UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ____ to ____
Commission file number 0-13634
MACROCHEM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2744744
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Hartwell Avenue
Lexington, Massachusetts 02421-3134
-----------------------------------
(Address of principal executive offices)
(781) 862-4003
(Telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
Series B Preferred Stock Purchase Rights, $.01 par value
--------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the shares of Common Stock held by
non-affiliates, based upon the closing price for such stock on March 1, 2000 was
approximately $140,000,000. As of March 1, 2000, 22,444,955 shares of Common
Stock, $.01 par value, were outstanding.
<PAGE>
PART I
ITEM 1. BUSINESS.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED OR REFERRED
TO IN "RISK FACTORS".
MacroChem's primary business is the development of pharmaceutical products
for commercialization by applying SEPA(R) (Soft Enhancer of Percutaneous
Absorption), its patented topical drug delivery technology. SEPA compounds, when
properly combined with drugs, provide pharmaceutical formulations (creams, gels,
solutions, etc.) that enhance the transdermal delivery of drugs into the skin or
into the bloodstream. SEPA formulations combined with the Company's polymers and
adhesives can also be used with patch formats to achieve the transdermal
delivery of selected drugs. The Company believes that SEPA compounds enhance the
diffusion of drugs into and through the skin by making the outer layer of the
skin (stratum corneum) more permeable to the drug molecule. Transdermal delivery
provides an alternative to other methods of drug administration (injection, oral
dosage forms, inhalation, etc.), and may allow selected drugs to be administered
more effectively, at lower doses, with fewer adverse events and improved patient
compliance.
The Company is developing specific SEPA formulations for use with
non-proprietary and proprietary drugs manufactured by pharmaceutical companies,
and plans to commercialize these products through the formation of partnerships,
strategic alliances and license agreements with those companies. In order to
attract strategic partners, the Company is conducting clinical testing of
certain SEPA-enhanced pharmaceuticals. The Company believes that if the clinical
trials are successful the results will aid the Company in attracting partners to
assist in the promotion of the product. Because of the substantial costs
involved in bringing a new pharmaceutical product or a new formulation of an old
drug to the market, the Company may be required to rely on pharmaceutical
companies to conduct all or part of the clinical trials necessary to gain
regulatory approval to manufacture and to market any resulting product.
The Company has also developed a series of new low molecular weight
polymers, termed MacroDerm(TM), for cosmetic use and the topical delivery of
pharmaceuticals. The Company has developed, tested and evaluated prototypes of
MacroDerms and is currently seeking strategic partners to manufacture and market
products based upon this technology.
The Company does not maintain general product liability insurance, since
the Company does not market drug products. The Company has ongoing clinical
studies and has obtained specific liability insurance relating to such studies.
As of December 31, 1999, no asserted liability claims existed against the
Company. However, in the future, incidents could give rise to claims which could
exceed the Company's insurance coverage and resources.
2
<PAGE>
RESEARCH AND DEVELOPMENT
The Company conducts its research and development activities through its
own staff and facilities, as well as through collaborative arrangements with
universities, contract research organizations and independent consultants. As of
March 1, 2000, the Company had 25 full-time employees, 18 of whom are devoted to
research and development and regulatory affairs. Research and developmental
expenditures approximated $5,423,100, $4,318,800 and $2,084,800 during the years
ended December 31, 1999, 1998 and 1997, respectively. The Company is dependent
upon third parties to conduct clinical studies, obtain U.S. Food and Drug
Administration ("FDA") and other regulatory approvals and manufacture and market
a finished product.
The Company conducts stability studies, tests its unique formulations and
designs manufacturing processes for its SEPA compounds and adhesive and polymer
technologies at its facility and other facilities. The Company has cGMP (current
Good Manufacturing Practices) facilities for the manufacture of dosage forms for
clinical evaluations.
PRODUCTS AND TECHNOLOGIES
BACKGROUND
To be effective, drugs must reach an intended site in the body, at an
effective concentration, and for an appropriate length of time. Traditional
methods of drug administration, such as oral ingestion, intramuscular and
intravenous injections and inhalation, are effective for a wide variety of
drugs. However, depending upon the given drug, each method may have
disadvantages. For example, following oral administration, a drug must pass
through the gastrointestinal system to be absorbed and may be metabolized or
broken down in the stomach, intestines or liver, resulting in a lower amount of
unchanged drug at the target site for its action. As a result, higher dosages of
the drug must be administered orally to produce the desired effect, which may
cause irritation of the gastrointestinal tract and systemic toxicity.
In addition, the rate at which an orally administered drug is absorbed may
vary depending on several factors, including the drug's chemical properties, the
length of time the drug remains in the gastrointestinal tract and the patient's
meal patterns. Although the pharmaceutical industry has investigated a variety
of alternative approaches for dealing with drug adverse events and loss of
efficacy following oral dosing, through enteric coating of tablets, formulating
with various waxes and cellulosic materials, microencapsulation and compressing
tablets in various layers, the desired effects of these approaches are not
always reproducible from patient to patient or effective in bypassing
metabolism.
TOPICAL DRUG DELIVERY
Topical drug delivery is the process of delivering drugs into the skin
(dermal delivery) so that they can be effective in the treatment of
dermatological conditions and diseases, or through the skin (transdermal
delivery) and into the bloodstream for the treatment of systemic diseases.
3
<PAGE>
The skin is made up of three layers: the outer layer, the stratum corneum;
the middle layer or viable epidermis; and the inner layer, the dermis. The
stratum corneum, which serves as the skin's primary barrier to the external
environment, consists of closely packed dead cells and fatty (lipid) material.
The epidermis is composed of several layers of active cells and the dermis
consists, in part, of tissue containing hair follicles, nerve endings and blood
capillaries. Within the stratum corneum, lipid layers bind the dead cells
together to form a protective barrier. Research conducted by MacroChem shows
that SEPA compounds affect drug delivery by acting, in part, upon the stratum
corneum to disrupt the alignment of the lipid molecules within the lipid layers.
This disruption increases the porosity of the lipid-cell layers, allowing drugs
to diffuse through the stratum corneum through the more porous epidermis to the
dermis, where they enter the blood stream through the capillaries. The rate and
amount of drug absorbed can be controlled by varying the formulation used.
THE COMPANY'S DRUG DELIVERY SYSTEMS AND OTHER PROPOSED PRODUCTS
SEPA COMPOUNDS
The delivery of a drug through the skin depends on the drug's physical and
chemical characteristics (molecular size and shape, the drug's solubility in
lipids and water, its melting point and whether it is lipophilic or
hydrophilic).
Since some drugs move through the skin too rapidly, the transdermal system
must retard the rate of drug absorption to ensure optimal efficacy with minimum
toxicity. Since other drugs move through the skin with difficulty, the
transdermal system must be formulated to increase a drug's rate of absorption
through the skin. Common methods of transdermal delivery use common chemicals
such as ethanol or fatty compounds to enhance penetration.
Although certain delivery methods using chemicals have proven to be
somewhat effective with specific drugs, such as drugs used for the treatment of
motion sickness or hormone deficiencies, they have caused adverse events, such
as skin irritation and sensitivity at the site of application. Some drugs,
because of their physical characteristics or the amount of drug necessary to
achieve the desired therapeutic effect, have not been successfully delivered
transdermally to date.
The Company has developed SEPA compounds that are designed to enhance the
transport, penetration and controlled delivery of drugs through the skin. SEPA
compounds are generally colorless, clear liquids that are intended to promote
drug delivery by aiding drug molecules to penetrate the skin, diffuse into or
through the skin layers and become absorbed into the bloodstream.
The Company has its own facility for the in vitro testing of drug
formulations containing SEPA, and therefore is less dependent on outside
laboratories for this type of testing. The Company is conducting in vitro
studies to evaluate the transdermal enhancing effect of SEPA in combination with
a variety of drugs with differing physical and chemical characteristics,
representing a broad spectrum of potential drug products. Although the Company's
research and development efforts with SEPA are at an advanced stage, the Company
must still conduct substantial additional studies to demonstrate the efficacy
and safety of any SEPA-drug formulation. The Company has found that specific
4
<PAGE>
drugs administered transdermally with SEPA demonstrated increased transdermal
absorption. Some of the drug formulations tested by the Company with SEPA
contain compounds generally recognized as unlikely or difficult candidates for
transdermal delivery because of their physical and chemical properties and
molecular size. As these drug formulations are further developed, the Company
plans to conduct additional studies to investigate the efficacy and safety of
some of these formulations.
The Company has conducted early clinical studies with several drug
formulations containing SEPA where SEPA has been demonstrated to enhance
transdermal penetration of the specific drug within in vitro testing. Clinical
studies have included Phase I trials in which safety and tolerance of a topical
application of the drug formulation were assessed and Phase II trials in which
efficacy of the specific drug was evaluated in an appropriate clinical
condition.
The Company has designed and sponsored clinical trials of Topiglan(TM), the
Company's topical formulation of alprostadil and SEPA for use in the treatment
of erectile dysfunction. Testing has established safety and tolerance in both
normal volunteers and patients with the target disease. In addition, randomized
controlled trials have demonstrated effectiveness of the alprostadil formulation
in patients with erectile dysfunction. The Company has also conducted laboratory
studies with SEPA formulations of nonsteroidal anti-inflammatory drugs for
topical application in pain management.
In addition to the ongoing clinical development programs cited above, the
Company, in association with third parties, is currently conducting pre-clinical
studies with SEPA formulations in combination with specific drugs for a variety
of other applications, including but not limited to fungal infections.
The Company believes that SEPA compounds can be used with a broad variety
of new and existing drugs to enhance their commercial value. The therapeutic
effectiveness and improved convenience of a transdermal SEPA product may
substantially expand the existing market for a drug. In addition, a formulation
containing a SEPA compound may prove to be a superior alternative to the
existing methods of administering certain drugs.
MACRODERM(TM) DRUG DELIVERY SYSTEM
The Company has developed a series of new low molecular weight polymers,
termed MacroDerm, for use in cosmetics and in the superficial dermal delivery of
pharmaceuticals. Potential applications include their use with sunscreens,
moisturizers, and insect repellents. The Company has synthesized, tested and
evaluated prototypes of MacroDerms and is currently seeking strategic partners
to manufacture and market specific MacroDerm products.
