Diego, California 92121
Re: TERMS OF SEPARATION FROM MBI
Dear Jim:
In accordance with our recent discussions, this letter ("Letter
Agreement") will set forth the terms of our agreement regarding your
voluntary departure from MBI.
1. DESCRIPTION. Both parties shall regard your departure as a
voluntary resignation to pursue personal goals and other opportunities.
2. TIMING. You shall resign as an employee and officer of MBI
effective as of May 30, 1997 ("Resignation Date"). Your resignation shall be
in the form attached hereto.
3. EFFECTIVE DATE. This Letter Agreement shall become effective on
the eighth day following your execution of the agreement, unless you have
revoked acceptance during the seven days prior thereto. (SEE Paragraph
16(b).) Regardless of when this takes place, the Agreement shall be deemed to
have been in effect retroactive to May 30, 1997. The Agreement shall not
become effective unless executed by you and MBI.
4. SEPARATION PAYMENTS. In consideration of your undertakings in this
Agreement, MBI shall provide you with severance benefits equivalent to one
year current salary. This amount shall be paid to you in bi-weekly
installments for the one year period following your Resignation Date (last
payment May 29, 1998). Taxes and other appropriate deductions will be
withheld, however, contributions to your 401(k), health care reimbursement
account, or any other benefit deductions will not be allowed.
5. WELFARE BENEFITS. Regular medical, dental, vision, as well as
basic and optional life and accidental death and dismemberment insurance will
continue through May 31, 1997. Long-Term disability coverage will continue
through the Resignation Date and end thereafter. In addition:
(a) Medical, dental, and vision insurance under MBI's policies for
you and currently insured dependents will be extended through COBRA from June
1, 1997 through May 31, 1998 (unless you obtain other coverage during that
time, in which you must notify MBI) at MBI's expense. Thereafter, you may
elect to continue COBRA coverage at your expense for an additional six
months. (Maximum COBRA coverage is 18 months.)
(b) You will be provided the information needed to request the
option of converting the group life insurance and/or accidental death and
dismemberment insurance coverage to an individual policy. You will work
directly with CIGNA should you elect this option. You would need to exercise
this option within 31 days of the benefits termination date, May 31, 1997.
<PAGE>
Mr. James L. Barnhart, Ph.D.
May 30, 1997
Page 2
(c) You will be provided the information needed to request the
option of converting the Long Term disability (LTD) insurance coverage to an
individual policy. You should work directly with UNUM should you elect this
option. You would need to exercise this option within 31 days of your
resignation date, May 30, 1997.
(d) Depending on the amount of your 401(k) plan balance, you may
either elect to remain in the plan with no further deposits (balance greater
than $3500), or elect a distribution of your funds (balance less than $3500).
You will notify CIGNA within 30 days of the Resignation Date as to how and to
whom your funds should be distributed. Information on how to initiate your
desired option will be provided by Human Resources.
(e) You currently have an outstanding loan against your 401K
account (Approximate remaining balance of loan is $11,068.04.) According to
MBI's 401(k) Plan, you will be responsible for paying the loan balance in
full within 30 days of your Resignation Date. Repayment of the loan should be
in the form of a cashier's check made payable to MBI. If you do not pay back
the loan balance, it will be considered a cash distribution and taxed
accordingly. For more information on tax consequences of a distribution or
how to process your loan repayment you may contact CIGNA directly.
(f) If you are a participant in the health care reimbursement
plan, you will have until the end of 1997 to request reimbursement for
charges incurred through the Resignation Date. Any such request should be
made directly to UNUM.
(g) You will be paid for all earned and unused vacation hours.
You will not accrue any additional vacation following the Resignation Date.
(h) As agreed, MBI will pay all your expenses, according to
policy, to attend the Bio 97' meeting in Houston, Texas in June 1997.
Representatives of Human Resources will be available to explain details of the
above items.
6. STOCK OPTIONS.
(a) CURRENT OPTIONS. You have been granted stock options as
described in the attached schedule. As of May 30, 1997 MBI will accelerate
the vesting of all unvested options. MBI will also extend the period of
exercisability of those options to the maximum period available under our
plans. (That is, the lapse dates in the charts, which are ALREADY at the
maximum, will not be reduced on account of your ceasing to be an employee.)
(b) RESTRICTIONS AND TRANSACTIONS. Until November 30, 1997
("Reporting Period"), you will be under the same constraints imposed by MBI
and securities laws on MBI vice presidents regarding the exercise of options
and the purchase and sale of MBI shares. During the Reporting Period, you
shall notify us of your intentions in this regard (including option
exercises) and shall execute such forms, if any, as MBI and the U.S.
securities laws require. If you wish, you may use the services of MBI's
Finance department to assist you in exercising your options and selling your
shares (if that is how you choose to proceed) during the Reporting Period.
You acknowledge that taxes and commissions will be withheld from any profit
you make on the sale of the stock following exercise and sale during the
Reporting Period. During the Reporting Period, you will be notified monthly,
along with other MBI Section 16(b) reporting persons, as to the current
trading status of MBI stock (i.e., "green light," "yellow light," or
<PAGE>
Mr. James L. Barnhart, Ph.D.
May 30, 1997
Page 3
"red light"). At no time -- presently, or at any future time, during or
after the Reporting Period -- may you trade on inside MBI information.
7. PLACEMENT. MBI will provide you with six months outplacement
counseling and services through Right Management Consultants. In addition,
MBI will also allow you to continue to use the company's phone voicemail
system and your current voice mailbox for a period of three months following
your Resignation Date.
8. COOPERATION; NO RAIDING; NON-DISPARAGEMENT. You shall cooperate
with MBI in any and all governmental and/or third-party proceedings,
including but not limited to lawsuits and other disputes. Following your
resignation such cooperation shall be at MBI's expense (except that MBI
cannot pay for the content of sworn testimony). You shall keep MBI advised
of contacts by governmental agencies and third parties, and shall reasonably
cooperate with MBI in handling any response. At your request, MBI shall
provide counsel to you, if the parties deem counsel necessary or desirable,
in any such proceeding. You shall not voluntarily cooperate with, testify
for, or otherwise assist parties adverse to MBI in a dispute, although you
may respond to compulsory process (i.e., a valid subpoena).
For a period of one year following the Resignation Date, you shall not
contact persons employed by MBI at the time to recruit them for your business
or any business by which you are employed or with which you are affiliated,
or otherwise encourage them to leave MBI.
You shall not materially disparage MBI, and MBI shall not materially
disparage you, to any third parties.
9. CONTACTS BY POTENTIAL EMPLOYERS. Potential employers contacting
MBI will be told only that your resignation was voluntary; your title; your
dates of employment; and your final salary. MBI will provide you with a
positive letter of reference. The letter will be agreed upon between you and
me.
10 CONFIDENTIALITY. You will not remove any MBI information,
documents, or other property from its premises, and you will return any MBI
information currently in your possession or control off MBI's premises. In
addition:
(a) You acknowledge that in the course of your employment with MBI
you have had and will have access to and familiarity with information of
substantial value to MBI which is not old or generally known to the public
and which gives MBI an advantage over its competitors who do not know or use
it, including but not limited to strategies, business plans, research,
formulas and formulations, techniques, designs, drawings, processes,
inventions, developments, equipment, prototypes, sales and customer
information, and financial information, relating to the business, products,
and practices of MBI (hereinafter referred to as "Confidential Information").
You agree at all times following your resignation to regard and preserve as
confidential such Confidential Information, and to refrain from publishing or
disclosing any part of such Confidential Information and from using it except
on behalf of MBI. You further agree at all times to refrain from any other
acts or omissions that would reduce the value of such Confidential
Information to MBI and to take all reasonably necessary and desirable
precautions to prevent such Confidential Information from being disseminated
to any third parties.
(b) You acknowledge that a breach of the terms of this paragraph
would threaten MBI with immediate and irreparable harm not readily
compensable in money damages, and that MBI would be entitled to injunctive
and declaratory relief to stop or prevent any such breach.
<PAGE>
Mr. James L. Barnhart, Ph.D.
May 30, 1997
Page 4
Nothing in this paragraph shall be construed to prevent you from using or
disclosing your general knowledge of the imaging industry (as opposed to
MBI-specific information) acquired at any time prior to or during the course
of your employment.
11. EMPLOYMENT BY COMPETITORS. This Letter Agreement does not limit
your ability to work for competitors of MBI, PROVIDED THAT for a period of
one year from the Resignation Date, reasonably in advance of accepting any
employment with any company, individual, or other entity engaged or planning
to engage in the development, manufacture, or marketing of ultrasound
contrast agents ("Competitor"), you shall notify the President or Chief
Executive Officer of MBI. Prior to accepting any such employment, or
promptly following your engagement in any consulting relationship with a
Competitor, you shall give MBI the opportunity to discuss your plans with you
in order to explore any possible problems or conflicts. While MBI shall not
disparage you or attempt to dissuade any Competitor from employing or
engaging you, you acknowledge that MBI may contact such Competitor, with
proper advance notice to you, informing it truthfully of your confidentiality
obligations to MBI. MBI shall have no liability to you in the event of a
decision by a Competitor not to employ or engage you following such contact
by MBI. Failure to provide this notice to MBI during this period shall be
deemed a material breach of this Agreement.
You remain bound by your confidentiality obligations even if you work
for a Competitor.
12. LOAN. You executed a Note in favor of MBI in the principal amount
of $205,868 and it is due and payable on January 31, 1998. The loan is
secured by 14,000 shares of MBI stock (certificate numbers MB2246 (5,000
shares) and MB1618 (9,000 shares; ("the Subject Shares")) purchased with the
loan proceeds as a result of the exercise of a stock option. With interest,
the indebtedness evidenced by the Note has risen to approximately $255,102 at
March 31, 1997. The indebtedness evidenced by the Note, as amended, has been
retired as of March 31, 1997 as follows: MBI purchased the Subject Shares
from you effective March 31, 1997 at the closing price of MBI common stock on
the New York Stock Exchange as of March 31, 1997 ($9.125 per share). The
purchase proceeds were used to reduce the Note. (Cash did not change hands;
this was handled by bookkeeping entries.) MBI forgave the remaining
indebtedness and the Note was canceled.
EXAMPLE:
<TABLE>
<CAPTION>
<S> <C>
Indebtedness: $255,102
Purchase price: $ 9.125
Times 14,000 shares ($127,750)
Remaining debt $127,352
</TABLE>
MBI forgave the remaining indebtedness of $127,352.
MBI believes, BUT DOES NOT WARRANT, REPRESENT, OR PROMISE, (1) that the
debt forgiveness will not result in current taxable income to you, but will
instead serve to reduce your basis in the shares for purposes of your tax
accounting, and (2) under the circumstances of your option exercise and the
forgiveness. The sale back of stock to MBI will leave you with a tax gain
which will be subject to tax liability. In order to compensate you for any
additional tax liabilities owed as a result of this Loan forgiveness, MBI
will pay you a lump sum payment of $10,000, from which taxes will be
deducted. MBI will not include the forgiveness on your W-2. MBI STRONGLY
RECOMMENDS THAT YOU SECURE
<PAGE>
Mr. James L. Barnhart, Ph.D.
May 30, 1997
Page 5
COMPETENT TAX ADVICE WITH RESPECT TO THE ACCOUNTING AND TAX TREATMENT OF THE
DESCRIBED TRANSACTION PRIOR TO EXECUTING THIS LETTER AGREEMENT. Additional
information with respect to your loan:
<TABLE>
<CAPTION>
OPTION OPTION
<S> <C> <C>
Option price: 9,000 @ $11.875 5,000 @ $15.75
Market price on exercise date $17.50 (12/16/92) $18.00 (12/22/93)
Taxes advanced and added to loan $5,316 (approx.) $4,927 (approx.)
Accrued interest to 3-31-97 $ 49,234 (approx. for both Notes)
</TABLE>
MBI's Chief Financial Officer will explain the basis for MBI's belief to
you and/or your professional advisors, if you wish.
13. RELEASE. In consideration for the payments, options, loan
forgiveness, and other consideration described in this Letter Agreement, you
hereby unconditionally, irrevocably, and absolutely release and discharge
MBI, its employees, officers, directors, agents, stockholders, independent
contractors, attorneys, consultants, predecessors, successors and assigns
from any and all claims related in any way to any acts, transactions, or
occurrences between you and MBI to date, including but not limited to all
losses, liabilities, claims, charges, demands and causes of action, known or
unknown, suspected or unsuspected, arising directly or indirectly out of, or
in any way connected with, your employment with or resignation from MBI.
This includes, but is not limited to, any claim of employment discrimination
arising under federal, state or local law, including the Age Discrimination
in Employment Act of 1967, as amended, the Americans with Disabilities Act,
the California Fair Employment and Housing Act, any other statutory cause of
action, and any tort or contract claims.
WAIVER OF ADDITIONAL CLAIMS. Section 1542 of the Civil Code of the
State of California provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
You waive and relinquish any right or benefit which you may have under this
section or any other provision of the statutory or nonstatutory law or any
other jurisdiction to the full extent that you may lawfully waive all such
rights and benefits. In connection with such waiver and relinquishment, you
acknowledge that you are aware that you, your attorneys or agents may
hereafter discover claims or facts in addition to or different from those
which they now know or believe to exist, but that it is your intention
thereby fully, finally, and forever to release all claims, disputes, and
differences, known or unknown, suspected or unsuspected, which now exist, may
exist, or have existed between the parties, their employees, agents, assigns,
and other privies. Unless this provision shall have been procured by fraud,
the releases given herein shall be effective regardless of the discovery or
existence of any such claim or fact.
14. CONSEQUENCES OF BREACH. If you breach this Letter Agreement, MBI
may terminate it, cease providing payments and benefits hereunder, cancel
your stock options, and recover all payments and benefits already paid, in
addition to any other remedies it may have.
<PAGE>
Mr. James L. Barnhart, Ph.D.
May 30, 1997
Page 6
15. OTHER MATTERS. You will receive materials prepared by Human
Resources describing various rights and duties, including optional benefits,
which will come into effect following your resignation. You will also
receive instruments as are customarily submitted to resigning employees. You
will cooperate fully in these separation meetings and execute or complete
such instruments at the time of your resignation.<PAGE>
<PAGE>
Mr. James L. Barnhart, Ph.D.