COMPETITION
The Company competes with numerous firms, many of which are large,
multi-national organizations with worldwide distribution. The Company believes
that its major competitors in the drug delivery sector of the health care
industry include ALZA Corporation, Cygnus Therapeutic Systems, Elan Corporation,
plc., Novartis and Pfizer. These firms have substantially greater capital
resources, research and development and technical staffs, facilities and
5
<PAGE>
experience in obtaining regulatory approvals, as well as in manufacturing,
marketing and distribution of products, than the Company. Recent trends in this
area are toward further market consolidation of large drug companies into a
smaller number of very large entities, further concentrating financial,
technical and market strength and increasing competitive pressure in the
industry. Academic institutions, hospitals, governmental agencies and other
public and private research organizations are also conducting research and
seeking patent protection and may develop competing products or technologies of
their own through joint ventures or other arrangements. In addition, recently
developed technologies or technologies that may be developed in the future may
or could be the basis for competitive products. No assurance can be given that
the Company's competitors will not succeed in developing technologies and
products that are more effective or less costly to use than any that are
currently being developed by the Company.
Alprostadil, a synthetic prostaglandin E1 (PGE1), and Viagra(R), are the
only drugs approved for marketing in the United States for erectile dysfunction.
PGE1 is available in two dosage forms. Caverject(R), marketed by Pharmacia &
Upjohn, is administered by needle injection directly into the penis. The second
product, developed by Vivus, is a pellet form of the drug administered through a
tube inserted into the urethra. In contrast to the invasive forms now available,
MacroChem believes that a topical gel formulation applied to the penis will be
the preferred dosage form for treatment of this disorder. Viagra(R), an oral
product of Pfizer, was approved by the FDA in 1998. Many large drug companies
have announced internal programs to develop orally administered alternatives to
Pfizer's Viagra for treating male erectile dysfunction. In addition, NexMed has
announced commencement of U.S. Phase 2 clinical trials of its topical cream
formulation of Alprostadil for treating the disease.
Johnson & Johnson and Novartis each offer an orally administered
anti-fungal therapy for treating fungal infections of the nail. A number of
smaller firms are also developing topical and oral therapies for these
infections.
The Company expects products approved for sale, if any, to compete
primarily on the basis of product efficacy, safety, patient compliance,
reliability, price and patent position. Generally, the first pharmaceutical
product to reach the market in a therapeutic or preventive area is often at a
significant advantage relative to later entrants to the market. The Company's
competitive position will also depend on its ability to attract and retain
qualified scientific and other personnel, develop effective proprietary
products, implement production and marketing plans, obtain patent protection and
secure adequate capital resources.
EMPLOYEES
As of March 1, 2000, the Company had 25 full time employees, 18 of whom are
devoted to research and development and regulatory affairs.
GOVERNMENT REGULATION
The production and marketing of the Company's drug delivery systems and
pharmaceutical products are subject to regulation for safety, efficacy and
quality by numerous federal, state and local agencies and comparable agencies in
foreign countries. In the United States, the Federal Food, Drug and Cosmetics
6
<PAGE>
Act, the Public Health Service Act, the Controlled Substances Act and other
federal statutes and regulations govern or influence the testing, manufacture,
safety, labeling, storage, record keeping, approval, advertising and promotion
of the Company's proposed products and technologies.
Non-compliance with applicable requirements can result in fines and other
judicially imposed sanctions including recalls and criminal prosecutions based
on products, promotional practices, or manufacturing practices that violate
statutory requirements. In addition, administrative remedies can involve
voluntary recalls or cessation of sale of products, administrative detention,
public notice, voluntary changes in labeling, manufacturing or promotional
practices, as well as refusal of the government to approve New Drug Applications
(NDAs). The FDA also has the authority to withdraw approval of drugs in
accordance with statutory procedures.
The FDA approval procedure involves completion of certain pre-clinical and
manufacturing/stability studies and the submission of the results of these
studies to the FDA in an Investigational New Drug (IND) exemption in support of
performing clinical trials. IND allowance is then followed by performance of
human clinical trials, and additional pre-clinical and manufacturing quality
control studies, supporting safety, efficacy and manufacturing quality control.
The safety, chemistry, manufacturing and stability and clinical studies
developed under the IND are compiled into an NDA or Abbreviated New Drug
Application (ANDA) and submitted to the FDA for approval to market.
Preclinical studies involve laboratory evaluation of product
characteristics and animal studies to assess the efficacy and safety of the
product. Human clinical trials are typically conducted in three sequential
phases, but the phases may overlap. Phase I trials consist of testing of the
product in a small number of normal volunteers primarily for safety. In Phase
II, in addition to safety, the efficacy of the product is evaluated in a small
patient population. Phase III trials typically involve multicenter testing for
safety and clinical efficacy in an expanded population of patients at
geographically dispersed test sites. A clinical plan, or "protocol," accompanied
by the identification of the institutions participating in the trials, must be
submitted to the FDA prior to commencement of each clinical trial. The FDA may
order the temporary or permanent discontinuation of a clinical trial at any time
if adverse events that endanger patients in the trials are observed. In
addition, the FDA may request Phase IV clinical trials, to be performed after
marketing approval, to resolve any lingering questions.
A 30-day waiting period after the filing of each IND application is
required by the FDA prior to the commencement of clinical testing in human
subjects. If the FDA has not commented on or questioned the IND application
within 30 days, initial clinical studies may begin. However, any FDA comments or
questions must be answered to the satisfaction of the FDA before initial
clinical testing can begin. In some instances, this process could result in
substantial delay and expense.
The results of the preclinical and clinical studies on new drugs are
submitted to the FDA in the form of NDAs for approval to commence commercial
sales. Following extensive review, the FDA may grant marketing approval, require
additional testing or information or deny the application. Continued compliance
with all FDA requirements and the conditions in an approved application,
7
<PAGE>
including product specifications, manufacturing process and labeling
requirements, are necessary for all products. Failure to comply, or the
occurrence of unanticipated adverse events during commercial marketing, could
lead to the need for labeling changes, product recall, seizure, injunctions
against distribution or other FDA-initiated action, which could delay further
marketing until the products are brought into compliance.
In certain cases, an ANDA may be filed in lieu of filing an NDA. An ANDA
relies on bioequivalency tests that compare the applicant's drug with an already
approved reference drug, rather than on clinical trials. An ANDA may be
available to the Company for a new formulation of a drug which has already been
approved by the FDA in other topical dosage forms. By concentrating on drug
delivery systems employing existing drugs, the Company expects that the time for
regulatory approval of certain products should be shorter than for entirely new
substances.
The NDA itself is a complicated and detailed document and must include the
results of extensive animal, clinical and other testing, the cost of which is
substantial. Although the FDA is required to review applications within 180 days
of filing, in the process of reviewing applications the FDA frequently requests
that additional information be submitted and starts the 180-day regulatory
review period anew when the requested additional information is submitted. The
effect of such requests and subsequent submissions can significantly extend the
time for the NDA review process. Until an NDA is actually approved, no assurance
can be given that the information requested and submitted will be considered
adequate by the FDA to justify approval.
In addition, packaging and labeling of most of the Company's proposed
products are subject to FDA regulation. The Company must get FDA approval for
all labeling and packaging prior to marketing of a regulated product.
Whether or not FDA approval has been obtained, approval of a product by a
comparable regulatory authority must be obtained in most foreign countries prior
to the commencement of marketing of the product in that country. The approval
procedure varies from country to country and may involve additional testing, and
the time required may differ from that required for FDA approval. Although some
procedures for unified filings exist for certain European countries, in general
each country has its own procedure and requirements, many of which are time
consuming and expensive. Thus, substantial delays in obtaining required
approvals from foreign regulatory authorities can result after the relevant
applications are filed. After such approvals are obtained, further delays may be
encountered before the products become commercially available.
No assurance can be given that any required FDA or other governmental
approval will be granted or, if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of the Company's
proposed products, cause the Company to undertake costly procedures and furnish
a competitive advantage to the more substantially capitalized companies with
which the Company plans to compete. In addition, the extent of potentially
adverse government regulations that may arise from future administrative action
or legislation cannot be predicted.
8
<PAGE>
PATENTS AND LICENSE RIGHTS, TRADEMARKS
During 1999, the Company was granted five U.S. patents and one Australian
patent. Two of the U.S. patents and the Australian patent are directed to the
Company's MacroDerm polymers. The other three U.S. patents are directed to the
Company's Topiglan(TM), Benefen(TM)(and other NSAID) and hormone replacement
therapy (HRT) formulations incorporating the Company's basic SEPA(R) technology.
Also during 1999, the Company filed a non-provisional patent application
directed to antifungal nail lacquer products and which incorporate SEPA skin
penetration enhancers. Corresponding foreign applications were filed in Europe,
Canada, Brazil and Japan. Additional patent protection was filed in the U.S. for
other NSAID formulations.
The Company is also actively pursuing domestic and European registration of
its MacroDerm(TM) and Benefen (TM) trademarks.
The Company believes that patent protection of its technologies, processes
and products is important to its future operations. The success of the Company's
proposed products may depend, in part, upon the Company's ability to obtain
patent protection.
Although the Company intends to file additional patent applications as
management believes appropriate with respect to any new products or
technological developments, no assurance can be given that any additional
patents will be issued or, if issued, will be of commercial benefit to the
Company. In addition, to anticipate the breadth or degree of protection that any
such patents may afford is impossible. To the extent that the Company relies on
unpatented proprietary technology, no assurance can be given that others will
not independently develop or obtain substantially equivalent or superior
technology or otherwise gain access to the Company's trade secrets, that any
obligation of confidentiality will be honored or that the Company will be able
to effectively protect its rights to proprietary technology. Further, no
assurance can be given that any products developed by the Company will not
infringe patents held by third parties or that, in such case, licenses from such
third parties would be available on commercially acceptable terms, if at all.
In connection with the prior research and development efforts of the
Company, the Company owns several patents and possesses certain license rights
in connection with other technologies, which it is not currently pursuing. The
Company intends to enforce its patent position and intellectual property rights
vigorously. The cost of enforcing the Company's patent rights in lawsuits, if
necessary, may be significant and could interfere with the Company's operations.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS REPORT, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS. THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS IN THIS REPORT AND IN
FORWARD-LOOKING STATEMENTS MADE FROM TIME TO TIME BY THE COMPANY ON THE BASIS OF
MANAGEMENT'S THEN-CURRENT EXPECTATIONS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED OR REFERRED TO
BELOW.
9
<PAGE>
HISTORY OF OPERATING LOSSES; NEED FOR CONTINUED WORKING CAPITAL
The Company has been engaged primarily in research and development since
its inception in 1981 and has derived limited revenues from feasibility studies,
the commercial sale of its products and licensing of certain technology. The
Company has had no revenues relating to the sale of any products currently under
development. The Company has incurred net losses every year since its inception
and the Company anticipates that losses may continue for the foreseeable future.
See Item 8, "Financial Statements and Supplementary Data." At December 31, 1999,
the Company's accumulated deficit was approximately $33.3 million. The Company's
ability to continue operations after its current capital resources are exhausted
depends on its ability to obtain additional financing and achieve profitable
operations, as to which no assurance can be given. However, the Company believes
that its financial resources are sufficient to meet planned operating activities
for at least the next 12 months.
The Company continues to pursue the commercialization of its SEPA
technology through discussion and presentation of its technology to potential
licensees. No assurance can be given that these discussions will lead to any
licenses or that any license fees will be received by the Company in the current
fiscal year. For the foreseeable future, and until marketing approvals are
obtained, and/or license agreements are entered into, if ever, the Company
anticipates limited licensing revenue and no royalties from sales of products
using SEPA for pharmaceutical purposes.
TECHNOLOGY UNCERTAINTY AND EARLY STAGE DEVELOPMENT
Although several systems have been developed by various pharmaceutical
companies to enhance the transdermal delivery of specific drugs, relatively
limited research has been conducted in the expansion of transdermal delivery
systems to a wider range of pharmaceutical products. Although the Company has
demonstrated in preclinical and clinical studies that its SEPA transdermal
compounds may have applicability with a broad range of drugs, transdermal
delivery systems are currently marketed for only a limited number of products.
In addition, transdermal delivery systems used to date have often demonstrated
adverse side effects for users, such as skin irritation and delivery
difficulties.
The Company's proposed products are in the early development stage, require
significant further research, development, testing and regulatory clearances and
are subject to the risks of failure inherent in the development of products
based on innovative technologies. These risks include the possibilities that any
or all of the proposed products may be found to be ineffective or toxic, or
otherwise may fail to receive necessary regulatory clearances; that the proposed
products, although effective, may be uneconomical to market; or that third
parties may market superior or equivalent products. Due to the extended testing
and regulatory review process required before marketing clearance can be
obtained, the Company does not expect to be able to realize royalty revenues
from the sale of any drugs in the near term.
10
<PAGE>
NEED FOR SIGNIFICANT PRODUCT DEVELOPMENT EFFORTS AND ADDITIONAL FINANCING
Before the Company or any of its licensees may market any products based
upon the Company's technology, significant additional development efforts and
substantial preclinical and clinical testing will be necessary. Unless
substantial additional financing is obtained, the Company may not have
sufficient working capital to complete clinical studies on any proposed
products. No assurance can be given that the Company will be able to secure such
financing on favorable terms, if at all.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining regulatory approval for the commercial sale of any of its
pharmaceutical products under development, the Company must demonstrate that the
product is safe and efficacious for use in each proposed indication. The results
of preclinical studies and early clinical trials may not be predictive of
results that will be obtained in large-scale testing, and there can be no
assurance that clinical trials of the Company's products will demonstrate the
safety and efficacy of its products or will result in marketable products. A
number of companies in the pharmaceutical industry have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier
trials. If the Company were unable to demonstrate the safety and efficacy of
certain of its products, the Company might be adversely affected.
DEPENDENCE ON THIRD PARTIES FOR DEVELOPMENT; NO ASSURANCE OF LICENSE
ARRANGEMENTS
The Company intends to rely on licensees and joint venture arrangements to
fund most of the costs relating to product development and clinical trials.
Licensees may be expected to have the legal right to terminate funding a product
at any time for any reason without significant penalty. The resources and
attention devoted by a licensee to a product are not within the Company's
control, and this can result in delays in clinical testing, the preparation and
prosecution of regulatory filings and commercialization efforts. Further, no
assurance can be given that the Company will be able to enter into new
collaborative arrangements or that existing or future collaborative arrangements
will be successful.
PRIOR DEVELOPMENT EFFORTS HAVE NOT GENERATED SUSTAINED REVENUES OR ANY PROFITS
Since its inception in 1981, the Company has engaged in research and
development activities with respect to a variety of technologies and products,
including polymers for medical and industrial use, dental adhesives,
osteoporotic drugs and transdermal drug-delivery products. Although the Company
has generated differing levels of revenue over the last several years, none of
the Company's products or technologies has ever generated sustained revenues and
the Company has never had profitable operations. The Company has expended a
substantial amount of its resources in researching and developing technology
relating to these products as well as in connection with the research and
development of its transdermal delivery systems. No assurance can be given that
the Company's development activities with respect to its transdermal delivery
systems will be successful or that these efforts will not be eventually
abandoned.
11
<PAGE>
LACK OF MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES FOR MARKETING AND
DISTRIBUTION OF PRODUCTS
The Company intends to market and distribute its proposed products through
others pursuant to licensing, joint venture, or similar collaborative
arrangements or distribution agreements. The Company has no sales force or
marketing organization. If the Company directly markets and sells any of such
products, it will, among other things, have to attract and retain qualified or
experienced marketing and sales personnel. No assurance can be given that the
Company will be able to attract and retain qualified or experienced marketing
and sales personnel or that any efforts undertaken by such personnel will be
successful. Any contractual arrangements with others may result in a lack of
control by the Company over any or all of the marketing and sales of such
products.
DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING
The Company currently does not have facilities capable of manufacturing any
proposed products in commercial quantities. Accordingly, the Company expects
that it will be dependent to a significant extent on licensees, corporate
partners or contract manufacturers for such manufacturing and for compliance
with regulatory requirements for good manufacturing practices. The Company's
dependence on third parties for manufacturing may adversely affect the Company's
ability to develop and deliver products on a timely and competitive basis. If
the Company decides to establish a commercial manufacturing facility, it will
require substantial additional funds, will be required to hire and retain
significant additional personnel and will be required to comply with extensive
government regulations. No assurance can be given that the Company will be able
to obtain additional capital to conduct such activities directly.
RELIANCE ON KEY EMPLOYEES; LIMITED PERSONNEL; ABILITY TO ATTRACT AND RETAIN
QUALIFIED SCIENTISTS
The success of the Company is dependent on the efforts and abilities of Dr.
Carlos M. Samour, its Chairman of the Board of Directors and Scientific
Director, Alvin J. Karloff, its Chief Executive Officer and President, Dr. Paul
J. Schechter, its Vice President, Drug Development and Regulatory Affairs and
Kenneth L Rice, its Vice President and Chief Financial Officer . Dr. Samour, Mr.
Karloff, Dr. Schechter and Mr. Rice are employed by the Company under employment
agreements that are of indefinite length and include non-disclosure and
non-competition provisions. The loss of Dr. Samour or Mr. Karloff could have a
material adverse effect on the Company's business.
The Company's business also depends on access to scientific talent,
competition for which is intense and can be expected to increase. There can be
no assurances that the Company will be able to retain its existing personnel or
to attract additional qualified employees.
COMPETITION; GOVERNMENT REGULATION; PATENTS AND LICENSE RIGHTS
See these sections, above, for a description of risk factors relating to
these matters.
12
<PAGE>
RISKS OF PRODUCT LIABILITY CLAIMS; LACK OF PRODUCT LIABILITY INSURANCE; EXPENSE
AND DIFFICULTY OF OBTAINING ADEQUATE INSURANCE COVERAGE
The design, development, manufacture and sale of the Company's products
involve an inherent risk of liability claims and associated adverse publicity.
The Company currently has liability insurance to cover claims that may result
from clinical trials, but does not maintain product liability insurance and may
need to acquire such insurance coverage prior to the commercial introduction of
its products. No assurance can be given that the coverage limits of the
Company's insurance policies will be adequate. Such insurance is expensive, is
difficult to obtain and may not be available in the future on acceptable terms
or at all. A successful claim brought against the Company if it is uninsured, or
which is in excess of the Company's insurance coverage, if any, could have a
material adverse effect upon the Company and its financial condition.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS
The future revenues and profitability of, and availability of capital for
biomedical and pharmaceutical companies may be affected by the continuing
efforts of governmental and third-party payers to contain or reduce the costs of
health care through various means. For example, in certain foreign markets
pricing or profitability of prescription pharmaceuticals is subject to
government control and to reform in the health care system. In the United
States, there have been, and the Company expects there will continue to be, a
number of federal and state proposals to impose similar government control.
While the Company cannot predict whether any such legislative or regulatory
proposals will be adopted, the announcement or adoption of such proposals could
have a material adverse effect on the Company's prospects. If the Company or one
of its partners succeeds in bringing to market one or more of its products,
based upon the Company's technology, there can be no assurance that these
products will be cost effective and that reimbursement to the consumer will be
available or will be sufficient to allow the Company or its partners to sell
such products on a profitable basis.
ITEM 2. PROPERTIES.
Effective December 15, 1999, the Company leased an additional 7,316 square
feet of office and laboratory space bringing the total space occupied by the
Company to 17,277 square feet. This space is located on one floor of a three
story building in Lexington, Massachusetts. See Note 5 to the financial
statements included in Item 8 of this Report. The lease agreement is an exhibit
to this Report.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the three
months ended December 31, 1999, through the solicitation of proxies or
otherwise.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET PRICE OF SECURITIES AND RELATED MATTERS
The Company's Common Stock is traded on NASDAQ under the symbol "MCHM." The
following chart sets forth the range of high and low closing prices for the
Common Stock for the periods indicated as obtained from NASDAQ:
COMMON STOCK
MCHM
YEAR ENDED HIGH LOW
DECEMBER 31, 1998
First Quarter 13 3/8 7 1/2
Second Quarter 12 7/8 7
Third Quarter 8 7/16 3 1/8
Fourth Quarter 9 3/8 5 1/16
DECEMBER 31, 1999
First Quarter 10 3/4 7 5/8
Second Quarter 10 5/8 5 15/16
Third Quarter 8 5
Fourth Quarter 6 9/16 4 1/16
The above quotations represent prices between dealers and do not include
retail markups, markdowns or commissions and may not necessarily reflect actual
transactions. As of December 31, 1999, there were 487 record holders of the
Company's Common Stock.
The Company has never paid dividends on its Common Stock and its Board of
Directors does not contemplate declaring any dividends in the foreseeable
future. The Company presently intends to retain earnings, if any, to finance
research, development, and expansion of its business.
RECENT SALES OF UNREGISTERED SECURITIES
During 1999, the Company did not issue any securities that were not
registered under the Securities Act of 1933.