May 30, 1997
Page 7
16. ACKNOWLEDGMENTS.
(a) NO PRE-EXISTING OBLIGATION. You acknowledge that but for
the entry by you and MBI into this Letter Agreement, you are not entitled to
the payments, stock options, loan forgiveness, and other consideration
provided for in these agreements (with the exception of federal rights such
as COBRA).
(b) TIME FOR REVIEW; EFFECTIVE DATE. You acknowledge that you
have been given 21 days to consider the terms of this Letter Agreement. In
addition, both parties acknowledge that you may revoke your acceptance of
this Letter Agreement within seven days following your signature (which may
occur during the 21-day period).
(c) ADVICE OF COUNSEL AND OTHER PROFESSIONAL ADVISORS. You
acknowledge that you have been advised in writing to consult with an attorney
and an accountant or tax advisor before entering into these agreements. You
acknowledge either that you have done so and received counseling to your
satisfaction, or that you have declined to do so and voluntarily executed
this Letter Agreement without fraud or undue influence.
17. PROHIBITION AGAINST ASSIGNMENT. You shall not assign this Letter
Agreement or any of the rights, interests and benefits hereunder. However,
you may provide for the assignment, gift, bequest, or transfer of such
benefits under this Letter Agreement to your survivor(s), or to a trust for
their benefit, on your death, or in the event that you suffer a major
disability.
18. ENTIRE AGREEMENT. This Letter Agreement between the parties dated
May 30, 1997, constitutes the entire Agreement between the parties hereto and
contains all of the agreements between the parties with respect to its
subject matter. This Letter Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with
respect to their subject matter, PROVIDED THAT Paragraphs 3 (Confidentiality)
and 4-9 (relating to inventions made within a year of termination) of your
Employment Agreement dated October 1, 1992, shall remain in effect.
19. BINDING EFFECT. This Letter Agreement shall be binding upon and
inure to the benefit of both parties and their respective heirs, legal
representatives, executors, administrators, and successors.
20. GOVERNING LAW. This Letter Agreement shall be subject to and
governed by the laws of the State of California irrespective of the fact that
you may become a resident of a different state.
21. AMENDMENT OF LETTER AGREEMENT. No change or modification of this
Letter Agreement shall be valid unless the same be in writing and signed by
both parties. No waiver of any provision of this Letter Agreement shall be
valid unless in writing and signed by the person or party to be charged.
22. SEVERABILITY. If any portion or portions of this Letter 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 hereto.
23. HEADINGS. The headings of this Letter Agreement are inserted for
convenience only and are not to be considered in construction of the
provisions hereof.
<PAGE>
Mr. James L. Barnhart, Ph.D.
May 30, 1997
Page 8
24. 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 Letter Agreement.
25. INDEMNIFICATION. With respect to any claim against you arising out
of your work for MBI as an officer or employee, you shall have rights of
indemnification against MBI under MBI's certificate of incorporation and
bylaws equivalent to those of an MBI officer.
* * * *
If you are in agreement with these items, please execute the duplicate
originals of this Letter Agreement and return them to Pam Alexandra.
Let me take this opportunity to thank you for your services to MBI over
the past several years. We all wish you every success in your future
endeavors.
Sincerely,
/s/ Bobba Venkatadri
--------------------
Bobba Venkatadri
President and Chief Executive Officer
AGREED TO BY:
/s/ James L. Barnhart
- -----------------------
James L. Barnhart
Date: May 30, 1997
------------
<PAGE>
EXHIBIT 10.46
FIRST AMENDMENT TO SUBLEASE
THIS FIRST AMENDMENT TO SUBLEASE ("Amendment") effective as of February
27, 1998 ("Effective Date"), is entered into by and between Molecular
Biosystems, Inc., a Delaware corporation (the "Sublessor"), and Dura
Pharmaceuticals, Inc., a Delaware corporation (the "Sublessee"). Sublessor
and Sublessee are collectively hereinafter referred to as the "parties."
RECITALS
B. Sublessor and Sublessee entered into a written Sublease
effective October 1, 1997 (the "Sublease") pursuant to which Sublessor
subleased to Sublessee and Sublessee subleased from Sublessor the Premises
described therein. Sublessor holds the Premises and certain other premises
(collectively, the "Master Premises") pursuant to a certain Master Lease made
as of June 19, 1995 ("Master Lease"), by and between Radnor/Collins/Sorrento
Partnership, as "Lessor," and Sublessor under this Sublease, as "Lessee."
C. Sublessor and Sublessee now wish to make modifications to the
Sublease to expand the Premises, revise the rental rate for the Premises, and
to extend the Term of the Sublease, all in accordance with the terms and
conditions set forth herein.
D. The parties now wish to amend the Sublease to reflect these
changes and to make other modifications in consideration therefor.
NOW, THEREFORE, in consideration of the above Recitals, and the mutual
covenants contained herein, the parties agree as follows:
1. LEASE AMENDMENT. A copy of the Sublease is attached hereto and
incorporated herein as EXHIBIT A. Except as expressly provided in this
Amendment, the Sublease shall remain unmodified, in full force and effect.
The capitalized terms used herein shall have the meanings ascribed to them in
the Sublease unless otherwise indicated. To the extent that there is any
conflict between this Amendment and the Sublease, the provisions of this
Amendment shall prevail.
<PAGE>
2. PREMISES.
2.1 Effective April 15, 1998 or such earlier date as
Sublessor elects by five (5) days prior written notice to Sublessee ("First
Expansion Date"), the Premises shall be expanded to include the entire Master
premises except the Second Expansion Space (the "First Expansion Space") of
the Building, as more particularly shown in EXHIBIT B.
2.2 Effective June 1, 1998 or such earlier date as Sublessor
elects by ten (10) days prior written notice to Sublessee ("Second Expansion
Date"), the Premises shall be further expanded to include the entire Master
Premises of Sublessor under the Master Lease as set forth in Section 2.1 of
the Master Lease. The space added to the Premises pursuant to this Section
2.2 shall be known as the "Second Expansion Space." Collectively, both the
First Expansion Space and the Second Expansion Space shall be known as the
"Expansion Space."
3. PROPORTIONATE SHARE.
3.1 On the First Expansion Date, the Sublessee's
Proportionate Share, as set forth in the Basic Sublease Information and
Section 1.1 of the Sublease shall be increased to ninety-five percent (95%).
3.2 On and after the Second Expansion Date, the Sublessee's
Proportionate Share shall be increased to one hundred percent (100%).
4. BASE RENT.
4.1 From and after the First Expansion Date, the Base Rent
for the Premises shall be $1.07 per rentable square foot, or a total of
Fifty-Five Thousand Nine Hundred Seventy-Three Dollars and Eighty-Four Cents
($55,973.84) per month.
4.2 From and after the Second Expansion Date, the Base Rent
for the Premises shall be Fifty-Eight Thousand Five Hundred Forty-One Dollars
and Eighty-Four Cents ($58,541.84) per month.
4.3 On July 1, 1998, and each anniversary thereof,
Sublessee's Base Rent shall increase by four percent (4%) of Sublessee's Base
Rent for the preceding month.
5. TERM. The Term of the Sublease shall expire on December
31,1999.
6. LIMITATION OF EXCLUSIONS. From and after the Second Expansion
Date, Sections 17.1 and 17.4 shall be incorporated into the Sublease,
notwithstanding Section 7.2 of the Sublease.
7. SUBLESSOR'S OBLIGATIONS. Section 7.4 of the Sublease shall be
deleted in its entirety and the following shall be substituted therefor:
-2-
<PAGE>
7.4 SUBLESSOR'S OBLIGATIONS. Sublessee acknowledges that
Sublessor shall be under no obligation to provide any
services or satisfy any obligations or covenants of
Master Landlord contained in the Master Lease;
provided, however, Sublessor, upon written notice by
Sublessee shall promptly and diligently attempt to
enforce all obligations of Master Landlord under the
Master Lease, provided that Sublessee reimburses
Sublessor for all reasonable costs and expenses
incurred in connection therewith.
8. PHYSICAL CONDITION. Sublessee and Sublessor recognize and
agree that Sublessor would not sublease the Expansion Space to Sublessee and
Sublessee would not sublease the Expansion Space from Sublessor except on an
"as is" basis and acknowledges that neither Sublessee nor Sublessor has made
any representations of any kind, express or implied, in connection with the
Improvements or physical conditions on, or bearing on, the Expansion Space,
including without limitation the suitability of the Expansion Space for
Sublessee's purposes. Sublessee further recognizes and agrees that neither
Sublessor nor Master Landlord shall be required to perform any work of
construction, alteration or maintenance of or to the Expansion Space except
as set forth in the Master Lease.
9. SUBLESSEE'S ADDITIONAL OBLIGATIONS. From and after the Second
Expansion Date, Sublessee shall expressly assume and shall be directly
responsible for all Lessee's obligations under Section 11 of the Master
Lease. As Sublessor in its sole discretion may from time to time demand,
Sublessee shall provide Sublessor within five (5) business days with copies
of all contracts, invoices, accounting records and any other records
associated with Sublessee's fulfillment of the Lessee's obligations under
Section 11 of the Master Lease. However, at Sublessor's sole discretion,
Sublessor may choose to directly fulfill any or all of Sublessor's
obligations under Section 11 of the Master Lease and be compensated for any
such expenses reasonably incurred pursuant to Section 3.2 of the Sublease and
Section 3.2 of this Amendment. Any maintenance contracts entered into by
Sublessee for obligations covered by this Section 9 shall by their terms be
freely assignable to Sublessor, and Sublessee shall promptly assign any such
contracts to Sublessor if Sublessor at its sole discretion so requests.
10. FORMER BUILDING AREA COMMON AREAS. As of the Effective Date,
Sublessor shall have no responsibility for the care, management or expenses
of any portion of the Building Common Area incorporated into Sublessee's
Premises pursuant to Sections 2.1 and 2.2 of this Amendment. As of the
Second Expansion Date, all Building Common Areas shall be included in the
Premises, Sublessor shall have no maintenance, repair or other obligations in
connection therewith and Sublessee shall have direct responsibility for
repair and maintenance thereof, in accordance with the terms and conditions
of the Sublease and the Master Lease.
-3-
<PAGE>
11. SECURITY DEPOSIT. Upon executing this Amendment, Sublessee
shall deposit with Sublessor a Security Deposit in the amount of Fifty-Eight
Thousand Five Hundred Forty-One Dollars and Eighty-Four Cents ($58,541.84).
The Security Deposit shall secure Sublessee's obligations under the Sublease
to pay rent and other monetary amounts, to maintain the Premises and repair
damages thereto, to surrender the Premises to Sublessor in clean and sanitary
condition and to discharge Sublessee's other obligations hereunder.
Sublessor may use and commingle the Security Deposit with other funds of
Sublessor. If Sublessee fails to perform Sublessee's obligations hereunder,
Sublessor may, but without any obligation to do so, apply all or any portion
of the Security Deposit towards fulfillment of Sublessee's unperformed
obligations. If Sublessor does so apply any portion of the Security Deposit,
Sublessee shall immediately pay Sublessor a sufficient amount in cash to
restore the Security Deposit to the full original amount. In the event that
Sublessor shall expend the same in order to cure Sublessee's default
hereunder, Sublessee's failure to forthwith remit to Sublessor a sufficient
amount in cash to restore the Security Deposit to the original sum deposited
within five (5) days after Sublessee's receipt of notice from Sublessor that
such amounts have been so expended shall constitute a material default of the
Sublease. The Security Deposit shall be held by Sublessor without liability
for interest on the same. Upon termination of this Lease, if Sublessee has
then performed all of Sublessee's obligations hereunder, Sublessor shall
return the Security Deposit to Sublessee. If Sublessor sells or otherwise
transfers Sublessor's rights or interest under this Lease, Sublessor may
deliver the Security Deposit to the transferee, whereupon Sublessor shall be
released from any further liability to Sublessee with respect to the Security
Deposit.
12. NOTICES. Sublessee shall concurrently send copies to
Sublessor, at Sublessor's Address for Notice set forth in the Basic Sublease
Information of the Sublease, of all notices Sublessee sends to Master
Landlord and shall promptly send to Sublessor copies of all notices received
from Master Landlord.
13. INDEMNIFICATION. Sublessee shall indemnify, protect, defend
and hold Sublessor harmless from and against any and all claims, liabilities,
penalties, losses or expenses (including reasonable attorneys' fees and
costs) arising in connection with Sublessee's breach or failure to perform
any of Sublessee's obligations under the Sublease as modified by this
Amendment and/or the Master Lease. Sublessor shall indemnify, protect,
defend and hold Sublessee harmless from and against any and all claims,
liabilities, penalties, losses or expenses (including reasonable attorneys'
fees and costs) arising in connection with Sublessor's breach or failure to
perform any of Sublessor's obligations under the Sublease as modified by this
Amendment and/or the Master Lease.
14. MASTER LANDLORD'S CONSENT. This Amendment is conditioned upon
receipt of Master Landlord's written approval of this Amendment prior to the
First Expansion Date. If Master Landlord withholds its consent, this
Amendment shall be deemed void and of no effect.
-4-
<PAGE>
15. AUTHORITY; COUNTERPARTS. Each person executing this Amendment
on behalf of a party represents that he or she is authorized and empowered to
do so and to thereby bind the party on whose behalf he or she is signing.
This Amendment may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall comprise
but a single instrument.
-5-
<PAGE>
[SIGNATURE PAGE TO SUBLEASE AMENDMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the date and year hereinabove written.
SUBLESSOR:
MOLECULAR BIOSYSTEMS, INC.
a Delaware corporation
By: /s/ Gerard A. Wills
---------------------------
Its Chief Financial Officer
By: ___________________________
Its___________
SUBLESSEE:
DURA PHARMACEUTICALS, INC.
a Delaware corporation
By: /s/ M.R. Woodbury
---------------------------
Its Senior Vice President
By: ___________________________
Its___________
-6-
<PAGE>
EXHIBIT 10.47
SUBLEASE
5828 PACIFIC CENTER BOULEVARD
(SUITE 200)
SAN DIEGO, CALIFORNIA
MOLECULAR BIOSYSTEMS, INC.
a Delaware corporation
as Sublessor
and
DURA PHARMACEUTICALS, INC.
a Delaware corporation
as Sublessee
October 1, 1997
<PAGE>
BASIC SUBLEASE INFORMATION
DEFINED TERMS
Building: 5828 Pacific Center Boulevard
San Diego, California 92121
Effective Date: October 1, 1997
Commencement Date: October 1, 1997
Rent Commencement
Date: October 1, 1997
Master Landlord: Radnor/Collins/Sorrento Partnership,
a California general partnership
Master Landlord's
Address for 5963 La Place Court, Suite 109
Rent and Notice: Carlsbad, California 92008
with a copy to:
RADNOR PACIFIC CORPORATE
CENTER CORPORATION
9255 Town Center Drive, Suite 100
San Diego, California 92121
Master Lease: That certain Pacificpoint Triple Net Lease by and
between Master Landlord and Sublessor, dated May 18,
1995, a true and complete copy of which is attached
hereto and incorporated herein as EXHIBIT A.
Master Premises: The Building, consisting of approximately 54,712 square
feet.
Premises: Improved real property as more particularly described
in the Master Lease, consisting of a portion of the
Master Premises, containing approximately 32,827
rentable square feet as depicted on EXHIBIT B
attached hereto and incorporated herein, and a non-
exclusive right to utilize all of Sublessor's
leasehold interest in the Common Areas of the Project
(as defined in Section 49 of the Master Lease),
including, without limitation, Sublessor's parking
rights (on a proportionate basis) and rights to any
appurtenant easements under the Master Lease. The
Premises shall include Sublessee's right to utilize
the common areas within the Building ("Building
Common Areas") as depicted on EXHIBIT B-1.
i
<PAGE>
Monthly Base Rent: SUBLEASE MONTHS RENT PER SQ.FT. MONTHLY NNN RENT
1-9 $ .94 $30,858
10-12 .98 $32,170
Security
Deposit: None
Sublessee: Dura Pharmaceuticals, Inc., a Delaware corporation
Sublessee's 5880 Pacific Center Boulevard
Address for Notice: San Diego, California 92121
Attn: Mitch Woodbury
Sublessee's
Proportionate Share: Sixty Percent (60%) of Building Operating Expenses
and Taxes as defined in Paragraph 3.2 of this Sublease.
Sublessor: Molecular Biosystems, Inc.
a Delaware corporation
Sublessor's 10030 Barnes Canyon Road
Address for San Diego, California 92121
Notice: Attn: Jerry Wills
Term: The term ("Term") of this Sublease shall begin on the
Commencement Date and expire on December 31, 1998.
Notwithstanding the foregoing, the Term shall cease
upon, and shall not refer to any period of time after,
termination of the Master Lease (whether pursuant to
the terms of the Master Lease, by operation of law, or
otherwise).
Permitted Uses: Those Permitted Uses set forth in paragraph 5 of the
Master Lease.
Brokers: Shaun Burnett, Irving Hughes Group, Inc.
Exhibits: EXHIBIT A - Master Lease
EXHIBIT B - Premises Depiction
EXHIBIT B-1 - Building Common Areas Depiction
EXHIBIT C - Work List
EXHIBIT D - Exit Assessment
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 - PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Demise of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Condition of Premises. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2.1 Physical Condition . . . . . . . . . . . . . . . . . . . . . . 2
1.2.2 Environmental Assessment . . . . . . . . . . . . . . . . . . . 2
1.2.3 No Representations . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Validity of Master Lease . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 - TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3 - SUBLESSEE'S PAYMENT OBLIGATIONS. . . . . . . . . . . . . . . . . . . . 3
3.1 Monthly Base Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Net Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 4 - [INTENTIONALLY DELETED]. . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 5 - USE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 6 - ALTERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 7 - RIGHTS AND DUTIES OF SUBLESSEE . . . . . . . . . . . . . . . . . . . . 5
7.1 Sublease Subject to Master Lease . . . . . . . . . . . . . . . . . . . 5
7.2 Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.3 Time for Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.4 Sublessor's Obligations. . . . . . . . . . . . . . . . . . . . . . . . 6
7.5 Use of Building Common Areas . . . . . . . . . . . . . . . . . . . . . 6
7.6 Entry by Sublessor . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 8 - INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 9 - INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 10 - DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 11 - NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 12 - ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 13 - REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 14 - DAMAGE AND DESTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . 8
14.1 Termination of Master Lease . . . . . . . . . . . . . . . . . . . . . 8
14.2 Continuation of Sublease . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 15 - CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
15.1 Total Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . 9
15.2 Partial Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . 9
15.3 Sublessee's Award . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 16 - SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 17 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
17.1 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
17.2 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
17.3 Master Landlord's Consent . . . . . . . . . . . . . . . . . . . . . . 10
17.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
17.5 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
17.6 Broker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("Sublease") is entered as of the Effective Date
by and between Sublessor and Sublessee.
THE PARTIES ENTER this Sublease on the basis of the following facts,
understandings and intentions:
A. Master Landlord is the current Landlord of the Premises. Sublessor
is presently the Tenant of the Premises pursuant to the Master Lease. A copy
of the Master Lease with all amendments, exhibits and addenda thereto, is
attached hereto as EXHIBIT A and incorporated herein by this reference.
B. Sublessor desires to sublease the Premises to Sublessee and
Sublessee desires to sublease the Premises from Sublessor on all of the
terms, covenants and conditions set forth herein.
C. All of the terms and definitions in the Defined Terms of the Basic
Sublease Information of this Sublease are incorporated herein by this
reference. Unless otherwise defined herein or the context otherwise requires,
all capitalized terms shall have the meanings given them in the Master Lease.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises of
the parties, the parties hereto agree as follows:
ARTICLE 1 - PREMISES
1.1 DEMISE OF PREMISES. Sublessor hereby subleases to Sublessee and
Sublessee hereby subleases from Sublessor the Premises, for the Term and upon
all of the terms and conditions herein set forth. The Premises shall be used
by Sublessee for those uses specifically set forth in the Basic Sublease
Information, subject to the terms and conditions of Section 5 of the Master
Lease. In addition, Sublessor shall lease to Sublessee, and Sublessee shall
lease from Sublessor, any and all permanent improvements ("Improvements") in
or on the Premises constructed and/or owned by Master Landlord and/or
Sublessor upon all of the terms, covenants and conditions herein contained.
As used herein, "Premises" shall include the Premises and the Improvements.
The Premises represents sixty percent (60%) of the total space in the Master
Premises, which shall be Sublessee's "Proportionate Share" of Operating
Expenses and Taxes (as defined in Paragraph 3.2 of this Sublease).
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1.2 CONDITION OF PREMISES.
1.2.1 PHYSICAL CONDITION. Sublessor and Sublessee acknowledge
and agree that Sublessee is currently the occupant of the Premises under a
Sublease from Sunward, which expires immediately prior to the Commencement
Date. By occupying the Premises on the Commencement Date, Sublessee shall be
deemed to have acknowledged that it accepts the Premises in their current
condition. As of the Effective Date, Sublessee acknowledges that Sublessee
has conducted Sublessee's own investigation of the Premises and the physical
condition thereof, which in Sublessee's judgment affect or influence
Sublessee's use of the Premises and Sublessee's willingness to enter this
Sublease and that neither Sublessor nor any of its employees or agents have
made or shall have any liability for any representations or warranties,
express or implied, with respect to the condition of the Premises. Both
parties hereby acknowledge and agree that the Premises shall be subleased in
their "as is" condition as of the Effective Date. On September 30, 1997
Sublessor, Sublessee and Master Landlord performed a walk-through inspection
of the Premises in order to document the condition of the Premises on the
Commencement Date for purposes of Sublessee's restoration obligations upon
surrender of the Premises at the expiration of the Sublease Term ("Entrance
Assessment"). As soon as practicable, Sublessor and Sublessee shall prepare,
and both parties shall sign, a list of any additional work or repairs to be
performed in order to restore the Premises from its current condition to the
surrender condition required of Sublessee at expiration of the Term of this
Sublease (the "Work List"), which shall be attached to the Sublease as
EXHIBIT C. In no event shall such additional work or repairs require
Sublessee to improve the Premises to a condition better than that in which
such Premises were received by Sublessee. In addition to the restoration
work set forth on the Work List, Sublessee agrees on the last day of the
Sublease Term to surrender the Premises unto Sublessor in accordance with
Article 16 of this Sublease.
1.2.2 ENVIRONMENTAL ASSESSMENT. Prior to Sublessee's surrender
of the Premises, Sublessee shall conduct an Exit Assessment, consisting of an
updated Phase I Environmental Assessment and such other tests as are listed
on the Exit Assessment attached hereto as EXHIBIT D. Sublessor shall receive
a copy of the report(s) of the Sublessee's Exit Assessment, and said
report(s) shall be evidence of the physical condition of the Premises upon
Sublessee's surrender of the Premises. The cost of the Sublessee's Exit
Assessment shall be paid by Sublessee. Sublessee's Exit Assessment shall be
performed by an independent environmental consultant reasonably acceptable to
Sublessor.
1.2.3 NO REPRESENTATIONS. Sublessee and Sublessor recognize
and agree that Sublessor would not sublease the Premises to Sublessee and
Sublessee would not sublease the Premises from Sublessor except on an "as is"
basis and acknowledges that neither Sublessee nor Sublessor has made any
representations of any kind, express or implied, in connection with the
Improvements or physical conditions on, or bearing on, the Premises,
including without limitation the suitability of the Premises for Sublessee's
purposes. Sublessee further recognizes and agrees that neither Sublessor nor
Master Landlord shall be required to perform any work of construction,
alteration or maintenance of or to the Premises except as set forth in the
Master Lease.
1.3 VALIDITY OF MASTER LEASE. Sublessor hereby warrants that the
Master Lease attached hereto as EXHIBIT A is complete and in full force and
effect, and that Sublessor is not in material default thereunder beyond
expiration of any applicable cure or notice period, and that the area which
is the subject of the Sublease has not been previously assigned or subleased
by Sublessor.
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ARTICLE 2 - TERM
The term of this Sublease shall be for the Term set forth in the
Basic Sublease Information provided that upon full execution of this Sublease
by Sublessor and Sublessee, and provided that on or before the Commencement
Date Sublessee provides Sublessor with (i) the certificates evidencing the
insurance required by Article 9 of this Sublease and (ii) the first month's
Base Rent, the Term shall commence on the Commencement Date and expire on
September 30, 1998 ("Expiration Date").
ARTICLE 3 - SUBLESSEE'S PAYMENT OBLIGATIONS
3.1 MONTHLY BASE RENT. The Monthly Base Rent shall be payable in
advance in equal monthly installments in accordance with the schedule for
payment of Monthly Base Rent set forth in the Basic Sublease Information,
commencing with the Rent Commencement Date. Upon the execution of this
Sublease by Sublessor and Sublessee, Sublessee shall deposit with Sublessor
prepaid Rent in an amount equal to Thirty-Four Thousand Five Hundred
Ninety-Six and 40/100's Dollars ($34,596.40) for the first month's Base Rent
("Prepaid Rent"). Sublessee shall thereafter pay to Sublessor the monthly
Base Rent in advance, on or before the first day of each month, beginning on
the first day of the calendar month succeeding the Commencement Date. Base
Rent and any additional rent due hereunder shall be payable to Sublessor,
without further notice or demand and without deduction or offset, in lawful
money of the United States of America at the address specified in the Basic
Sublease Information or at such other address as Sublessor may from time to
time designate in writing. If the Term shall end on a day other than the
last day of a calendar month, then Rent for the last month of the Term shall
be prorated on a per diem basis, with respect to the portions of the last
fractional calendar month included in the Term.
3.2 NET RENTAL. In addition to Monthly Base Rent, Sublessee shall be
responsible for Sublessee's Proportionate Share (as set forth in the Basic
Sublease Information), of Building Operating Expenses and Taxes and all other
additional rent which may be imposed, at any time, on Sublessor pursuant to
the Master Lease; provided that Sublessee shall not be responsible for any
penalties, interest or other costs incurred by Sublessor under the Master
Lease that are caused by Sublessor's failure to pay rent to Master Landlord
in a timely manner in accordance with the Master Lease, unless such failure
is cause by Sublessee's default or failure to make timely payments to
Sublessor in accordance with this Sublease. As used herein, "Sublease Rent"
shall include Base Rent, Sublessee's Proportionate Share of Building
Operating Expenses and Taxes, as defined below, and all other amounts payable
by Sublessee to Sublessor hereunder. Sublessee shall be responsible for
Sublessee's Proportionate Share of all such costs and expenses for each and
every month of the Sublease Term. Sublessee shall pay its Proportionate Share
of Building Operating Expenses and Taxes no later than thirty (30) days
following Sublessee's receipt of written demand therefor.
"Building Operating Expenses and Taxes" shall consist of (1) all real
property taxes, insurance premiums, Common Area Expenses, Common Area
Assessments and other similar charges or expenses incurred by Sublessor
pursuant to the Master Lease; (2) any personal property taxes payable by
Sublessor in respect of the Premises or any trade fixtures, furnishings,
equipment or other personal property either on the Premises or owned by
Sublessee wherever located; and (3) Building Common Area Costs.