14
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Revenues $ 17,493 $ 129,786 $ 120,350 $ 274,749 $ 464,332
Research and development
expenses 1,238,070 1,736,561 2,084,826 4,318,758 5,423,138
Net loss (2,465,837) (3,139,796) (3,569,113) (4,842,871) (6,787,069)
Basic and diluted net
loss per share (0.20) (0.21) (0.21) (0.22) (0.30)
Shares used to compute
basic and diluted net
loss per share 12,331,560 15,239,080 16,638,401 22,204,105 22,311,890
BALANCE SHEET DATA:
Working capital $ 4,532,623 $ 7,127,252 $24,756,904 $19,891,936 $14,776,372
Current assets 4,962,562 7,495,715 25,069,804 20,756,671 15,437,685
Total assets 5,462,625 8,063,750 25,623,836 21,509,724 16,313,732
Current liabilities 429,939 368,463 312,900 864,735 661,313
Capitalized lease obligations 91,861 57,038 18,408 --- ---
Total liabilities 486,198 386,871 312,900 1,364,735 1,161,313
Stockholders' equity 4,976,427 7,676,879 25,310,936 20,144,989 15,152,419
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion of the financial condition and results of
operations for the Company should be read in conjunction with the accompanying
financial statements and related footnotes.
GENERAL
MacroChem's primary business is the development of pharmaceutical products
for commercialization by applying SEPA(R) (Soft Enhancer of Percutaneous
Absorption), its patented drug delivery technology. SEPA compounds, when
properly combined with drugs, provide pharmaceutical formulations (creams, gels,
solutions, etc.) that enhance the transdermal delivery of drugs into the skin or
into the bloodstream. The Company currently derives no significant revenue from
product sales, royalties or license fees. The Company plans to develop specific
SEPA formulations for use with proprietary and non-proprietary drugs
manufactured by pharmaceutical companies, and to commercialize these products
through the formation of partnerships, strategic alliances and license
agreements with those companies. In order to attract strategic partners the
Company is conducting clinical testing of certain SEPA-enhanced pharmaceuticals.
15
<PAGE>
The Company's results of operations vary significantly from year to year
and quarter to quarter, and depend, among other factors, on the signing of new
licenses and product development agreements, the timing of revenues recognized
pursuant to license agreements, the achievement of milestones by licensees, the
progress of clinical trials conducted by licensees and the Company, and the
degree of research, marketing and administrative effort. The timing of the
Company's revenues may not match the timing of the Company's associated product
development expenses. To date, research and development expenses have generally
exceeded revenues in any particular period and/or fiscal year.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
For 1999 and 1998, the Company recognized revenues of approximately
$464,300 and $274,700, respectively, which were primarily from feasibility
studies.
Research and development costs increased by approximately $1,104,300 from
approximately $4,318,800 in 1998 to approximately $5,423,100 in 1999, a 26%
increase. This increase reflects the Company's continued acceleration of
clinical testing of its products and increased internal research and development
efforts. The Company expects that research and development costs will continue
to increase substantially in 2000, reflecting increased clinical testing
efforts.
Marketing, general and administrative expenses for 1999 aggregated
approximately $2,610,800, an increase of approximately $685,800, or 36%, from
1998's total of approximately $1,925,000. This increase primarily reflects
increases of $331,100 in stock-based compensation, $32,500 in consulting fees
and $295,600 in officers' salaries. The Company expects that marketing, general
and administrative expenses will remain essentially the same for 2000 with the
exception of routine salary increases.
Other income decreased by approximately $343,700, or 29%, from $1,174,200
in 1998 to $830,500 in 1999. This decrease is attributable primarily to the
lower amount of cash available to be invested.
For the year ended December 31, 1999, the Company's net loss was
approximately $6,787,100 as compared to a loss of approximately $4,482,900 for
the previous year, a 51% increase.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
For 1998 and 1997, the Company recognized revenues of approximately
$274,700 and $120,400, respectively, which were primarily from feasibility
studies.
Research and development costs increased by approximately $2,234,000 from
$2,084,800 in 1997 to $4,318,800 in 1998, a 107% increase. This increase
reflects the Company's continued acceleration of clinical testing of its
products and increased internal research and development efforts.
Marketing, general and administrative expenses for 1998 aggregated
approximately $1,925,000, a reduction of approximately $67,200, or 3%, from
1997's total of approximately $1,992,200, reflecting lower stock-based
compensation and consulting expenses partially offset by increased regulatory
fees and recruiting expenses.
16
<PAGE>
Other income increased from a net amount of approximately $417,500 in 1997
to approximately $1,174,200 in 1998. This increase reflects investment income
resulting from the investment of proceeds received from the exercise of Class A
and Class AA warrants during the latter part of 1997.
For the year ended December 31, 1998, the Company's net loss was
approximately $4,842,900 as compared to a loss of approximately $3,569,100 for
the previous year, a 36% increase.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the primary source of funding for the Company's operations
has been the private and public sale of its securities, and to a lesser extent,
the licensing of its proprietary technology and products, government grants and
the limited sales of products and test materials. During 1999, the Company
received aggregate net proceeds of approximately $1,367,000 from the exercise of
stock options and stock warrants, compared to approximately $211,000 in 1998. At
December 31, 1999 working capital was approximately $14.7 million, compared to
$19.9 million at December 31, 1998. The reduction in the Company's working
capital was due primarily to the cash used by operating activities, the
Company's investment in equipment and the repurchase of the Company's common
stock. Until such time as the Company obtains agreements with third-party
licensees or partners to provide funding for the Company's anticipated business
activities or the Company is able to obtain funds through the private or public
sale of its securities, the Company's working capital will be utilized to fund
its operating activities.
Pursuant to a plan approved by the Company's Board of Directors, the
Company is authorized to repurchase 1,000,000 shares of its common stock to be
held as treasury shares for future use. During 1999 the Company repurchased
32,500 shares at an aggregate cost of approximately $147,600. At December 31,
1999, 160,165 repurchased shares remain available for future use and 812,650
shares remain available for repurchase under the plan.
Capital expenditures and additional patent development costs for the year
ended December 31, 1999 were approximately $343,200. The Company anticipates
capital expenditures of approximately $450,000 during the fiscal year ending
December 31, 2000.
The Company's long term capital requirements will depend upon numerous
factors including the progress of the Company's research and development
programs; the resources that the Company devotes to self-funded early stage
clinical testing of SEPA-enhanced compounds, proprietary manufacturing methods
and advanced technologies; the ability of the Company to enter into additional
licensing arrangements or other strategic alliances; the ability of the Company
to manufacture products under those arrangements and the demand for its products
or the products of its licensees or strategic partners if and when approved for
sale by regulatory authorities. In any event, substantial additional funds will
be required before the Company is able to generate revenues sufficient to
support its operations. There is no assurance that the Company will be able to
obtain such additional funds on favorable terms, if at all. The Company's
inability to raise sufficient funds could require it to delay, scale back or
eliminate certain research and development programs.
17
<PAGE>
The Company believes that its existing cash and cash equivalents will be
sufficient to meet its operating expenses and capital expenditure requirements
for at least the next twelve months. The Company's cash requirements may vary
materially from those now planned because of changes in focus and direction of
the Company's research and development programs, competitive and technical
advances, patent developments or other developments. It is not believed that
inflation will have any significant effect on the results of the Company's
operations.
FUTURE ADOPTION OF ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The provisions of SFAS No. 133 will be effective for the
Company beginning January 1, 2001. The Company has not yet determined whether
the effect of adopting SFAS No. 133 will be material to the Company's financial
position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CASH AND CASH EQUIVALENTS
As of December 31, 1999, the Company is exposed to market risks which
relate primarily to changes in U.S. interest rates. The Company's cash
equivalents are subject to interest rate risk and will decline in value if
interest rates increase. Due to the short duration of these financial
instruments, three months or less, changes to interest rates would not have a
material effect upon the Company's financial position. A hypothetical 10% change
in interest rates would result in an increase or decrease of approximately
$83,000 on interest income within the Company's statement of operations.