3
<PAGE>
"Building Common Area Costs" shall mean all costs and expenses of
whatever kind or nature incurred by Sublessor in connection with repair or
maintenance of the Building Common Area or any other portion of the Building
other than the portion of the Master Premises currently occupied by Sublessor
("Sublessor's Premises") (and not including Sublessor's personal property or
trade fixtures located in any part of the Building or Common Areas),
including without limitation: (i) all costs of maintenance, repair, waste
disposal, janitorial, security, landscaping, and HVAC or other common utility
or service maintenance; (ii) any and all costs of maintenance and repair
required to be performed by Sublessor pursuant to Section 11.1 of the Master
Lease, BUT EXCLUDING those costs arising from maintenance and repair of the
interior and nonstructural portions of Sublessor's Premises; and (iii) all
charges for heat, water, sewer, gas, electricity, ventilating,
air-conditioning and other utilities and similar services to the Building
that are not separately metered to the Premises. Notwithstanding anything to
the contrary herein, Building Operating Costs, shall not include: (i) any
capital expenditures made pursuant to Section 11.3(b) of the Master Lease (to
the extent that Sublessor receives a rent credit from Master Landlord for
such expenditure); (ii) costs incurred due to violation of any terms or
conditions of the Master Lease, this Sublease or any other lease relating to
any portion of the Building; (iii) costs of any repair for which Sublessor
receives reimbursement from insurance proceeds or the Master Lessor or any
other third party (other than through its Proportionate Share of Building
Operating Expenses and Taxes); (iv) damage and repairs necessitated by the
gross negligence or willful misconduct of Sublessor or Sublessor's officers,
employees, agents or contractors; (v) reserves by Sublessor (not Master
Lessor) for the repair, replacement or improvement of the Master Premises or
any portion thereof; (vi) all Annual Base Rent due under the Master Lease;
(vii) all costs and expenses incurred in connection with any sublease and/or
assignment negotiations and transactions with present or prospective
subtenants or other occupants or assignees of the Master Premises (except for
subtenants or assignees of Sublessee's interest in this Sublease or the
Premises); (viii) costs and expenses incurred in renovating or otherwise
improving, decorating, painting or redecorating any portion of the
Sublessor's Premises or otherwise incurred for the sole benefit of Sublessor
or the Sublessor's Premises; (ix) any costs, fines, or penalties incurred due
to violations by Sublessor or other subtenant of the Master Premises of any
governmental rule or authority, this Sublease or any other lease in the
Project, or due to Landlord's negligence or willful misconduct; (x) wages,
salaries, or other compensation paid to any employees of Sublessor; (xii)
Sublessor's general corporate overhead and administrative expenses and (xiii)
expenses incurred by Sublessor in connection with services, utilities or
other benefits to Sublessor, or its agents, employees, officers, directors or
invitees in the Building, which are not offered to Sublessee or are not of
the nature of services, utilities or benefits generally provided to tenants
of industrial premises in the vicinity of the Building. Any capital
expenditures included in Building Common Area Costs shall be amortized on a
straight line basis over the term of the Master Lease, and Sublessee shall be
liable only for that portion allocable to the remaining term of this Sublease.
ARTICLE 4
[INTENTIONALLY DELETED]
4
<PAGE>
ARTICLE 5 - USE
The Premises are to be used for the Permitted Uses, and for no other
purpose or business without the prior written consent of Sublessor. In no
event shall the Premises be used for a purpose or use prohibited by the
Master Lease.
ARTICLE 6 - ALTERATIONS
Sublessee shall not, without Sublessor's prior written consent, which
consent shall not be unreasonably withheld by Sublessor, make or cause to be
made any alterations, additions or improvements to the Premises (or any
changes to the Improvements) except for interior non-structural alterations
not exceeding Ten Thousand ($10,000) in cumulative costs during the Term of
this Sublease. It shall be deemed reasonable for Sublessor to withhold its
consent to any alterations unless and until Sublessee delivers to Sublessor
reasonable security for the cost of removal of the alterations. All
alterations, additions or improvements requiring Master Landlord's consent
shall also require Sublessor's prior written consent. As part of such
consent, Sublessee shall also obtain Master Landlord's written notice
regarding whether removal of such alterations will be required by Master
Landlord as part of the surrender obligations under the Master Lease.
Sublessee shall remove all alterations required to be removed by Master
Lessor or Sublessor, and repair all damage caused thereby, prior to
expiration of the Term of this Sublease. Sublessee shall defend, indemnify
and hold harmless Sublessor from all liabilities, including restoration
charges, which may be imposed by Master Landlord or other parties due to
Sublessee's alterations, additions or improvements.
5
<PAGE>
ARTICLE 7 - RIGHTS AND DUTIES OF SUBLESSEE
7.1 SUBLEASE SUBJECT TO MASTER LEASE. It is expressly understood,
acknowledged and agreed by Sublessee that this Sublease shall incorporate by
reference the terms, conditions and covenants of the Master Lease, except as
excluded in Section 7.2 below, modified as appropriate in the circumstances
so as to make such Sections applicable only to the subleasing hereunder by
Sublessor of the Premises during the Term of this Sublease. Sublessee shall
be subject to, bound by and comply with all of said Sections of the Master
Lease with respect to the Premises accruing during the Term of this Sublease,
and shall satisfy all such terms and conditions of the Master Lease for the
benefit of both Sublessor and Master Landlord, it being understood and agreed
that wherever in the Master Lease the word "Tenant" appears, for the purposes
of this Sublease, the word "Sublessee" shall be substituted (subject to the
limitations set forth in this Sublease), wherever in the Master Lease the
word "Landlord" appears, for the purposes of this Sublease, the words "Master
Landlord" (and, as applicable hereunder, "Sublessor") shall be substituted;
and wherever in the Master Lease the word "Premises" appears, for the
purposes of this Sublease, the words "Master Premises" shall be substituted;
and that upon the breach of any of said terms, conditions or covenants of the
Master Lease by Sublessee or upon the failure of Sublessee to pay Rent or
comply with any of the provisions of this Sublease, Sublessor may exercise
any and all rights and remedies granted to Master Landlord by the Master
Lease. Sublessee expressly acknowledges, notwithstanding anything to the
contrary in this Sublease, that Sublessee's duty to indemnify, protect,
defend and hold Sublessor harmless from and against any and all claims,
liabilities, penalties, losses or expenses (including reasonable attorneys
fees and costs) pursuant to this Sublease, and as more specifically set forth
in Section 14 of the Master Lease, shall include Sublessor's duty to
indemnify, defend, protect and hold Master Landlord harmless from and against
any and all claims, liabilities, penalties, forfeitures, losses or expenses
(including attorneys' fees and costs). Sublessor shall indemnify, protect,
defend and hold Sublessee harmless from and against any and all claims,
liabilities, penalties, forfeitures, losses or expenses (including attorneys'
fees and costs) arising from Sublessor's breach or failure to perform any
obligation under the Master Lease that is caused by: (a) Sublessor's breach
or failure to perform under this Sublease; or (b) any negligent or tortious
act or omission of Sublessor, its officers, agents, employees, invitees or
contractors relating to the Premises.
It is further understood and agreed that Sublessor has no duty or
obligation to Sublessee under the aforesaid Sections of the Master Lease
other than to maintain the Master Lease in full force and effect during the
term of this Sublease and to pay the difference between the Sublease Rent and
the Rent due and payable under the Master Lease; provided, however, that
Sublessor shall not be liable to Sublessee for any earlier termination of the
Master Lease which is not due to the fault of Sublessor. In the event of any
conflict between this Sublease and the Master Lease, the more restrictive
provision shall control, as between Sublessor and Sublessee. Whenever the
provisions of the Master Lease incorporated as provisions of this Sublease
require the written consent of Landlord, said provisions shall be construed
to require the written consent of both Master Landlord and Sublessor.
Sublessee hereby acknowledges that it has read and is familiar with all the
terms of the Master Lease, and agrees that this Sublease is subordinate and
subject to the Master Lease and that any termination thereof without the
fault of Sublessor shall likewise terminate this Sublease.
7.2 EXCLUSIONS. The terms and provisions of the following Sections of
the Master Lease are not incorporated into this Sublease: Master Lease
Sections 2.1, 3.1, 3.2, 4.1, 4.2, 4.3, 9, 17.1, 17.4, 50.3. Section 37.1
shall apply only to Master Landlord.
6
<PAGE>
7.3 TIME FOR NOTICE. The time limits provided for in the provisions of
the Master Lease for the giving of notice, making of demands, performance of
any act, condition or covenant, or the exercise of any right, remedy or
option, are amended for the purposes of this Sublease by lengthening or
shortening the same in each instance by five (5) days, as appropriate, so
that notices may be given, demands made, or any act, condition or covenant
performed, or any right, remedy or option hereunder exercised, by Sublessor
or Sublessee, as the case may be, within the time limit relating thereto
contained in the Master Lease. If the Master Lease allows only five (5) days
or less for Sublessor to perform any act, or to undertake to perform such
act, or to correct any failure relating to the Premises or this Sublease,
then Sublessee shall nevertheless be allowed three (3) days to perform such
act, undertake such act and/or correct such failure.
7.4 SUBLESSOR'S OBLIGATIONS. It shall be the obligation of Master
Landlord (i) to provide or cause to be provided all services to be provided
by Landlord under the terms of the Master Lease and (ii) to satisfy all
obligations and covenants of Master Landlord made in the Master Lease,
including without limitation, the obligations of Sections 11.3 and 15.2 of
the Master Lease. Sublessee acknowledges that Sublessor shall be under no
obligation to provide any such services or satisfy any such obligations or
covenants; provided, however, Sublessor, upon written notice by Sublessee,
shall promptly and diligently attempt to enforce all obligations of Master
Landlord under the Master Lease, provided that Sublessee reimburses Sublessor
for all reasonable costs and expenses incurred in connection therewith.
7.5 USE OF BUILDING COMMON AREAS. Sublessee shall comply with all
reasonable and non-discriminatory rules and regulations established by
Sublessor with respect to use of the Building Common Areas, and shall insure
compliance therewith by all of Sublessee's employees, contractors and
invitees. Without limiting the generality of the foregoing, Sublessee shall
insure that there is no consumption of food by Sublessee's employees, agents,
contractors or invitees in the lobby, and shall promptly comply with all
reasonable requests of Sublessor intended to comply with Good Laboratory
Practices and/or Good Manufacturing Practices. Sublessor shall maintain the
Building Common Area in a clean, safe and sanitary condition.
7.6 ENTRY BY SUBLESSOR. Sublessor shall have the right, upon at least
24 hours advance notice (except in an emergency, in which case no notice
shall be required) to enter upon the Premises for purposes of maintenance and
repair, and to ensure compliance by Sublessee with its obligations pursuant
to this Sublease. Sublessee shall provide Sublessor with two keys (including
card keys) to all doors of the Premises in order to facilitate such entry.
In addition, Sublessor shall have the right to show the Premises to
prospective lenders, partners, subtenants and their assigns during normal
business hours on at least 24 hours' prior notice.
ARTICLE 8 - INDEMNIFICATION
Sublessee covenants to indemnify, defend, protect and hold Sublessor,
its agents, officers, employees, and contractors harmless from and against
(i) any and all claims, causes of action, obligations, liabilities, costs and
expenses (including reasonable attorneys' fees and costs) to the extent
arising out of or in connection with Sublessee's use or occupancy of the
Premises, the Common Areas and /or the Building Common Areas before or after
the commencement of the Term of this Sublease, and (ii) the breach of this
Sublease (or, to the extent incorporated herein, the Master Lease) by
7
<PAGE>
Sublessee, its employees, agents, contractors or invitees. Sublessor
covenants to indemnify, defend, protect and hold Sublessee harmless from and
against any and all claims, causes of action, obligations, liabilities, costs
and expenses (including reasonable attorney fees and costs) to the extent
arising out of or in connection with Sublessor's use or occupancy of the
Sublessor's Premises, Common Areas and/or the Building Common Areas before or
after the commencement of the Term of this Sublease and (iii) the breach of
this Sublease or the Master Lease by Sublessor, its employees, agents,
contractors or invitees.
ARTICLE 9 - INSURANCE
Sublessee covenants to obtain and maintain the insurance policies
required to be maintained by Sublessor under Section 15.1, 15.2(c), 15.2(d)
and 15.3 of the Master Lease naming Sublessor as an additional insured; to
provide Sublessor with certificates evidencing such insurance; and not to
merit cancellation or termination of such required insurance policies without
giving at least fifteen (15) days prior written notice to Sublessor and
Master Landlord. Sublessee shall deliver to Sublessor, from time to time and
upon Sublessor's or Master Landlord's reasonable written request,
certificates of insurance indicating that the required policies of insurance
are in full force and effect throughout the entire term of this Sublease.
All insurance policies required to be carried by Sublessor pursuant to the
Master Lease shall be carried by Sublessee, covering Sublessee's liability,
and all such policies shall be written in accordance with the requirements
for such insurance set forth in Section 15.1 of the Master Lease.
ARTICLE 10 - DEFAULTS AND REMEDIES
In the event of a default by Sublessee, Sublessor shall have all of the
rights and remedies against Sublessee as are set forth in Section 19 of the
Master Lease as though Sublessor were the landlord named therein and
Sublessee was the tenant named therein.
ARTICLE 11 - NOTICES
All notices or correspondence provided for herein shall be in writing
and shall be sent by certified mail, postage prepaid, return receipt
requested, or by a nationally-recognized overnight delivery company which
provides a receipt evidencing delivery, in which event they shall be deemed
received on the date of delivery as evidenced by the receipt. The Master
Landlord's, Sublessor's and Sublessee's addresses for written notices
required to be given hereunder shall be the addresses set forth in the Basic
Sublease Information, or at such other place designated by advance written
notice delivered in accordance with the foregoing.
8
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ARTICLE 12 - ASSIGNMENT AND SUBLETTING
Sublessee shall not sell, assign, encumber, sublet, hypothecate or
otherwise transfer by operation of law or otherwise this Sublease or the
Sublessor's interest in and to the Premises (but not including any of
Sublessee's trade fixtures or other personal property in the Premises)
without first procuring the written consent of the Sublessor, which consent
may be withheld in Sublessor's sole and absolute discretion. Any such sale,
assignment, encumbrance, sublease or other transfer in violation of the terms
of this Sublease shall be void and shall be of no force or effect. In the
event Sublessor authorizes such a sublease, assignment or transfer, Sublessee
shall remain fully liable for the Sublessee's obligations under this
Sublease. Notwithstanding the foregoing, Sublessee shall have the right,
after written notice to Sublessor, to assign or sublet all or any portion of
the Premises to any entity controlling, controlled by or under common control
with Sublessee or any successor by merger or consolidation, provided that:
(1) the transferee agrees in writing to assume all of Sublessee's obligations
under the Sublease, and (2) the original Sublessee shall not be released from
any of its obligations hereunder.
ARTICLE 13 - REPAIRS AND MAINTENANCE
Sublessee shall, at Sublessee's sole expense, keep the Premises in good
order and sanitary condition, and repair any damage thereto caused by
Sublessee or Sublessee's agents, employees, contractors or invitees.
Sublessee acknowledges that Sublessor is under no duty to make repairs or
improvements to the Premises, and Sublessee hereby waives any right it may
have at law or in equity to enforce the same. Notwithstanding the foregoing,
to the extent Master Landlord is obligated under the Master Lease to make any
maintenance or repairs in or to the Premises or Building, Sublessor, upon
written notice by Sublessee, shall diligently attempt to enforce such
obligations of Master Landlord, provided that Sublessee reimburses Sublessor
for all reasonable costs and expenses incurred in connection therewith.
Notwithstanding the foregoing, if such maintenance or repairs affect the use
and enjoyment of the Building Common Area, such costs and expenses of
enforcement shall be paid by Sublessor and Sublessee in proportion to their
relative interests in the Building.
ARTICLE 14 - DAMAGE AND DESTRUCTION
14.1 TERMINATION OF MASTER LEASE. If the Premises is damaged or
destroyed and Master Landlord exercises any option to terminate the Master
Lease, if any, this Sublease shall terminate as of the date of the
termination of the Master Lease. So long as Sublessee is not in default
under this Sublease beyond the applicable notice and cure period for such
default on the date of such damage or destruction, Sublessee shall have the
same rights of termination under this Sublease as Sublessor may have to
terminate the Master Lease upon an event of damage or destruction under the
Master Lease. In the event Sublessee is in default under this Sublease
beyond the applicable notice and cure period for such default on the date of
such damage or destruction, then Sublessor shall have the right to exercise
any termination right granted to Sublessor under Section 15 of the Master
Lease.
14.2 CONTINUATION OF SUBLEASE. If the Master Lease is not terminated
following any damage or destruction as provided above, this Sublease shall
remain in full force and effect. Sublessee shall be obligated to fulfill any
repair obligations of Sublessor with respect to the Premises; provided,
however, that (i) Sublessor shall diligently enforce any obligation of Master
Landlord to rebuild the
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Premises in accordance with the Master Lease; (ii) Sublessor shall make
available to Sublessee any insurance proceeds Sublessor receives as a result
of damage or destruction of the Premises; and (iii) Sublessee shall be
entitled to abatement of Rent on a proportionate basis (based on the degree
to which Sublessee's use of the Premises is impaired as compared to the
impairment of Sublessor's use of Sublessor's Premises) to the extent that
Sublessor's Rent is abated under the Master Lease. In the event that the
damage cannot reasonably be repaired by the date that is 90 days prior to the
expiration of the Term of this Sublease, then either party may terminate this
Sublease by written notice to the other party.
ARTICLE 15 - CONDEMNATION
15.1 TOTAL CONDEMNATION. If all of the Premises are condemned by
eminent domain, inversely condemned or sold in lieu of condemnation, for any
public or a quasi-public use or purpose ("Condemned" or "Condemnation"), this
Sublease shall terminate as of the date of title vesting in such proceeding,
and Rent shall be adjusted to the date of termination.
15.2 PARTIAL CONDEMNATION. If any portion of the Premises is Condemned,
and Master Landlord exercises any option to terminate the Master Lease, this
Sublease shall automatically terminate as of the date of the termination of
the Master Lease. If this Sublease is not terminated following any such
Condemnation, this Sublease shall remain in full force and effect and
Sublessee shall promptly restore the Premises to the extent of any
Condemnation proceeds recovered by Sublessor and made available by Sublessor
to Sublessee for restoration, in addition, Sublessor shall diligently enforce
any rights under the Master Lease to require Master Landlord to rebuild the
Master Premises. Rent shall be equitably adjusted to take into account
interference with Sublessee's ability to conduct its operations on the
Premises as a result of the Premises being Condemned, pursuant to the terms
and conditions of Section 14 of the Master Lease.
15.3 SUBLESSEE'S AWARD. Subject to the provisions of the Master Lease,
Sublessee shall have the right to recover from the condemning authority, such
compensation as may be separately awarded to Sublessee in connection with
such Condemnation proceedings.
ARTICLE 16 - SURRENDER OF PREMISES
Sublessee shall peaceably surrender the Premises (including, without
limitation, the Improvements) to Sublessor upon expiration or earlier
termination of this Sublease, broom-clean and in as good a condition as when
Sublessee took possession and with the Work List work completed, except for
(i) reasonable wear and tear, (ii) loss by fire or other casualty, and (iii)
loss by condemnation. Sublessee shall remove Sublessee's personal property
and, if Master Landlord, by written notice delivered to Sublessee at least
sixty (60) days prior to the expiration of the Sublease, requires removal of
Sublessee's lab drops from the Premises as a condition to Sublessor's
surrender of the Building under the Master Lease (as permitted by the
surrender provisions of the Master Lease), then Sublessee shall also remove
such lab drops at Sublessee's cost and expense, upon the expiration or
earlier termination of this Sublease and promptly repair all damage to the
Premises or Building caused by such removal.
If Sublessee abandons the Premises, any of Sublessee's personal property
left on the Premises shall be deemed to be abandoned, and, at Sublessor's
option, title shall pass to Sublessor under this Sublease as by a bill of
sale. If Sublessee abandons the Premises and Sublessor elects to remove all
or
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any part of Sublessee's personal property, the reasonable cost of removal,
including repairing any damage to the Premises or Building caused by such
removal, shall be paid by Sublessee.
ARTICLE 17 - MISCELLANEOUS
17.1 ENTIRE AGREEMENT. This Sublease and the applicable portions of the
Master Lease contained by reference herein, contain all of the covenants,
conditions and agreements between the parties concerning the Premises, and
shall supersede any and all prior correspondence, agreements and
understandings concerning the Premises, both oral and written. No addition
or modification of any term or provision of this Sublease shall be effective
unless set forth in writing and signed by both Sublessor and Sublessee.
17.2 CAPTIONS. All captions and headings in this Sublease are for the
purposes of reference and convenience and shall not limit or expand the
provisions of this Sublease.
17.3 MASTER LANDLORD'S CONSENT. This Sublease is conditioned upon
Master Landlord's written approval of this Sublease prior to the Commencement
Date. If Master Landlord refuses to consent to this Sublease, then this
Sublease shall be deemed void and of no effect, in which event the parties
shall be discharged from all obligations hereunder and Sublessor shall return
the Prepaid Rent, if previously delivered to Sublessor, to Sublessee;
provided, however, that if Master Landlord acts unreasonably in withholding
such consent, Sublessor shall reasonably attempt to enforce Sublessor's
rights under Section 47.1 of the Master Lease.
17.4 AUTHORITY. Each person executing this Sublease on behalf of a
party hereto represents and warrants that he or she is authorized and
empowered to do so and to thereby bind the party on whose behalf he or she is
signing.
17.5 ATTORNEYS' FEES. In the event either party shall bring any action
or proceeding for damages or for an alleged breach of any provision of this
Sublease to recover rents, or to enforce, protect or establish any right or
remedy hereunder, the prevailing party shall be entitled to recover
reasonable attorneys' fees and court costs as part of such action or
proceeding.
17.6 BROKER. Sublessor shall be responsible for payment of any and all
finder's fees or commissions to Shaun Burnett of Irving Hughes Group, Inc.
("Broker") in connection with this Sublease. Each party warrants and
represents that it has had no dealings with any real estate broker, agent or
finder other than Broker in connection with the negotiation of this Sublease,
and that it knows of no other real estate broker or agent who is entitled to
any commission or finder's fee in connection with the Premises or this
Sublease. Each party shall indemnify and hold the other harmless from and
against any and all claims, demands, losses, liabilities, lawsuits,
judgments, costs and expenses (including without limitation, attorneys' fees
and costs) arising from any claim for a leasing commission or equivalent
compensation alleged to be owing on account of the indemnifying party's
dealings with any real estate broker or agent in connection with the Premises
or this Sublease.
17.7 COUNTERPARTS. This Sublease may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of
which taken together shall comprise but a single instrument.
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12
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IN WITNESS WHEREOF, the parties hereto have executed one (1) or more
copies of this Sublease, effective as of the Effective Date.
"SUBLESSOR"
MOLECULAR BIOSYSTEMS, INC.
a Delaware corporation
By: /s/ Gerard A. Wills
----------------------------
Name: Gerard A. Wills
----------------------------
Its: Chief Financial Officer
----------------------------
"SUBLESSEE"
DURA PHARMACEUTICALS, INC.
a Delaware corporation
By: /s/ M.R. Woodbury
-----------------------------
Name: M.R. Woodbury
-----------------------------
Its: Senior Vice President
-----------------------------
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EXHIBIT A
MASTER LEASE
A-1
<PAGE>
EXHIBIT B
PREMISES
B-1
<PAGE>
EXHIBIT B-1
COMMON AREA OF FIRST FLOOR
B-2
<PAGE>
EXHIBIT C
WORK LIST
[To Be Attached]
C-1
<PAGE>
EXHIBIT D
EXIT ASSESSMENT
I. An updated Phase I Assessment shall be prepared by an independent
consultant and shall be consistent with the American Society for Testing
Materials (ASTM) Standard E-1527 and shall, by its terms, allow the following
parties to rely upon its conclusions: Master Landlord, Sublessor and
Sublessee.
II. An Interior Site Assessment consisting of a visual inspection of
all surfaces (floors, walls, ceiling tiles, benches, interior of cabinets,
etc.) for signs of contamination and deterioration. Visual inspection of all
sinks and readily accessible drain lines for signs of deterioration, loss of
integrity and leakage. The Interior Site Assessment shall include detailed
written documentation of all observations and dated photos to document the
existing condition thereof.
III. A Wastewater Collection System Assessment consisting of a flush and
clean-out of all discharge piping and traps with observation of effluent
during the clean-out and, in the event that visual observation of the
effluent indicates degradation of the Wastewater Collection System in excess
of normal wear for a facility of similar age and use, videotaping of the
Wastewater Collection System along with a written report for each ten foot
(10') piping segment.
D-1
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EXHIBIT 10.48
MASTER LEASE AGREEMENT
Lessor: MELLON US LEASING, A DIVISION OF Lessee:
MELLON LEASING CORPORATION
Address: 525 Market Street, Suite 3500 Address:
San Francisco, CA 94105-2743
TERMS AND CONDITIONS OF LEASE
The undersigned Lessee hereby requests Lessor to purchase the personal
property described in any Equipment Schedule hereunder (herein called
"Equipment") from the supplier(s) listed in any Equipment Schedule hereunder
(herein called "Vendor" and/or "Manufacturer", as applicable) and to lease
the Equipment to Lessee on the terms and conditions of the lease set forth
below.
Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Equipment upon the following terms and conditions:
1. NO WARRANTIES BY LESSOR. Lessee has selected the Equipment and may
have entered into certain purchase, licensing, or maintenance agreements with
the Vendor and/or Manufacturer (herein referred to as an "Acquisition
Agreement") covering the Equipment as further described in Paragraph 26
hereof. If Lessee has entered into any Acquisition Agreement, each agreement
shall provide for certain rights and obligations of the parties thereto with
respect to the Equipment, and Lessee shall perform all of the obligations set
forth in each Acquisition Agreement as if this lease did not exist. LESSOR
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING
THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY
PARTICULAR PURPOSE, AND, AS TO LESSOR, LESSEE LEASES THE EQUIPMENT "AS IS."
LESSOR SHALL HAVE NO LIABILITY FOR ANY LOSS, DAMAGE OR EXPENSE OF ANY KIND
WHATSOEVER RELATING THERETO, INCLUDING WITHOUT LIMITATION ANY SPECIAL,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER.
2. CLAIMS AGAINST VENDOR AND/OR MANUFACTURER. If the Equipment is not
properly installed, does not operate as represented or warranted by Vendor
and/or Manufacturer, or is unsatisfactory for any reason, Lessee shall make
any claim on account thereof solely against Vendor and/or Manufacturer
pursuant to the Acquisition Agreement, if any, and shall, nevertheless, pay
Lessor all rent payable under this lease. All warranties from Vendor and/or
Manufacturer are, to the extent they are assignable, hereby assigned to
Lessee for the term of the lease or until an Event of Default occurs
hereunder, for Lessee's exercise at Lessee's expense. Lessee may directly
inquire with Vendor and/or Manufacturer to receive an accurate and complete
statement of such warranties, including any disclaimers or limitations of
such warranties or of any remedies with respect thereto.
3. VENDOR NOT AN AGENT. Lessee understands and agrees that neither
Vendor, nor any sales representative or other agent of Vendor, is an agent of
Lessor. Sales representatives or agents of Vendor, and persons that are not
employed by Lessor (including brokers and agents) are not authorized to
waive or alter any term or condition of this lease, and no representation as
to the Equipment or any other matter by Vendor or any other person that is
not employed by Lessor (including brokers and agents) shall in any way affect
Lessee's duty to pay the rent and perform its other obligations as set forth
in this lease.
4. NON-CANCELLABLE LEASE. This lease and any Equipment Schedule hereto
cannot be cancelled or terminated except as expressly provided herein.
Lessee agrees that its obligation to pay all rent and other sums payable
hereunder and the rights of Lessor in and to such rent are absolute and
unconditional and are not subject to any abatement, reduction, setoff,
defense, counterclaim or recoupment due or alleged to be due to, or by reason
of, any past, present or future claims which Lessee may have against Lessor,
any assignee, any Manufacturer or Vendor, or against any person for any
reason whatsoever.