THE FOREGOING STATEMENTS IN THIS REPORT INCLUDE FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED OR REFERRED TO IN ITEM 1, BUSINESS - "RISK FACTORS".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required under this Item 8 is set forth on pages 19 through
33 of this report.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of MacroChem Corporation:
We have audited the accompanying balance sheets of MacroChem Corporation as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity,and cash flows for each of the three years in the period
ended December 31, 1999. 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, such financial statements present fairly, in all material
respects, the financial position of MacroChem Corporation at December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 3, 2000
19
<PAGE>
<TABLE>
<CAPTION>
MACROCHEM CORPORATION
BALANCE SHEETS
DECEMBER 31,
ASSETS 1999 1998 LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- ------ ---- ---- ------------------------------------- ---- ----
<S> <C> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $15,183,289 $20,504,097 Accounts payable and accrued expenses $ 565,080 $ 771,172
Accounts receivable 66,954 48,393 Deferred compensation and related accrued
Receivable due from related interest 96,233 93,563
party 20,960 --- ---------- ----------
Prepaid expenses and other
current assets 166,482 204,181
---------- ----------
TOTAL CURRENT ASSETS 15,437,685 20,756,671 TOTAL CURRENT LIABILITIES 661,313 864,735
---------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT (NET) 375,464 397,483 DEFERRED REVENUE 500,000 500,000
---------- ---------- ---------- ----------
OTHER ASSETS: TOTAL LIABILITIES 1,161,313 1,364,735
Patents, net 471,390 351,110
Deposits 29,193 4,460 COMMITMENTS AND CONTINGENCIES (Note 5)
---------- ----------
TOTAL OTHER ASSETS 500,583 355,570 STOCKHOLDERS' EQUITY:
---------- ---------- Preferred stock --- ---
Common stock, $.01 par value; authorized
60,000,000 shares; issued 22,597,564
shares,outstanding 22,437,399 shares at
December 31, 1999 and issued 22,281,245
shares,and outstanding, 22,140,328
shares atDecember 31, 1998 225,976 222,812
Additional paid-in capital 49,387,454 47,295,449
Unearned compensation ( 382,473) ( 170,676)
Accumulated deficit (33,295,188) (26,508,119)
---------- ----------
Total 15,935,769 20,839,466
Less cost of treasury stock (160,165
shares at December 31, 1999 and
140,917 shares atDecember 31, 1998) ( 783,350) ( 694,477)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 15,152,419 20,144,989
---------- ----------
TOTAL LIABILITIES AND
TOTAL ASSETS $16,313,732 $21,509,724 STOCKHOLDERS' EQUITY $ 16,313,732 $ 21,509,724
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
MACROCHEM CORPORATION
STATEMENTS OF OPERATIONS
Years Ended December 31,
------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES
Research contracts $ 464,332 $ 274,749 $ 120,350
---------- ---------- ----------
OPERATING EXPENSES
Research and development 5,423,138 4,318,758 2,084,826
Marketing, general and administrative 2,610,768 1,925,021 1,992,157
Consulting fees with related parties 48,000 48,000 30,000
---------- ---------- ----------
TOTAL OPERATING EXPENSES 8,081,906 6,291,779 4,106,983
---------- ---------- ----------
LOSS FROM OPERATIONS ( 7,617,574) ( 6,017,030) ( 3,986,633)
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income 833,450 1,178,825 424,742
Interest expense ( 2,945) ( 4,666) ( 7,222)
---------- ---------- ----------
TOTAL OTHER INCOME 830,505 1,174,159 417,520
---------- ---------- ----------
NET LOSS $( 6,787,069) $( 4,842,871) $( 3,569,113)
========== ========== ==========
BASIC AND DILUTED NET LOSS
PER SHARE $( .30) $( .22) $( .21)
========== ========== ==========
SHARES USED TO COMPUTE BASIC
AND DILUTED NET LOSS PER
SHARE 22,311,890 22,204,105 16,638,401
========== ========== ==========
</TABLE>
See notes to financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
MACROCHEM CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Shares
------------------------ Additional Cost of Total
Common Paid-In Unearned Accumulated Treasury Stockholders'
Issued Treasury Stock Capital Compensation Deficit Subtotal Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1997 15,601,274 $156,013 $25,839,675 $(222,674) $(18,096,135) $ 7,676,879 $ --- $ 7,676,879
Exercise of common
stock warrants 4,491,590 44,916 16,938,240 --- --- 16,983,156 16,983,156
Exercise of common
stock options 291,501 2,915 692,087 --- --- 695,002 695,002
Exercise of unit
purchase options 1,757,500 17,575 3,058,050 --- --- 3,075,625 3,075,625
Stock based
compensation 41,000 410 395,625 53,352 --- 449,387 449,387
Net loss --- --- --- --- --- ( 3,569,113) ( 3,569,113) --- ( 3,569,113)
---------- ------- ------- ---------- ------- ---------- ---------- ------- ----------
BALANCE,
DECEMBER 31, 1997 22,182,865 221,829 46,923,677 (169,322) (21,665,248) 25,310,936 --- 25,310,936
Exercise of common
stock warrants 6,342 63 38,465 38,528 38,528
Exercise of common
stock options 91,683 917 171,139 172,056 172,056
Purchase of treasury
stock (154,850) (757,599) ( 757,599)
Stock based
compensation 355 6,158 3 139,352 ( 1,354) 138,001 27,896 165,897
Stock issued to
401(k) trust 7,775 22,816 22,816 35,226 58,042
Net loss --- --- --- --- --- ( 4,842,871) ( 4,842,871) --- ( 4,842,871)
---------- ------- ------- ---------- ------- ---------- ---------- ------- ----------
BALANCE,
DECEMBER 31, 1998 22,281,245 (140,917) 222,812 47,295,449 (170,676) (26,508,119) 20,839,466 (694,477) 20,144,989
Exercise of common
stock warrants 137,319 1,374 832,840 834,214 834,214
Exercise of common
stock options 179,000 1,790 531,366 533,156 533,156
Purchase of treasury
stock ( 32,500) (147,570) ( 147,570)
Stock based
compensation 708,837 (211,797) 497,040 497,040
Stock issued to
401(k) trust 13,252 18,962 18,962 58,697 77,659
Net loss ( 6,787,069) ( 6,787,069) ( 6,787,069)
---------- ------- ------- ---------- ------- ---------- ---------- -------
BALANCE,
DECEMBER 31, 1999 22,597,564 (160,165) $225,976 $49,387,454 $(382,473) $(33,295,188) $ 15,935,769 $(783,350) $ 15,152,419
========== ======= ======= ========== ======= ========== ========== ======= ==========
</TABLE>
See notes to financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
MACROCHEM CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended December 31,
---------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,787,069) $(4,842,871) $( 3,569,113)
--------- --------- ----------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 244,986 181,175 123,888
Abandoned patent costs --- 5,604 ---
Loss on disposal of equipment --- --- 1,800
Stock-based compensation 497,040 165,897 448,977
401(k) contributions in company common stock 77,659 58,042 ---
Increase (decrease) in cash from:
Accounts receivable ( 18,561) ( 48,393) 43,977
Receivable due from related party ( 20,960) --- ---
Prepaid expenses and other current assets 37,699 ( 86,498) ( 17,650)
Accounts payable and accrued expenses ( 206,092) 566,820 ( 36,986)
Deferred compensation and related accrued
interest 2,670 3,423 2,659
Deferred rent --- --- ( 1,014)
Deferred revenue --- 500,000 ---
--------- --------- ----------
Total adjustments 614,441 1,346,070 565,651
--------- --------- ----------
Net cash used by operating activities (6,172,628) (3,496,801) ( 3,003,462)
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment --- --- 100
Proceeds from maturities of
marketable securities --- --- 21,824
Deposits ( 24,733) --- ---
Expenditures for property and equipment ( 179,067) ( 277,445) ( 48,991)
Additions to patents ( 164,180) ( 108,355) ( 62,794)
--------- --------- ----------
Net cash used by investing activities ( 367,980) ( 385,800) ( 89,861)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of company stock ( 147,570) ( 757,599) ---
Principal payments on capital lease --- ( 18,408) ( 38,630)
Proceeds from issuance of common stock --- --- 410
Proceeds from exercise of common stock options 533,156 172,056 695,002
Proceeds from exercise of common stock warrants 834,214 38,528 16,983,156
Proceeds from exercise of unit purchase options --- --- 3,075,625
--------- --------- ----------
Net cash provided (used) by financing activities 1,219,800 ( 565,423) 20,715,563
--------- --------- ----------
(Continued)
</TABLE>
23
<PAGE>
MACROCHEM CORPORATION
STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31,
----------------------------------------------
1999 1998 1997
---- ---- ----
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS $( 5,320,808) $( 4,448,024) $17,622,240
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 20,504,097 24,952,121 7,329,881
---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 15,183,289 $ 20,504,097 $24,952,121
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest aggregated $0, $1,243, and $4,563, respectively, for the
years ended December 31, 1999, 1998 and 1997.
The Company did not pay any income taxes during those periods.
See notes to financial statements. (Concluded)
24
<PAGE>
MACROCHEM CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MacroChem Corporation (the "Company") develops and licenses transdermal drug
delivery compounds and systems intended to promote the delivery of drugs from
the surface of the skin into the skin or the bloodstream.
The Company has been engaged primarily in research and development since its
inception in 1981 and has derived limited revenues from the commercial sale of
its products, licensing of certain technology and feasibility studies. The
Company has had no revenues relating to the sale of any products currently
under development. The Company has incurred net losses every year since its
inception and the Company anticipates that losses may continue for the
foreseeable future. At December 31, 1999, the Company's accumulated deficit was
approximately $33.3 million. The Company's ability to continue operations after
its current capital resources are exhausted depends on its ability to obtain
additional financing and achieve profitable operations, as to which no
assurances can be given. However, the Company believes that its financial
resources are sufficient to meet planned operating activities at least through
December 31, 2000.
The Company organizes itself as one segment reporting to the chief operating
decision maker. Products and services consist primarily of research and
development activities in the pharmaceutical industry.
REVENUE RECOGNITION - Revenues are earned and recognized based upon the sale or
licensing of product rights, completion of contractually identified development
milestones, upon shipment of product, upon completion of a contract or upon the
attainment of specific milestones or benchmarks specified in license or
development agreements. Deferred revenue at December 31, 1999 and 1998 relates
to a nonrefundable collaborative advance against future milestones, if and when
achieved.
RESEARCH AND DEVELOPMENT - Research and development costs are charged to
operations as incurred. Such costs include proprietary research and development
activities and expenses associated with research and development contracts.
CASH AND CASH EQUIVALENTS - Cash equivalents consist of short-term, highly
liquid investments with a maturity of three months or less when purchased.
CONCENTRATION OF RISK - Cash and cash equivalents at December 31, 1999 and 1998
are primarily comprised of government agency securities. Accounts receivable at
December 31, 1999 and 1998 are due from one customer. 100% of revenue for the
years ended December 31, 1999 and 1998 was derived from research contracts with
one customer. 100% of revenue for the year ended December 31, 1997 was derived
from two customers.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation and amortization are provided on the straight-line method over the
estimated useful lives of the related assets which range from five to ten
years.
25
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PATENTS - The Company has filed applications for United States and foreign
patents covering aspects of its technology. Costs and expenses incurred in
connection with pending patent applications are deferred. Costs related to
successful patent applications are amortized over the estimated useful lives of
the patents, not exceeding 20 years, using the straight-line method.
Accumulated costs related to patents or deferred patent application costs that
are considered to have limited future value are charged to expense. Accumulated
amortization aggregated approximately $123,500 and $79,600, respectively, at
December 31, 1999 and 1998. On an on-going basis, the Company evaluates the
recoverability of the net carrying value of various patents by reference to the
patent's expected use in drug and other research activities as measured by
outside interest in the Company's patented technologies and management's
determination of potential future uses of such technologies.
INCOME TAXES - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes", which requires the use of the liability method. The objective of
this method is to establish deferred tax assets and liabilities for the
temporary differences between the financial reporting basis and the tax basis
of the Company's assets and liabilities using tax rates in effect in the
year(s) in which the differences are expected to reverse.
NET INCOME (LOSS) PER SHARE - Basic earnings per share is computed using the
weighted average number of common shares outstanding during each year. Diluted
earnings per common share reflect the effect of the Company's outstanding
options and convertible securities, except where such items would be
anti-dilutive. Due to the net losses, reported in 1999, 1998 and 1997, basic
and diluted per share amounts are the same. For the years ended December 31,
1999, 1998 and 1997 potential common shares are not included in the per share
calculations for diluted EPS, because the effect of their inclusion would be
anti-dilutive. Anti-dilutive potential shares not included in per share
calculations for 1999, 1998 and 1997 were approximately 3,596,000, 3,347,000
and 8,711,000 shares, respectively.
ACCOUNTING ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The primary estimates underlying the Company's
financial statements include the useful lives of the Company's patents,
property and equipment, the valuation allowance established for the Company's
deferred tax assets, and the underlying assumptions to apply the pricing model
to value stock options under SFAS No. 123. Management bases its estimates on
certain assumptions, which it believes are reasonable in the circumstances, and
while actual results could differ from those estimates, management does not
believe that any change in those assumptions in the near term would have a
significant effect on the financial position or the results of operations.