5. ORDERING EQUIPMENT. Lessee shall arrange for delivery of the
Equipment so that it can be accepted in accordance with Paragraph 6 hereof
within 90 days after the date on which Lessor accepts Lessee's offer to enter
into this lease with respect to any Equipment Schedule or by such other date
as may be set forth in an Equipment Schedule or Approval Letter issued by
Lessor as the Approval Expiration Date. Unless otherwise specified on the
Equipment Schedule, Lessee shall be responsible for all transportation,
packing, installation, testing and other charges in connection with the
delivery, installation and
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<PAGE>
use of the Equipment. Lessee hereby authorizes Lessor to insert in any
Equipment Schedule hereunder the serial numbers and other identification data
of Equipment when determined by Lessor.
6. ACCEPTANCE. Lessee acknowledges that for purposes of receiving or
accepting the Equipment from Vendor, Lessee is acting on Lessor's behalf.
Upon delivery of the Equipment to Lessee and Lessee's inspection thereof,
Lessee shall furnish Lessor a written statement (a) acknowledging receipt of
the Equipment in good condition and repair and (b) accepting it as
satisfactory in all respects for the purposes of this lease (the "Certificate
of Acceptance"). Unless otherwise set forth in the applicable Equipment
Schedule, the first day of the month following receipt and acceptance of
the Equipment covered by an Equipment Schedule shall be the Rent Commencement
Date therefor . However, should Lessee have a previous lease with Lessor
which is active at the time of acceptance of the Equipment under the
Equipment Schedule and said lease and the current Equipment Schedule
hereunder shall have the same invoice address then the Rent Commencement Date
shall occur in the month immediately following acceptance of the Equipment on
the rent payment due date established with Lessee for said previous active
lease. Lessor is authorized to fill in on any Equipment Schedule hereunder
the Rent Commencement Date in accordance with the foregoing.
7. TERMINATION BY LESSOR. If, by the Approval Expiration Date, the
Equipment described in any Equipment Schedule has not been delivered to
Lessee and accepted by Lessee as provided in Paragraph 6 hereof, or if other
conditions of Lessor's Approval Letter, if any, have not been met, then
Lessor may, at its option, terminate this lease and its obligations hereunder
with respect to such Equipment Schedule at any time after the expiration of
such 90 days or any date after the Approval Expiration Date, as applicable.
Lessor shall give Lessee written notice whether or not it elects to exercise
such option within 10 days after Lessor's receipt of Lessee's written request
for such notice.
8. TERM. The term of this lease shall be comprised of an Interim Term
and an Initial Term. The Interim Term shall commence on the date the
Certificate of Acceptance is executed by Lessee (the "Acceptance Date") and
terminate on the Rent Commencement Date. The Initial Term of the Lease shall
begin on the Rent Commencement Date, and shall terminate on the later of (i)
the last day of the last month of the Initial Term (as that Term is set forth
in the applicable Equipment Schedule hereto) or (ii) the date Lessee fulfills
all Lessee's obligations hereunder.
9. RENTAL. The rental amount payable to Lessor by Lessee for the
Equipment will be set forth in the Equipment Schedule(s) ("Rental Amount").
As the first rent payment for the Equipment, Lessee shall pay Lessor in
immediately available funds on the Rent Commencement Date the sum of, (i) the
Rental Amount, and (ii) Interim Rent in an amount equal to 1/30th of the
Rental Amount times the number of days from and including the Acceptance
Date through but excluding the Rent Commencement Date, and subsequent rent
payments shall be due on the same day of each calendar period as indicated on
the Equipment Schedule for the balance of the Initial Term. Rent payments
shall be due whether or not Lessee has received any notice that such payments
are due. All rent payments shall be paid to Lessor at its address set forth
on the Equipment Schedule or as otherwise directed by Lessor in writing.
10. RENEWAL. If no default shall have occurred and be continuing,
Lessee shall be entitled to renew the lease with respect to all, but not less
than all, of the Equipment covered by an Equipment Schedule for a minimum 12
month period at an amount equal to the fair market rental value thereof, in
use and operational, in the condition required by the lease, payable on a
periodic basis, as mutually agreed by Lessor and Lessee ("Renewal Rent").
Lessee must give Lessor written notice of its intention to exercise said
option, which notice must be received by Lessor at least 90 days before
expiration of the Initial Term. The first installment of the Renewal Rent
shall be due at expiration of the Initial Term of the lease. Should Lessee
fail to comply with the provisions described above covering renewal, upon
expiration of the Initial Term, the term of the lease shall be automatically
extended for a term of 3 months. Thereafter, the term of the lease will be
extended for subsequent full month periods, on a month to month basis, until
Lessee has given at least 90 days written notice terminating the lease. Such
termination will take effect upon completion of all Lessee's obligations
under the lease (including payment of all periodic rental payments due during
such 90 day period, as provided in Paragraph 9 of the lease). At any time
after the expiration of the Initial Term, if the lease has been automatically
extended as set forth herein, Lessor reserves the right to terminate the
lease by 30 days written notice to Lessee.
11. LOCATION; INSPECTION; LABELS. The Equipment shall be delivered to
and shall not be removed without Lessor's prior written consent from the
"Equipment Location" shown on the related Equipment Schedule, or if none is
specified, Lessee's billing address shown on the Equipment Schedule. Lessor
shall have the right to inspect the Equipment at any reasonable time. If
Lessor supplies Lessee with labels stating that the Equipment is owned by
Lessor, Lessee shall affix such labels to and keep them in a prominent place
on the Equipment.
12. REPAIRS; USE; ALTERATIONS. Lessee, at its own cost and expense, shall
keep the Equipment in good repair and working order, in the same condition as
when delivered to Lessee, reasonable wear and tear excepted, and in accordance
with
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<PAGE>
the manufacturer's recommended specifications; shall use the Equipment
lawfully; shall not alter the Equipment without Lessor's prior written
consent, shall use the Equipment in compliance with any existing
Manufacturer's service and warranty requirements and any insurance policies
applicable to the Equipment and shall furnish all parts and servicing
required therefor. All parts, repairs, additions, alterations and
attachments placed on or incorporated into the Equipment which cannot be
removed without damage to the Equipment shall immediately become part of the
Equipment and shall be the property of the Lessor. Lessee will obtain and
maintain all permits, licenses and registrations necessary to lawfully
operate the facility where the Equipment is located. Lessee shall comply with
all applicable environmental and industrial hygiene laws, rules and
regulations (including but not limited to federal, state, and local
environmental protection, occupational, health and safety or similar laws,
ordinances and restrictions). Lessee shall, not later than 5 days after the
occurrence, provide Lessor with copies of any report required to be filed
with governmental agencies regulating environmental claims. Lessee shall
immediately notify Lessor in writing of any existing, pending or threatened
investigation, inquiry, claim or action by any governmental authority in
connection with any law, rule or regulation relating to industrial hygiene or
environmental conditions that could affect the Equipment.
13. MAINTENANCE. If the Equipment is such that Lessee is not normally
capable of maintaining it, Lessee, at its expense, shall enter into and
maintain in full force and effect throughout the Initial Term, and any
renewal term, Vendor and/or Manufacturer's standard maintenance contract, and
shall comply with all its obligations thereunder. An alternate source of
maintenance may be used with Lessor's prior written consent. Such consent
shall be granted if, in Lessor's reasonable opinion, the Equipment will be
maintained in an equivalent state of good repair, condition and working order.
14. SURRENDER. Provided that Lessee does not exercise the purchase
option as set forth in Paragraph 28 hereof, upon the expiration of the
Initial Term, or any renewal term, or upon demand by Lessor made pursuant to
Paragraph 22 of the lease, Lessee, at its expense, shall return all, but not
less than all, of the Equipment by delivering it to such place or on board
such carrier, packed for shipping, as Lessor may specify. Lessee agrees that
the Equipment, when returned, shall be in the same condition as when
delivered to Lessee, reasonable wear and tear excepted, and in a condition
which will permit Lessor to be eligible for Manufacturer's standard
maintenance contract without incurring any expense to repair or rehabilitate
such Equipment. Lessee shall be liable for reasonable and necessary expenses
to place the Equipment in such condition. Lessee shall remain liable for the
condition of the Equipment until it is received and accepted at the
destination designated by Lessor as set forth above. If any items of
Equipment are missing or damaged when returned, such occurrence shall be
treated as an event of Loss or Damage with respect to such missing or damaged
items and shall be subject to the terms specified in Paragraph 15 below.
Lessee shall provide Lessor with a Letter of Maintainability from the
Manufacturer of the Equipment, which letter shall state that the Equipment
will be eligible for the Manufacturer's standard maintenance contract when
sold or leased to a third party. Lessee shall give Lessor prior written
notice that it is returning the Equipment as provided above, and such notice
must be received by Lessor at least 90 days prior to such return. Should
Lessee fail to comply with the provisions described above covering surrender,
upon expiration of the Initial Term, the term of the lease shall be
automatically extended for a term of 3 months. Thereafter, the term of the
lease will be extended for subsequent full month periods, on a month to month
basis, until Lessee has given at least 90 days written notice terminating the
lease. Such termination will take effect upon completion of all Lessee's
obligations under the lease (including payment of all periodic rental
payments due during such 90 day period, as provided in Paragraph 9 of the
lease). At any time after the expiration of the Initial Term, if the lease
has been automatically extended as set forth herein, Lessor reserves the
right to terminate the lease by 30 days written notice to Lessee.
15. LOSS OR DAMAGE. Lessee shall bear the entire risk of loss, theft,
destruction of or damage to the Equipment or any item thereof (herein "Loss
or Damage") from any cause whatsoever. No Loss or Damage shall relieve
Lessee of the obligation to pay rent or of any other obligation under this
lease. In the event of Loss or Damage, Lessee, at the option of Lessor,
shall: (a) place the same in good condition and repair; (b) replace the same
with like equipment acceptable to Lessor in good condition and repair with
clear title thereto in Lessor; or (c) pay to Lessor the total of the
following amounts: (i) the total rent and other amounts due and owing at the
time of such payment, plus (ii) an amount calculated by Lessor which is the
present value at 5% per annum simple interest discount of all rent and other
amounts payable by Lessee with respect to said item from date of such payment
to date of expiration of its Initial Term, plus (iii) the "reversionary
value" of the Equipment, which shall be determined by Lessor as the total
cost of the Equipment less 60% of the total rent (net of sales/use taxes, if
any) required to be paid pursuant to Paragraph 9. Upon Lessor's receipt of
such payment, Lessee and/or Lessee's insurer shall be entitled to Lessor's
interest in said item, for salvage purposes, in its then condition and
location, "as-is", without any warranty, express or implied.
16. INSURANCE. Lessee shall provide, maintain and pay for (a) all risk
property insurance against the loss or theft of or damage to the Equipment,
for the full replacement value thereof, naming Lessor as a loss payee, and
(b) commercial general liability insurance (and if Lessee is a doctor,
hospital or other health care provider, medical malpractice insurance). All
such policies shall name Lessor as an additional insured and shall have
combined single limits in amounts acceptable to Lessor. All such insurance
policies shall be endorsed to be primary and non-contributory to any policies
maintained by Lessor. In addition Lessee shall cause Lessor to be named as
an additional insured on any excess or umbrella policies purchased by Lessee.
A copy of each paid-up policy evidencing such insurance (appropriately
authenticated by the insurer) or a certificate of the insurer providing such
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coverage proving that such policies have been issued, providing the coverage
required hereunder shall be delivered to Lessor prior to the Rent
Commencement Date. All insurance shall be placed with companies satisfactory
to Lessor and shall contain the insurer's agreement to give 30 days written
notice to Lessor before cancellation or any material change of any policy of
insurance.
17. TAXES. Lessee shall reimburse to Lessor (or pay directly if, but
only if, instructed by Lessor) all charges and taxes (local, state and
federal) which may now or hereafter be imposed or levied upon the sale,
purchase, ownership, leasing, possession or use of the Equipment; excluding,
however, all income taxes levied on (a) any rental payments made to Lessor
hereunder, (b) any payment made to Lessor in connection with Loss or Damage
to the Equipment under Paragraph 15 hereof, or (c) any payment made to Lessor
in connection with Lessee's exercise of its purchase option under Paragraph
28 hereof.
18. LESSOR'S PAYMENT. If Lessee fails to provide or maintain said
insurance, to pay said taxes, charges and fees, or to discharge any levies,
liens and encumbrances created by Lessee, Lessor shall have the right, but
shall not be obligated, to obtain such insurance, pay such taxes, charges and
fees, or effect such discharge. In that event, Lessee shall remit to Lessor
the cost thereof with the next rent payment.
19. INDEMNITY. (a) GENERAL INDEMNITY. Lessee shall indemnify Lessor
against and hold Lessor harmless from any and all claims, actions, damages,
costs, expenses including reasonable attorneys' fees, obligations,
liabilities and liens (including any of the foregoing arising or imposed
under the doctrines of "strict liability" or "product liability" and
including without limitation the cost of any fines, remedial action, damage
to the environment and cleanup and the fees and costs of consultants and
experts), arising out of the manufacture, purchase, lease, ownership,
possession, operation, condition, return or use of the Equipment, or by
operation of law, excluding however, any of the foregoing resulting from the
gross negligence or willful misconduct of Lessor. Lessee agrees that upon
written notice by Lessor of the assertion of such a claim, action, damage,
obligation, liability or lien, Lessee shall assume full responsibility for
the defense thereof. Lessee's choice of counsel shall be mutually acceptable
to both Lessee and Lessor. This indemnity also extends to any environmental
claims arising out of or relating to prior acts or omissions of any party
whatsoever. The provisions of this paragraph shall survive termination of
this lease with respect to events occurring prior to such termination.