STOCK-BASED COMPENSATION - SFAS No. 123 ("Accounting for Stock-Based
Compensation") addresses the financial accounting and reporting standards for
stock or other equity-based compensation arrangements.
26
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The Company has elected to continue to use the intrinsic value based method to
account for employee stock option awards under the provisions of Accounting
Principles Board No. 25 and provides disclosures based on the fair value method
in the notes to the financial statements as permitted by SFAS No. 123.
Stock or other equity based compensation for non-employees must be accounted
for under the fair value based method as required by SFAS No. 123 and Emerging
Issues Task Force No.96-18, "Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." Under this method, the equity based instrument is valued at either
the fair value of the consideration received or from the equity instrument
issued on the date of grant. The resulting compensation cost is recognized and
charged to operations over the service period, which is usually the vesting
period.
FUTURE ADOPTION OF ACCOUNTING PRONOUNCEMENTS - In 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
provisions of SFAS No. 133 will be effective for the Company beginning January
1, 2001. The Company has not yet determined whether the effect of adopting SFAS
No. 133 will be material to the Company's financial position or results of
operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31:
1999 1998
---- ----
Laboratory equipment $ 806,647 $ 770,915
Office equipment 324,328 208,399
Leasehold improvements 174,305 149,249
--------- ---------
Total 1,305,280 1,128,563
Less: accumulated depreciation
and amortization ( 929,816) ( 731,080)
--------- ---------
Property and equipment, net $ 375,464 $ 397,483
========= =========
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following as of December
31:
1999 1998
---- ----
Accounts payable $71,318 $116,246
Accrued professional fees 150,096 150,461
Accrued clinical trial costs 257,125 498,716
Accrued miscellaneous 86,541 5,749
------- -------
$565,080 $771,172
======= =======
27
<PAGE>
4. STOCKHOLDERS' EQUITY
AUTHORIZED CAPITAL STOCK - Authorized capital stock consists of 60,000,000
shares of $.01 par value common stock of which 22,597,564 shares are issued
(22,437,399 are outstanding) and 4,867,796 are reserved for issuance upon
exercise of common stock options at December 31, 1999. Authorized and unissued
preferred stock totals 6,000,000 shares. On August 31, 1998, the Company's
Board of Directors authorized the repurchase of up to 1,000,000 shares of
common stock at market price. The Company repurchased 32,500 common shares in
1999 and 154,850 common shares in 1998. At December 31, 1999, 160,165
repurchased shares remain available for future use and 812,650 shares are
available to be repurchased.
STOCK ISSUANCES - The Company had issued 142 units (the "Units") and options
for an additional 118.333 Units in connection with a private placement in 1993.
A Unit consists of an option for 30,000 shares of the Company's common stock at
an exercise price of $1.75 per common share, 10,000 Class A warrants and 10,000
Class AA warrants. Each Class A and AA warrant was convertible to one share of
the Company's common stock at a per share exercise price of $3.00 and $4.50
respectively. Outstanding at January 1, 1997 were 58.58 options on Units all of
which were exercised and converted into 1,757,500 shares of common stock for
aggregate proceeds of $3,075,625.
WARRANTS - Outstanding at January 1, 1997 were 1,925,566 Class A, 2,522,233
Class AA and 185,500 Class X warrants. Each warrant was exercisable for one
share of common stock at a price per share, subject to adjustment, of $3.00,
$4.50, and $1.75, respectively. The Class A and Class AA warrants were issued
subject to the 1993 private placement. The Class X warrants were issued in
connection with a private placement occurring in 1992.
During 1997, 1,877,666 Class A, 2,463, 924 Class AA, and 150,000 Class X
warrants were exercised resulting in the issuance of 4,491,590 shares of common
stock for aggregate proceeds of $16,983,156. All remaining Class A, Class AA
and Class X warrants expired unexercised during 1997.
In 1996, in connection with services performed for the Company, the firm of
Janssen-Meyers, L.P. ("J-M") received a warrant, exercisable immediately and
expiring June 17, 1999, for the purchase of 145,800 shares of the Company's
common stock at a price of $6.075 per share. During 1999 and 1998, 137,319 and
6,342 warrants were exercised for aggregate proceeds of $834,214 and $38,528,
respectively. During 1999, 2,139 warrants expired. Pursuant to an informal
understanding, the Company paid J-M a monthly fee of $5,000 for consulting
services from December 1996 through April 1997.
STOCK OPTION PLANS - The Company has three stock option plans, the 1984
Incentive Stock Option Plan (ISO Plan), the 1984 Non-Qualified Stock Option
Plan (Non-Qualified Plan) and the 1994 Equity Incentive Plan (1994 Plan). Under
the terms of the 1984 ISO and Non-Qualified Plans, the Company may no longer
award any options. All options previously granted may be exercised at any time
up to ten years from date of award.
Under the terms of the 1994 Plan, the Company may grant options to purchase up
to a maximum of 4,000,000 shares of common stock to certain employees,
directors and consultants. The options may be awarded as incentive stock
options (employees only) and non-incentive stock options (certain employees,
directors and consultants).
28
<PAGE>
The 1994 Plan and the ISO Plan state that the exercise price of options shall
not be less than fair market value at the date of grant. The exercise price of
the Non-Qualified options and the non-incentive options from the 1994 Plan is
determined by the Board of Directors. All options become exercisable as
specified at the date of grant.
The following table presents activity under all stock option plans:
WEIGHTED AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE
Outstanding January 1, 1997 3,553,525 $ 2.85
Granted 247,500 7.03
Exercised ( 291,501) 2.38
Expired ( 10,000) 4.25
Canceled ( 87,820) 5.68
---------
Outstanding December 31, 1997 3,411,704 3.13
Granted 574,200 10.14
Exercised ( 91,683) 1.88
Canceled ( 46,500) 7.17
---------
Outstanding December 31, 1998 3,847,721 4.16
Granted 573,750 6.73
Exercised ( 179,000) 2.98
Canceled ( 243,180) 7.15
---------
Outstanding December 31, 1999 3,999,291 4.40
=========
Exercisable at December 31: 1999 3,230,070 3.48
=========
1998 3,065,518 2.89
=========
1997 2,867,204 2.58
=========
The weighted average fair values of options granted during 1999, 1998 and 1997
were $5.53, $8.38 and $5.83, respectively.
All options granted during the three year period ended December 31, 1999 were
granted at the market price of the stock.
The fair value of options on their grant date was measured using the
Black/Scholes option pricing model. Key assumptions used to apply this pricing
model are as follows:
1999 1998 1997
---- ---- ----
Risk-free interest rate 5.01%-6.46% 4.08%-5.88% 5.35%-7.14%
Expected life of option grants 10 years 10 years 10 years
Expected volatility of underlying
stock 62.5%-95.6% 71%-112.4% 65.3%-87.7%
Expected dividend payment rate, as a
percentage of the stock price on
the date of grant --- --- ---
It should be noted that the option pricing model used was designed to value
readily tradable stock options with relatively short lives. The options granted
to employees are not tradable and have contractual lives of up to ten years.
29
<PAGE>
The following table sets forth information regarding options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Weighted Ave. Weighted Ave.
Range of Number of Number Exercise Price- Weighted Ave. Exercise Price-
Exercise Options Currently Options Remaining Currently
Prices Outstanding Exercisable Outstanding Life Exercisable
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.43 1,254,080 1,254,080 $ 0.43 1.17 $ 0.43
$1.50-$2.00 30,666 30,666 $ 1.69 1.03 $ 1.69
$2.75-$4.00 543,920 543,920 $ 3.56 4.24 $ 3.08
$4.875-$5.9375 1,370,175 1,069,675 $ 5.21 4.93 $ 5.59
$6.064-$8.25 432,450 206,729 $ 8.09 9.14 $ 7.16
$9.00-$12.688 368,000 125,000 $12.00 8.36 $12.01
--------- ---------
TOTAL 3,999,291 3,230,070
========= =========
</TABLE>
The Company uses the intrinsic value method to measure compensation expense
associated with grants of stock options to employees and, prior to December 15,
1995, to suppliers of goods and services. Had the Company used the fair value
method to measure compensation, the reported net loss and basic and diluted net
loss per share would have been as follows:
1999 1998 1997
---- ---- ----
Net loss as reported $(6,787,070) $(4,842,871) $(3,569,113)
Compensation costs:
Employee (2,270,636) (2,183,916) (2,495,545)
Non-Employee --- ( 26,488) ( 31,785)
--------- --------- ---------
Proforma net loss $(9,057,706) $(7,053,275) $(6,096,443)
========= ========= =========
Proforma basic and diluted
net loss per share $( 0.41) $( 0.32) $( 0.37)
========= ========= =========
It should be noted that the proforma amounts presented above are inexact in
that the pricing model was designed to value freely-traded options rather than
employee stock options. Proforma charges may be understated in relation to
future years since these proforma charges do not reflect the financial impact
of options granted prior to 1995.
UNEARNED COMPENSATION - The following table sets forth the changes to the
Company's reported unearned compensation for the years ended December 31, 1999,
1998 and 1997:
1999 1998 1997
---- ---- ----
Balance, January 1 170,676 $ 169,322 $ 222,674
Common stock granted to non-employees
below fair market value --- --- 286,071
Options, warrants and common stock
granted to non-employees at fair
market value 807,888 117,248 378,422
Amortization of unearned compensation (497,040) (115,894) (448,977)
Unearned compensation forfeited ( 99,051) --- (268,868)
------- ------- -------
Balance, December 31 $ 382,473 $ 170,676 $ 169,322
======= ======= =======
30
<PAGE>
STOCK AND STOCK OPTION ISSUANCES -During 1997, the Company issued 41,000 common
shares to non-employees below fair market value and recorded unearned
compensation of $286,071 related to these shares. Also in 1997, the Company
recorded an additional $378,422 of unearned compensation related to options,
warrants and common stock issued or granted to non-employees at fair market
value.
During 1998, the Company issued 355 shares to non-employees at market value and
recorded earned compensation related to the shares of $4,504. Also in 1998, the
Company recorded unearned compensation related to the issuance of 20,000
options to non-employees of $112,744.
During 1998, the Company issued 6,158 common shares and recorded $50,000 as
compensation for services rendered to the Company.
During 1999, the Company issued 129,000 options to non-employees at fair market
value and recorded unearned compensation of $807,888 related to these shares.
SHAREHOLDER RIGHTS PLAN - The Company has adopted a shareholder rights plan.
The Company declared a dividend consisting of one Right for each share of
common stock outstanding on September 10, 1999. Stock issued after that date
will be issued with an attached Right.
Each Right will entitle the holder, upon the occurrence of certain events, to
purchase 1/100th of a share of Series B Preferred Stock of the Company at an
initial exercise price of $50.00, subject to adjustments for stock dividends,
splits and similar events. The Rights will be exercisable only if a person or
group acquires 20% or more of the Company's outstanding common stock, or
announces an intention to commence a tender or exchange offer, the consummation
of which would result in ownership by such person or group of 20% or more of
the Company's outstanding common stock.
The Board of Directors may, at its option after the occurrence of one of the
events described above, exchange all of the then outstanding and exercisable
Rights for shares of common stock at an exchange ratio of one share of common
stock per Right.
The Board of Directors may redeem the Rights at the redemption price of $0.01
per Right at any time prior to the expiration of the rights plan on August 13,
2009. Distribution of the Rights is not a taxable event to shareholders.
The Board of Directors has authorized 600,000 shares of Series B Preferred
Stock.
5. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - The Company renegotiated its lease which was to have
expired on February 28, 2000 for its operating facility. The new lease,
effective December 15, 1999, expires February 28, 2005. At December 31, 1999,
future minimum lease payments under this lease agreement are as follows:
2000 $403,800
2001 $425,800
2002 $438,600
2003 $451,800
2004 $465,300
2005 $ 78,400
31
<PAGE>
Total rental expense under all operating leases was approximately $211,300,
$187,400 and $162,500 for the years ended December 31, 1999, 1998, and 1997,
respectively.
The Company sublets 1,778 square feet of total rented space to Eastern Research
Group, Inc. The sublease, effective January 1, 2000, is coterminous with the
Company's lease. Future minimum sublease payments are as follows:
2000 $42,785
2001 $43,816
2002 $45,135
2003 $46,489
2004 $47,879
2005 $ 8,069
EMPLOYMENT AND CONSULTING AGREEMENTS - The Company has employment and
consulting agreements with various consultants and certain key employees, with
terms ranging from one year to an indefinite period of time. These agreements
provide for annual payments of approximately $816,000. In addition, certain
consulting agreements also provide for additional payments to certain
consultants related to obtaining a financial placement or the sale or licensing
of the Company's product or technology to third parties. During the years ended
December 31, 1999, 1998 and 1997, no such additional amounts were earned by the
related consultants.
ROYALTY AGREEMENTS - The Company has entered into various license agreements
which require the Company to pay royalties based upon a set percentage of
certain product sales and license fee revenue. There were no such amounts paid
in 1999, 1998 and 1997.
6. Income Taxes
No income tax provision or benefit has been provided for federal income tax
purposes as the Company has incurred losses since inception. As of December 31,
1999, the Company has available net operating loss carryforwards of
approximately $31.6 million for federal income tax purposes, expiring through
2019 and $19.0 million for state income tax purposes, expiring through 2004. In
addition, the Company has unused investment and research and development tax
credits for federal and state income tax purposes aggregating $776,400 and
$484,700, respectively. The use of the federal net operating loss may also be
restricted due to changes in ownership in accordance with definitions as stated
in the Internal Revenue Code.
The net tax effect of differences in the timing of certain revenue and expense
items and the related carrying amounts of assets and liabilities for financial
reporting and tax purposes are not material and, accordingly, are not displayed
in the table below. The components of the Company's deferred tax assets as of
December 31, 1999 and 1998 are as follows:
1999 1998
---- ----
Deferred Tax Assets:
Net operating loss carryforwards 12,557,000 10,300,000
Tax credit carryforwards 1,261,000 511,800
---------- ----------
13,818,000 10,811,800
Valuation allowance (13,818,000) (10,811,800)
---------- ----------
Deferred tax asset, net $ --- $ ---
========== ==========
32
<PAGE>
For the years ended December 31, 1999, 1998 and 1997, the valuation allowance
was increased by approximately $3,006,200, $2,418,800, and $1,340,000,
respectively, due to the uncertainty of future realization of currently
generated net operating loss and tax credit carryforwards.
7. EMPLOYEE BENEFIT PLAN
In 1998, the Company established a qualified 401(k) Retirement Plan (the
"Plan") under which employees are allowed to contribute certain percentages of
their pay, up to the maximum allowed under Section 401(k) of the Internal
Revenue Code. Company contributions to the Plan are at the discretion of the
Board of Directors. The Company contributed 13,252 shares of common stock in
1999 and 7,775 shares of commons stock in 1998, valued at $77,659 and $58,042,
respectively.
33
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the year each Director was first elected and
the age, positions, and offices presently held by each Director with the
Company:
Year First
Name Age Became a Director Position with Company
- --------------------------------------------------------------------------------
Carlos M. Samour .....79 1981 Chairman of the Board of Directors
and Scientific Director
Alvin J. Karloff......68 1990 Chief Executive Officer, President
and Director
Willard M. Bright ....86 1993 Director
Peter G. Martin.......51 1995 Director
Michael A. Davis......59 1997 Director and Consultant
The following is a brief summary of the background of each Director of the
Company:
CARLOS M. SAMOUR, PH.D., the Company's Chairman of the Board of Directors
and its Scientific Director, founded the Company in 1981. From 1958 until the
formation of the Company, Dr. Samour was director of the corporate research
laboratory at The Kendall Company, a general medical supply company, and its
Lexington Laboratory after Kendall was acquired by Colgate-Palmolive Corporation
in 1972. Dr. Samour is the inventor of many of the technologies under
development by the Company and is responsible for managing research and product
development activities. He received an M.S. from the Massachusetts Institute of
Technology and a Ph.D. in organic chemistry from Boston University.
ALVIN J. KARLOFF has served as the Company's Chief Executive Officer and
President and as a Director since January 1990. In 1986, Mr. Karloff founded
Medical and Scientific Enterprises, Inc., a privately held medical diagnostic
equipment company, where he served as Chairman, Chief Executive Officer and
President prior to joining the Company. Mr. Karloff was Director of Marketing
for Medical Products with New England Nuclear ("NEN"), a Dupont company, from
1984 to 1985, and from 1969 to 1984, he served as Marketing Manager, Sales
Manager, and in several other sales and marketing positions for NEN. Mr. Karloff
received a B.S. from the University of Massachusetts.
34
<PAGE>
WILLARD M. BRIGHT, PH.D., has served as a Director of the Company since
December 1992. Since 1982, Dr. Bright has served as a Director (from 1982 to
July 1996 as Chairman of the Board of Directors) of Zoll Medical Corporation, a
publicly held medical supply company. Prior to 1982, Dr. Bright served as
President and Chief Executive Officer of The Kendall Company; as President of
the Professional Products Division of Warner Lambert; as President of Boehringer
Manheim Corporation USA, a manufacturer of medical products and biochemicals;
and as President and Director of Curtiss-Wright Corp., a manufacturer of
aerospace and industrial products. Dr. Bright received a B.S. and M.S. from the
University of Toledo and a Ph.D. in physical chemistry from Harvard University.
PETER G. MARTIN has served as a Director of the Company since 1995. Since
1990 Mr. Martin has been an independent investment banker and venture
capitalist. Prior to 1990 he was a commercial banker. Mr. Martin was initially
elected to the Board of Directors as the designee of David Russell, who
privately purchased 1 million shares of the Company's Common Stock in 1995. Mr.
Russell is no longer entitled to designate a Director of the Company. Mr. Martin
received a B.A. and J.D. from Fordham University and an M.B.A. from Columbia
University.
MICHAEL A. DAVIS, M.D., SC.D., has served as a Director of the Company
since 1997 and has provided medical and pharmaceutical consulting services to
the Company since 1991. Since 1980 Dr. Davis has been Professor of Radiology and
Nuclear Medicine and Director, Division of Radiologic Research, University of
Massachusetts Medical School. From 1982 to 1997 Dr. Davis was Adjunct Professor
of Surgery at Tufts University School of Veterinary Medicine. Since 1986 he has
been Affiliate Professor of Biomedical Engineering at Worcester Polytechnic
Institute. He is also a director of EZ EM, Inc., a public company engaged in
supplying oral radiographic contrast media, as well as medical devices. In
addition, from February to November 1999 he was President and Chief Executive
Officer of Amerimmune Pharmaceuticals, Inc., formerly known as Versailles
Capital Corporation, a public company, and its wholly owned subsidiary,
Amerimmune Inc., which is engaged in developing drugs relating to the immune
system. Since February 1999 Dr. Davis has been a director of both Amerimmune
Pharmaceuticals, Inc. and Amerimmune Inc.. Dr. Davis received a B.S. and M.S.
from Worcester Polytechnic Institute, an S.M. and Sc.D. from the Harvard School
of Public Health, an M.B.A. from Northeastern University and an M.D. from the
University of Massachusetts Medical School.
EXECUTIVE OFFICERS
The executive officers of the Company, their ages and their positions with
the Company are as follows:
Name Age Position with Company
- --------------------------------------------------------------------------------
Carlos M. Samour.......79 Chairman of the Board of Directors and Scientific
Director
Alvin J. Karloff.......68 Chief Executive Officer, President and Director
Paul J. Schechter......60 Vice President, Drug Development & Regulatory
Affairs
Kenneth L. Rice, Jr... 46 Vice President, Chief Financial Officer, Treasurer
and Secretary
35
<PAGE>
The following is a brief summary of the backgrounds of Dr. Schechter and
Mr. Rice. The backgrounds of the Company's other executive officers, Dr. Samour
and Mr. Karloff, are summarized above.
PAUL J. SCHECHTER, M.D., PH.D., the Company's Vice President, Drug
Development and Regulatory Affairs since May 1998, was from 1973 to 1990 with
Merrell Dow Research Institute, where he attained the position of Vice President
for Clinical Research. He went on to become Vice President of Fujisawa
Pharmaceutical Company from 1990 to 1993. Most recently he served as Senior Vice
President, Drug Development with Hybridon, Inc. from 1993 to 1997. Dr. Schechter
holds an M.D. and Ph.D. in Pharmacology from the University of Chicago and a
B.S. from Columbia University, College of Pharmacy.