(b) TAX INDEMNITY. Lessee acknowledges that Lessor shall be entitled to
all tax benefits of ownership with respect to the Equipment (the "Tax
Benefits"), including but not limited to, (i) the accelerated cost recovery
deductions determined in accordance with Section 168(b)(1) of the Internal
Revenue Code of 1986 for the Equipment based on the original cost of the
Equipment to Lessor (ii) deductions for interest on any indebtedness incurred
by Lessor to finance the Equipment and (iii) sourcing of income and losses
attributable to this lease to the United States. Lessee represents that the
Equipment shall be depreciable for Federal tax purposes utilizing the MACRS
Recovery Period as set forth in the Equipment Schedule, with such
depreciation commencing as of the date of Equipment acceptance by Lessee as
set forth on the Certificate of Acceptance. Lessee agrees to take no action
inconsistent with the foregoing or any action which would result in the loss,
disallowance or unavailability to Lessor of all or any part of the Tax
Benefits. Lessee hereby indemnifies and holds harmless Lessor and its
assigns from and against (i) the loss, disallowance, unavailability or
recapture of all or any part of the Tax Benefits resulting from any action,
statement, misrepresentation or breach of warranty or covenant by Lessee of
any nature whatsoever including but not limited to the breach of any
representations, warranties or covenants contained in this paragraph, plus
(ii) all interest, penalties, fines or additions to tax resulting from such
loss, disallowance, unavailability or recapture, plus (iii) all taxes
required to be paid by Lessor upon receipt of the indemnity set forth in this
paragraph. Any payments made by Lessee to reimburse Lessor for lost Tax
Benefits shall be calculated (i) on the assumption that Lessor is subject to
the maximum Federal Corporate Income Tax with respect to each year and that
all Tax Benefits are currently utilized, and (ii) without regard to whether
Lessor or any members of a consolidated group of which Lessor is also a
member is then subject to any increase in tax as a result of the loss of Tax
Benefits. For the purposes of this paragraph, "Lessor" includes for all tax
purposes the consolidated taxpayer group of which Lessor is a part.
(c) PAYMENT. The amounts payable pursuant to this Paragraph 19 shall
be payable upon demand of Lessor, accompanied by a statement describing in
reasonable detail such claim, action, damage, cost, expense, fee, obligation,
liability, lien or tax and setting forth the computation of the amount so
payable, which computation shall be binding and conclusive upon Lessee,
absent manifest error. The indemnities and assumptions of liabilities and
obligations contained in this Paragraph 19 shall continue in full force and
effect notwithstanding the expiration or other termination of this Lease.
20. ASSIGNMENT. Without Lessor's prior written consent, Lessee shall
not assign, transfer, pledge, hypothecate or otherwise dispose of this lease,
the Equipment, or any interest therein. Without Lessor's prior written
consent, Lessee shall not sublet or lend the Equipment or permit it to be
used by anyone other than Lessee or Lessee's employees. Lessor may assign
this lease in whole or in part without notice to Lessee. If Lessee is given
notice of such assignment it agrees to acknowledge receipt thereof in
writing. Each such assignee shall have all of the rights, but none of the
obligations, of Lessor under this lease. Lessee shall not assert against
assignee any defense, counterclaim or offset that Lessee may have against
Lessor. Notwithstanding any
Page 4 of 7
<PAGE>
such assignment, Lessor warrants that Lessee shall quietly enjoy use of the
Equipment subject to the terms and conditions of this lease so long as Lessee
is not in default hereunder. Subject to the foregoing, this lease inures to
the benefit of and is binding upon the successors and assigns of the parties
hereto.
21. DELINQUENT PAYMENTS. (a) Service Charge. Since it would be
impractical or extremely difficult to fix Lessor's actual damages for
collecting and accounting for a late payment, if any payment to Lessor
required herein (including, but not limited to, rental, renewal, tax,
purchase and other amounts) is not paid on or before its due date, Lessee
shall pay to Lessor an amount equal to 5% of any such late payment. (b)
Interest. Lessee shall also pay interest on any such late payment from the
due date thereof until the date paid at the lesser of 18% per annum or the
maximum rate allowed by law.
22. DEFAULT; REMEDIES. Any of the following shall constitute an Event
of Default: If a) Lessee fails to pay when due any rent or other amount
required herein to be paid by Lessee, or b) Lessee makes an assignment for
the benefit of creditors, whether voluntary or involuntary, or c) a petition
is filed by or against Lessee under any bankruptcy, insolvency or similar
legislation, or d) Lessee violates or fails to perform any provision of
either this lease or any Acquisition Agreement, or violates or fails to
perform any covenant or representation made by Lessee herein, or e) Lessee
makes a bulk transfer of furniture, furnishings, fixtures or other equipment
or inventory, or f) Lessee ceases doing business as a going concern or
terminates its existence, or (g) Lessee consolidates with, merges with or
into, or conveys or leases all or substantially all of its assets as an
entirety to any person or engages in any other form of reorganization, or
there is a change in the legal structure of Lessee, in each case which
results, in the opinion of Lessor, in a material adverse change in Lessee's
ability to perform its obligations under this lease, or (h) any
representation or warranty made by Lessee in this lease or in any other
document or agreement furnished by Lessee to Lessor shall prove to have been
false or misleading in any material respect when made or when deemed to have
been made, or i) Lessee shall be in default under any material obligation for
the payment of borrowed money or the deferred purchase price of, or for the
payment of any rent due with respect to, any real or personal property, or j)
Lessee shall be in default under any other agreement now existing or
hereafter made with Lessor or any of Lessor's affiliates, or k) any event or
condition described in the foregoing clauses (b), (c), (e), (f), (g) (h) (in
clauses (g) and (h) substituting the phrase "guaranty or other credit support
document" for the word "lease"), (i) or (j) shall have occurred with respect
to any guarantor of, or other party liable in whole or in part for, Lessee's
obligations hereunder, or such guarantor or other party shall have defaulted
in the observance or performance of any covenant, condition or agreement to
be observed or performed by it under the guaranty or other credit support
document pursuant to which it is liable for Lessee's obligations hereunder,
or such guaranty or other credit support document shall have been revoked or
terminated or shall have otherwise ceased, for any reason, to be in full
force and effect. An Event of Default with respect to any Equipment Schedule
shall constitute an Event of Default for all Equipment Schedules. Lessee
shall promptly notify Lessor of the occurrence of any Event of Default.
If an Event of Default occurs, Lessor shall have the right to exercise
any one or more of the following remedies in order to protect the interests
and reasonably expected profits and bargains of Lessor: a) Lessor may
terminate this lease with respect to all or any part of the Equipment, b)
Lessor may recover from Lessee all rent and other amounts then due and as
they shall thereafter become due hereunder, c) Lessor may take possession of
any or all items of Equipment, wherever the same may be located, without
demand or notice, without any court order or other process of law and without
liability to Lessee for any damages occasioned by such taking of possession,
and any such taking of possession shall not constitute a termination of this
lease, d) Lessor may recover from Lessee, with respect to any and all items
of Equipment, and with or without repossessing the Equipment the sum of (1)
the total amount due and owing to Lessor at the time of such default, plus
(2) an amount calculated by Lessor which is the present value at 5% per annum
simple interest discount of all rent and other amounts payable by Lessee with
respect to said item(s) from date of such payment to date of expiration of
its Initial Term, plus (3) the "reversionary value" of the Equipment, which
shall be determined by Lessor as the total cost of the Equipment less 60% of
the total rent (net of sales/use taxes, if any) required to be paid pursuant
to Paragraph 9, and which the parties agree is a reasonable estimate of such
value; and upon the payment of all amounts described in clauses (1), (2) and
(3) above, Lessee will become entitled to the Equipment AS IS, WHERE IS,
without warranty whatsoever; provided, however, that if Lessor has
repossessed or accepted the surrender of the Equipment, Lessor shall sell,
lease or otherwise dispose of the Equipment in a commercially reasonable
manner, with or without notice and on public or private bid, and apply the
net proceeds thereof (after deducting all expenses, including attorneys' fees
incurred in connection therewith), to the sum of (1), (2) and (3) above, and
e) Lessor may pursue any other remedy available at law or in equity,
including but not limited to seeking damages or specific performance and/or
obtaining an injunction.
No right or remedy herein conferred upon or reserved to Lessor is
exclusive of any right or remedy herein or by law or equity provided or
permitted; but each shall be cumulative of every other right or remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise, and may be enforced concurrently therewith or from time to time,
but Lessor shall not be entitled to recover a greater amount in damages than
Lessor could have gained by receipt of Lessee's full, timely and complete
performance of its obligations pursuant to the terms of this lease plus
accrued delinquent payments under Paragraph 21.
Page 5 of 7
<PAGE>
23. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses,
including attorneys' fees and the fees of collection agencies, incurred by
Lessor in enforcing any of the terms, conditions, or provisions hereof or in
protecting Lessor's rights herein. Lessee's obligation hereunder includes
all such costs and expenses expended by Lessor (a) prior to filing of an
action, (b) in connection with an action which is dismissed, and (c) in the
enforcement of any judgment. Lessee's obligation to pay Lessor's attorneys'
fees incurred in enforcing any judgment is a separate obligation of Lessee,
severable from Lessee's other obligations hereunder, which obligation will
survive such judgment and will not be deemed to have been merged into such
judgment.
24. OWNERSHIP; PERSONAL PROPERTY. The Equipment shall at all times
remain the property of Lessor and Lessee shall have no right, title or
interest therein or thereto except as expressly set forth in this lease and
the Equipment shall at all times be and remain personal property
notwithstanding that the Equipment or any part thereof may now be, or
hereafter become, in any manner, affixed or attached to real property or any
improvements thereon.
25. NOTICES. Service of all notices under this lease shall be
sufficient if given personally or mailed to the respective party at its
address set forth on any Equipment Schedule, or at such address as either
party may provide in writing from time to time. Any such notice mailed to
said address shall be effective when deposited in the United States mail,
duly addressed and with postage prepaid.
26. ACQUISITION AGREEMENTS. If the Equipment is subject to any
Acquisition Agreement, Lessee, as part of this lease, transfers and assigns
to Lessor all of its rights, but none of its obligations (except for Lessee's
obligation to pay for the Equipment conditioned upon Lessee's acceptance in
accordance with Paragraph 6), in and to the Acquisition Agreement, including
but not limited to the right to take title to the Equipment. Lessee shall
indemnify and hold Lessor harmless in accordance with Paragraph 19 from any
liability resulting from any Acquisition Agreement as well as liabilities
resulting from any Acquisition Agreement Lessor is required to enter into on
behalf of Lessee or with Lessee for purposes of this lease.
27. UPGRADES. Any existing lease between Lessor and Lessee subject to
an "upgrade" program shall continue in full force and effect and shall be
kept free of default by Lessee (even if the Equipment covered by the existing
lease is sold, traded-in, etc.) until any such existing lease is cancelled by
Lessor when, if applicable, the new Equipment is accepted by Lessee for all
purposes of this lease.
28. PURCHASE OPTION. If no default shall have occurred and be
continuing, Lessee shall be entitled, at its option upon written notice to
Lessor, which notice must be received by Lessor at least 90 days prior to the
end of either the Initial Term or any renewal term of any Equipment Schedule,
to purchase all, but not less than all, of the Equipment covered by such
Equipment Schedule from Lessor at the end of the Initial Term or any renewal
term for such Equipment Schedule at a purchase price equal to the then fair
market value of the Equipment in use and operational, in the condition
required by the lease, as mutually agreed by Lessor and Lessee. On a date
which is no later than the expiration date of the Initial Term or any renewal
term, as applicable, Lessee shall pay to Lessor the purchase price for the
Equipment covered by such Equipment Schedule (plus any taxes levied thereon)
and Lessor shall sell the Equipment "as-is where-is" without any warranties
express or implied.
29. RELATED EQUIPMENT SCHEDULES. In the event that any Equipment
Schedule hereunder shall include Equipment that may become attached to,
affixed to, or used in connection with Equipment covered under another
Equipment Schedule hereunder ("Related Equipment Schedule"), Lessee
acknowledges the following: (a) if Lessee elects to exercise a purchase
option or renewal option under any Equipment Schedule, if provided; or (b) if
Lessee elects to return the Equipment under any Equipment Schedule as
described in Paragraph 14, then Lessor, at its discretion, may require the
similar disposition of all Related Equipment Schedules as provided for by
this lease.
30. MISCELLANEOUS. This instrument and any Approval Letter issued by
Lessor and any Equipment Schedule hereunder constitutes the entire agreement
between Lessor and Lessee, and shall not be amended, altered or changed
except by a written agreement signed by the parties hereto, and in the case
of Lessor, such agreement shall not be valid unless executed by Lessor at
Lessor's home office. To the extent any provision of this lease may be
determined to be invalid or unenforceable, it shall be ineffective without
affecting the other provisions of this lease. To the extent permitted by
applicable law, Lessee hereby waives any provisions of law which render any
provision of this lease unenforceable in any respect. Unless specified
otherwise, in the event such written agreement is attached to and made a part
of an Equipment Schedule, the terms and conditions of said written agreement
shall apply only to said Equipment Schedule and shall not apply to any other
Equipment Schedule made a part of this lease. In the event Lessee issues a
purchase order to Lessor covering Equipment to be leased hereunder, it is
agreed that such purchase order is issued for purposes of authorization and
Lessee's internal use only, and none of its terms and conditions shall modify
the terms and conditions of this lease and/or related documentation, or
affect Lessor's responsibility to Lessee as defined in this lease. An
executed Equipment Schedule that incorporates by reference the terms of this
Master Lease Agreement, marked "Original," shall be the original of the lease
for the Equipment described therein for all purposes. All other executed
counterparts
Page 6 of 7
<PAGE>
of the lease shall be marked "Duplicate." To the extent the lease
constitutes chattel paper, as such term is defined in the Uniform Commercial
Code of the applicable jurisdiction, no security interest in the lease may be
created through the transfer of possession of any counterpart other than the
Original of the lease. Lessor reserves the right to charge Lessee fees for
its provision of additional administrative services related to the lease
requested by Lessee. Lessee shall provide Lessor with such corporate
resolutions, opinions of counsel, financial statements, and other documents
(including documents for filing or recording) as Lessor may request from time
to time. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE ITS TRUE AND LAWFUL
ATTORNEY IN FACT TO EXECUTE ON BEHALF OF LESSEE ALL UNIFORM COMMERCIAL CODE
FINANCING STATEMENTS OR OTHER DOCUMENTS WHICH, IN LESSOR'S DETERMINATION, ARE
NECESSARY TO SECURE LESSOR'S INTEREST IN SAID EQUIPMENT. The filing of UCC
Financing Statements is precautionary and shall not be evidence that the
lease is intended as security. If for any reason this agreement is
determined not to be a lease, Lessee hereby grants Lessor a security interest
in the lease, the Equipment or collateral pertaining thereto and the proceeds
thereof, including re-lease, sale or disposition of the Equipment or other
collateral. If more than one Lessee is named in this lease, the liability of
each shall be joint and several. Time is of the essence with respect to this
lease. Lessee represents and warrants that the Equipment is being leased
hereunder for business purposes. The descriptive headings which are used in
this lease are for convenience of the parties only and shall not affect the
meaning of any provision of the lease. Any failure of the Lessor to require
strict performance by the Lessee or any waiver by Lessor of any provision
herein shall not be construed as a consent or waiver of any other breach of
the same or of any other provision. This agreement shall be governed by the
laws of the state of California (without giving effect to principles of
conflicts of law thereof).
31. LESSEE'S REPRESENTATIONS; WAIVER OF JURY TRIAL. Lessee represents
and warrants, as of the date of this lease: (a) Lessee is duly organized,
validly existing and in good standing under the laws of the state of its
incorporation or organization, and is duly qualified to do business wherever
necessary to carry on its present business and operations and to own its
property; (b) this lease (and any Equipment Schedule entered into pursuant to
this lease) has been duly authorized by all necessary action on the part of
Lessee, duly executed and delivered by authorized officers or agents of
Lessee, does not require any further shareholder or partner approval, does
not require the approval of, or the giving notice to, any federal, state,
local or foreign governmental authority, does not contravene any law binding
on Lessee or contravene any certificate or articles of incorporation or
by-laws or partnership certificate or agreement, or any agreement, indenture
or other instruments to which Lessee is a party or by which it or any of its
assets or property may be bound; (c) this lease (and any Equipment Schedule
entered into pursuant to this lease) constitutes the legal, valid and binding
obligation of Lessee and is enforceable in accordance with its terms; (d) all
credit and financial information, and all other information submitted to
Lessor at any time is true and correct, and there does not exist any pending
or threatened action or proceeding before any court or administrative agency
which might materially adversely affect Lessee's financial condition or
operations; (e) Lessee agrees to furnish to Lessor (i) as soon as available,
and in any event within 120 days after the last day of each fiscal year of
Lessee, a copy of the financial statements of Lessee as of the end of such
fiscal year, certified by an independent certified public accounting firm;
(ii) as soon as available, and in any event within 60 days after the last day
of each quarter of Lessee's fiscal year, a copy of quarterly financial
statements certified by the principal financial officer of Lessee; and (iii)
such additional information concerning Lessee as Lessor may reasonably
request. LESSEE AND LESSOR HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY
MATTERS ARISING OUT OF THIS LEASE OR ANY OTHER AGREEMENT EXECUTED IN
CONNECTION HEREWITH.
32. GOOD FAITH DEPOSIT REQUIREMENT. Lessee agrees, with respect to each
transaction, to pay the Good Faith Deposit specified in Lessor's proposal for
such transaction or in the Equipment Schedule related thereto. This Good
Faith Deposit is given in consideration for Lessor's costs and expenses in
investigating and appraising and/or establishing credit for Lessee. This
Good Faith Deposit shall not be refunded unless Lessor declines to accept
Lessee's offer to enter into the lease. Upon Lessor's acceptance of Lessee's
offer to enter into the lease, unless otherwise specified in the proposal or
Equipment Schedule, the amount shall be applied to the first period's rent
payment. Lessee acknowledges that Lessor's act of depositing any Good Faith
Deposit into Lessor's bank account shall not in itself constitute Lessor's
acceptance of Lessee's offer to enter into the lease.
IN WITNESS WHEREOF, the parties have executed this Master Lease Agreement
effective as of the first date it is executed by Lessee below.
<TABLE>
<S> <C> <C>
MELLON US LEASING, A DIVISION OF LESSEE . . . . DATE
MELLON LEASING CORPORATION (LESSOR)
BY BY /s/ Elizabeth L. Hougen Controller 9/29/97
- ------------------------------------------ ---------------------------------------------- -----------
TITLE BY TITLE
- ------------------------------------------ ---------------------------------------------- -----------
HOME OFFICE: 525 MARKET STREET, SUITE 3500 CO-LESSEE . . . . DATE
SAN FRANCISCO, CA 94105-2743 BY TITLE
NOT VALID UNLESS EXECUTED BY LESSOR AT LESSOR'S
HOME OFFICE ---------------------------------------------- -----------
</TABLE>
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<PAGE>
EXHIBIT 10.49
SUBLEASE (BUILDING #3)
This Sublease is made as of February 16, 1997, by and between ComStream
Corporation, a Delaware corporation ("Sublessor"), and Molecular Biosystems,
Inc., a Delaware corporation ("Subtenant"), with respect to the approximately
30,097 square-foot building located at 10070 Barnes Canyon Road in San Diego,
California, as depicted in the attached Exhibit "A" (the "Property").
1. LEASING AND TERM. Subject to the conditions set forth below, Sublessor
leases to Subtenant, and Subtenant hires from Sublessor, the Property for the
term (the "Term") commencing on March 1, 1998 and expiring on February 14, 2000
(the "Expiration Date"), unless earlier terminated in accordance with this
Sublease; provided, however, Tenant may not take possession of the 10,295
square-foot portion of laboratory within the Property depicted as Space "B" on
the attached EXHIBIT "B" until April 16, 1998.
2. MASTER LEASE. Sublessor's interest in the Property is held under the
Triple Net Lease (Single Tenant Building) dated as of May 31, 1989, by and
between K L Sorrento Associates, predecessor-in-interest to Spieker Properties
("Master Lessor"), as landlord, and Sublessor, as tenant, as amended by the 1st
Amendment to Lease dated as of May 31, 1989, the Second Amendment to Lease dated
as of April 1, 1991, the Third Amendment to Lease dated as of February 15, 1994,
and the Fourth Amendment to Lease dated as of February 24, 1995 (the "Master
Lease"), a copy of which is attached to this Sublease as EXHIBIT C (along with
certain material correspondence and estoppel certificates). This Sublease is a
sublease under and subject and subordinate to the terms and conditions of the
Master Lease. Subtenant may not violate any provision of the Master Lease. The
following provisions of the Master Lease are repeated and incorporated into this
Sublease as if originally set forth in this Sublease, but substituting each
instance of the word "Lessor" with "Sublessor", each instance of "Lessee" with
"Subtenant" and each instance of "Premises" with "Property": Sections 4.2, 6.1,
7, 8.2, and 8.3, and Articles 11 through 27, 29, 33 through 43, and 46 through
50 (except that in Section 50.5, the reference to "40.54 percent" is replaced
with "32.2 percent"); as well as Article 11 of the Second Amendment to Lease,
and Articles 7, 8, 10, 12, and 13 of the Third Amendment to Lease. If the
Master Lease is terminated, then this Sublease is automatically terminated on
the same date of such termination and Sublessor has no further obligations under
this Sublease other than to return any unearned paid rent to Subtenant. The
obligation of Sublessor under this Sublease is expressly conditioned upon
Sublessor obtaining Master Lessor's written consent to this Sublease.
3. RENT. Subtenant shall pay Sublessor as basic monthly rent under this
Sublease, excluding triple net charges, in advance, $28,592.15, except that
basic monthly rent for the first two month period of March 1, 1998 through April
30, 1998 is only $42,514.00, half of which is immediately payable, the other
half of which is due on April 1, 1998. On March 1, 1999, and for the remainder
of the Term, basic monthly rent increases to $29,449.91. In order to facilitate
Sublessor paying its obligations under the Master Lease in a timely fashion, all
payments required of Subtenant under this Sublease are due, and must be paid,
five business days before they are due from Sublessor under the Master Lease.
4. SECURITY DEPOSIT AND SECURITY INTEREST. Subtenant shall immediately
deposit with Sublessor cash in the amount of $28,592.15 (the "Security Deposit")
to secure the performance by Subtenant of its obligations under this Sublease,
including Subtenant's obligations (i) to pay rent, (ii) to repair damages caused
by Subtenant or Subtenant's agents, employees, contractors, licensees, or
invitees (collectively, "Subtenant's Invitees"), (iii) to clean the Premises on
the termination of this Sublease, and (iv) to remedy any other defaults by
Subtenant in the performance of any of its obligations under this
1
<PAGE>
Sublease. Subtenant shall promptly pay to Sublessor the amount necessary to
replenish any portion of the Security Deposit so used by Sublessor.
Following the Expiration Date or earlier termination of this Sublease, and
within the time frame required by applicable law, Sublessor shall deliver to
Subtenant, at Subtenant's last known address, any portion of the Security
Deposit not used by Sublessor in accordance with this paragraph, along with
an itemized statement of deductions made from the Security Deposit.
Sublessor may commingle the Security Deposit with Sublessor's other funds and
Sublessor will not pay interest on such Security Deposit to Subtenant.
5. SECURITY MEASURES. Subtenant acknowledges (i) that the rent does not
include the cost of any security measures for any portion of the Project (ii)
that Sublessor has no obligation to provide any security measures, (iii) that
Sublessor has made no representation to Subtenant regarding the safety or
security of the Project, and (iv) that Subtenant is solely responsible for
providing any security it deems necessary to protect itself, its property, and
Subtenant's invitees in, on, or about the Project.
6. "AS IS" CONDITION OF PROPERTY. Subtenant has inspected the Property to
the extent it deems appropriate and hereby accepts the Property in its "AS IS"
condition or status as of the date of this Sublease and acknowledges that in
doing so it has relied solely on Subtenant's inspection of the Property, its
analysis of the Master Lease and Master Lessor and the opinions and advice
concerning the Premises of consultants engaged by Subtenant. Subtenant
acknowledges that Sublessor has made no representation or warranty regarding the
Property or the Master Lease or any other matter whatsoever relating to this
Sublease or the Property, and Sublessor disclaims any implied representation or
warranty.
7. BROKERS. Subtenant and Sublessor each represents that no real estate
broker, agent, finder, or other person is responsible for bringing about or
negotiating this Sublease and Subtenant has not dealt with any real estate
broker, agent, finder, or other person, relative to this Sublease in any manner,
other than CB Commercial and The Irving Hughes Group, Inc. Sublessor is
responsible for paying CB Commercial's commission of $35,025.00, which is to be
split evenly between CB Commercial and The Irving Hughes Group, Inc.
8. NOTICES. Each notice and other communication required or permitted to
be given under this Agreement ("Notice") must be in writing. Notice is duly
given to another party upon: (a) hand delivery to the other party, (b) receipt
by the other party when sent by facsimile to the address and number for such
party set forth below (provided, however, that the Notice is not effective
unless a duplicate copy of the facsimile Notice is promptly given by one of the
other methods permitted under this paragraph), (c) three business days after the
Notice has been deposited with the United States postal service as first class
certified mail, return receipt requested, postage prepaid, and addressed to the
party as set forth below, or (d) the next business day after the Notice has been
deposited with a reputable overnight delivery service, postage prepaid,
addressed to the party as set forth below with next-business-day delivery
guaranteed, provided that the sending party receives a confirmation of delivery
from the delivery-service-provider.
If To Sublessor: ComStream Corporation
10180 Barnes Canyon Road
San Diego, CA 92121
Facsimile: (619) 657-5702
Attn: General Counsel
with a copy to: Solomon Ward Seidenwurm & Smith, LLP
401 B Street, Suite 1200
San Diego, CA 92101
2
<PAGE>
Attn: Jeffrey A. Schneider, Esq.
Facsimile: (619) 231-4755
If To Subtenant: Molecular Biosystems, Inc.
10030 Barnes Canyon Road
San Diego, CA 92121
Attn: Gerard A. Wills
Facsimile: (619) 824-2395
Each party shall make a reasonable, good faith effort to ensure that it will
accept or receive Notices to it that are given in accordance with this
paragraph. A party may change its address for purposes of this paragraph by
giving the other party(ies) written notice of a new address in the manner set
forth above.
9. MISCELLANEOUS. This Sublease may be executed in counterparts, each of
which is deemed an original and all of which together constitute one document.
All exhibits attached to and referenced in this Sublease are incorporated into
this Sublease. This Sublease may be modified only by a contract in writing
executed by the party to this Sublease against whom enforcement of the
modification is sought. This Sublease and all documents specifically referred
to and executed in connection with this Sublease: (a) contain the entire and
final agreement of the parties to this Sublease with respect to the subject
matter of this Sublease, and (b) supersede all negotiations, stipulations,
understandings, agreements, representations and warranties, if any, with respect
to such subject matter, which precede or accompany the execution of this
Sublease. Whenever the context so requires in this Sublease, all words used in
the singular may include the plural (and vice versa) and the word "person"
includes a natural person, a corporation, a firm, a partnership, a joint
venture, a trust, an estate or any other entity. The terms "includes" and
"including" do not imply any limitation. No remedy or election under this
Sublease is exclusive, but rather, to the extent permitted by applicable law,
each such remedy and election is cumulative with all other remedies at law or in
equity. Each party to this Sublease and its legal counsel have reviewed and
revised this Sublease. The rule of construction that ambiguities are to be
resolved against the drafting party or in favor of the party receiving a
particular benefit under an agreement may not be employed in the interpretation
of this Sublease or any amendment to this Sublease. Nothing in this Sublease is
intended to confer any rights or remedies on any person or entity other than the
parties to this Sublease and their respective successors-in-interest and
permitted assignees.
SUBLESSOR: COMSTREAM CORPORATION, a Delaware corporation
By: /s/Jamie Crichton
-------------------------------
its: Vice President & CFO
SUBTENANT: MOLECULAR BIOSYSTEMS, INC., a Delaware
corporation
By: /s/ Thomas E. Jurgensen
-------------------------------
its: Vice President - Legal and General Counsel
3
<PAGE>
EXHIBIT A
THE PROPERTY - BUILDING #3
4
<PAGE>
EXHIBIT B
MASTER LEASE
5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements, File Numbers 33-723, 33-24508, 33-78564, 33-78572
and 333-02389.
ARTHUR ANDERSEN LLP
San Diego, California
May 18, 1998
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719598
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