KENNETH L. RICE, JR., Vice President and Chief Financial Officer of the
Company since August 1999 and Treasurer and Corporate Secretary since February
2000, has held executive financial and operating positions at a number of life
sciences and computer services firms. Most recently Mr. Rice was Vice President,
Finance and Administration, Chief Financial Officer & Secretary at Pentose
Pharmaceuticals, Inc. from 1998 to 1999. Mr. Rice held similar positions at
Unisyn Technologies, Inc. (1993 to 1998, Senior Vice President, CFO and General
Counsel). Mr. Rice spent his early career at Millipore Corporation, where he
attained the position of Corporate Tax Director. Mr. Rice holds an LL.M. in
Taxation from Boston University Law School, a J.D. from Suffolk Law School and
an M.B.A. and B.S.B.A. from Babson College.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who beneficially own more than 10 percent of
the Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Based solely on its review of the
copies of such reports received by it, and written representations from certain
reporting persons that no Forms 5 were required for those persons, the Company
believes that during 1999 all filing requirements applicable to its officers,
directors, and such 10 percent beneficial owners were complied with, except that
Peter Martin filed one late report covering an acquisition made in 1999.
36
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE OFFICERS' COMPENSATION
The following table sets forth the compensation earned by or paid or
awarded to Dr. Samour, Mr. Karloff and Dr. Riggi during each of the three fiscal
years ended December 31, 1999 and to Dr. Schechter during each of the two fiscal
years ended December 31, 1999:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
- ------------------------------------------------------------------------------------------------
Securities
Other Annual Underlying All Other
Name and Principal Salary Bonus Compensation Options Compensation
Position Year $ $(1) $(2) # $(3)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Carlos M. Samour 1999 250,000 45,000 10,606 ----- 5,000
Chairman, Scientific 1998 237,538 42,757 10,889 ----- 5,000
Director 1997 198,749 35,775 10,894 ----- -----
Alvin J. Karloff 1999 250,000 45,000 10,955 ----- 5,000
President, Chief 1998 237,563 42,761 13,453 ----- 5,000
Executive Officer 1997 198,749 35,775 13,046 ----- -----
Stephen J. Riggi 1999(4) 106,788 ----- ----- ----- 71,337
Former Vice 1998 175,000 ----- 1,175 ----- 5,000
President, Operations 1997 159,167 ----- 490 ----- -----
Paul J. Schechter 1999 182,500 ----- ----- 50,000 5,000
Vice President, 1998(5) 116,667 ----- 392 180,000 5,000
Drug Development
& Regulatory Affairs
- ------------------------------------------------------------------------------------------------
<FN>
(1) Since March 1992, Dr. Samour and Mr. Karloff have each received, in lieu of
retirement benefits, annual payments equal to eighteen percent of their
salaries.
(2) Includes amounts paid for taxable group term life insurance. Also includes
for Dr. Samour and Mr. Karloff a monthly automobile allowance of $799, plus
a health insurance benefit equal to the annual premium each individual pays
under separate health insurance policies maintained by their former
employers, which health insurance benefit is paid in lieu of any other
health, medical or retirement benefits.
(3) For Dr. Samour, Mr. Karloff and Dr. Schechter, represents the dollar value
of Company contributions to the Company's 401(k) Retirement Plan, which was
established in 1998. For Dr. Riggi, represents $68,212 paid to Dr. Riggi
for consulting services to the Company from August 11, 1999 through
December 31, 1999 pursuant to an agreement with the Company and $3,125 of
Company contributions to the Company's 401(k) Retirement Plan. Company
contributions to the 401(k) Retirement Plan are made in its common stock.
(4) Dr. Riggi resigned as Director and officer on August 10, 1999.
(5) Dr. Schechter's employment commenced on May 1, 1998.
</FN>
</TABLE>
37
<PAGE>
STOCK OPTIONS
The following table provides information concerning the grant of stock
options during 1999 to Dr. Schechter (no stock options were granted during 1999
to Dr. Samour, Mr. Karloff or Dr. Riggi):
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
----------------------------------
Potential
Realizable
Value
at Assumed
Annual Rates
Number of % of Total of Stock Price
Securities Options Exercise Appreciation for
Underlying Granted to or Base Option Term
Options Employees in Price Expiration 5% 10%
Name Granted (#) Fiscal Year ($/Sh) Date ($) ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Schechter 50,000(1) 9% 7.81 January 2009 216,000 622,000
- ------------------------------------------------------------------------------------------
<FN>
(1) The option granted to Dr. Schechter was granted in January 1999 under the
Company's 1994 Equity Incentive Plan at an exercise price of $7.81 per
share. The option expires ten years from the date of grant and vests with
respect to 25,000 shares in January in each of 2000 and 2001.
</FN>
</TABLE>
The following table provides information concerning unexercised options
held by Dr. Samour, Mr. Karloff, Dr. Riggi and Dr. Schechter as of December 31,
1999 (no options were exercised by these persons during the fiscal year ended
December 31, 1999):
AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-The-Money Options at
Fiscal Year-End # Fiscal Year-End $ (1)
- --------------------------------------------------------------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- --------------------------------------------------------------------------------
Carlos M. Samour (2) 695,080/ NA $ 685,050/ NA
Alvin J. Karloff 1,080,000/ NA $2,535,000/ NA
Stephen J. Riggi 180,000/ NA $ 0/ NA
Paul J. Schechter 60,000/170,000 $ 0/ 0
- --------------------------------------------------------------------------------
(1) The value of Dr. Samour's, Mr. Karloff's, Dr. Riggi's and Dr. Schechter's
in-the-money unexercised options at the end of the fiscal year ended
December 31, 1999 was determined by multiplying the number of options held
by the difference between the market price of the Common Stock underlying
the options on December 31, 1999 ($4.1875 per share) and the exercise price
of the options granted.
(2) Does not include options to purchase 300,000 shares of Common Stock granted
to Pierrette Samour, Dr. Samour's wife, of which he is deemed to have
beneficial ownership. If such 300,000 options were included, Dr. Samour
would be deemed to have had a total of 995,080 exercisable options as of
December 31, 1999, the value of which would have been $1,435,050.
38
<PAGE>
DIRECTORS' COMPENSATION
Each non-employee Director of the Company receives compensation of $6,000
annually, $1,000 per meeting attended, $500 for each committee meeting attended,
$300 per telephone meeting and reimbursement of travel expenses in connection
with attending meetings of the Board of Directors. Dr. Bright receives
additional Director compensation of $1,000 per month. Dr. Samour and Mr. Karloff
do not receive any additional compensation for their services as Directors.
During 1999 no stock options were granted to any non-employee Director.
The Company currently compensates Dr. Davis at the rate of $3,000 per month
for medical and pharmaceutical consulting services.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has entered into employment agreements of indefinite length
effective as of November 1, 1992 with each of Dr. Samour and Mr. Karloff. Each
agreement currently provides for annual compensation of $250,000. Each agreement
also provides for a monthly automobile allowance of $500 net of taxes and a
payment, in lieu of retirement benefits, equal to 18% of the individual's base
salary. Further, each agreement provides for the payment of 12 months' salary in
the event the individual is terminated without cause. In addition, each
agreement was amended in 1999 to preclude the individual from competing with the
Company during his employment and for a period of two years thereafter, and from
disclosing confidential information.
The Company has entered into an employment agreement of indefinite length
effective as of June 8, 1999 with Dr. Schechter. The agreement currently
provides for annual compensation of $190,000 and for the payment of six months'
salary in the event he is terminated without cause. In addition, the agreement
precludes Dr. Schechter from competing with the Company during his employment
and for a period of two years thereafter, and from disclosing confidential
information.
The Company and Dr. Riggi entered into a two-year agreement effective as of
August 10, 1999 in connection with his resignation as an officer and Director of
the Company. Under the agreement, the Company has engaged Dr. Riggi as a
consultant. Payment to Dr. Riggi for the first six months was at the annualized
rate of $175,000, and for the remaining 18 months will be at the annualized rate
of $87,500. During the term of the agreement, Dr. Riggi will receive all
benefits provided to him by the Company as of August 10, 1999, other than
participation in the Company's 401(k) plan, vacation accrual and other paid time
off. The agreement also extends Dr. Riggi's right to exercise all outstanding
stock options awarded to him under the Company's 1994 Equity Incentive Plan, as
amended, for 24 months after August 10, 1999. Pursuant to the agreement and the
Employment Agreement between Dr. Riggi and the Company, dated March 25, 1996 and
the Proprietary Information and Inventions Agreement dated March 25, 1996, Dr.
Riggi is precluded from competing with the Company for a period of two years
commencing on August 10, 1999 and from disclosing confidential information.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Dr. Davis (Chairman), Dr.
Bright and Mr. Martin.
39
<PAGE>
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 1, 2000, certain information
concerning ownership of the Company's common stock by (i) each person known by
the Company to be the beneficial owner of more than five percent (5%) of the
Company's common stock, (ii) each of the Company's Directors, (iii) each of the
executive officers named in the Summary Compensation Table under "Executive
Officers' Compensation' above and (iv) all Directors and executive officers as a
group. Except as otherwise indicated, the stockholders listed in the table have
sole voting and investment powers with respect to the shares indicated.
NAME AND ADDRESS NUMBER OF SHARES
OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED PERCENTAGE OF CLASS
- --------------------------------------------------------------------------------
Carlos M. and Pierrette E. Samour(2)(3)... 1,459,400 6.5%
Alvin J. Karloff(2)(3).................... 1,080,000 4.8%
Willard M. Bright(2) ..................... 86,800 *
Peter G. Martin(2) ....................... 59,270 *
Michael A. Davis(2)....................... 35,000 *
Paul J. Schechter(2)(3)................... 145,000 *
Stephen J. Riggi(2)(3).................... 180,000 *
Peter Janssen............................. 1,357,017 6.0%
1780 Route 106
Muttontown, NY 11791
All Directors and Officers as a Group
(7 persons)(2)(3)...................... 3,045,470 13.6%
- --------------------------------------------------------------------------------
* Less than one percent (1%).
(1) The address of Dr. Samour, Mrs. Samour, Mr. Karloff, Dr. Bright, Mr.
Martin, Dr. Davis, Dr. Schechter and Dr. Riggi is c/o the Company, 110
Hartwell Avenue, Lexington, Massachusetts 02421.
(2) Includes the following numbers of shares issuable upon the exercise of
stock options exercisable within 60 days: Dr. and Mrs. Samour-995,080; Mr.
Karloff-1,080,000; Dr. Bright-60,000; Mr. Martin-40,000; Dr. Davis-35,000;
Dr. Schechter-145,000; Dr. Riggi-180,000.
(3) Does not include the following numbers of vested shares in the Company's
401(k) Plan contributed by the Company to match portions of cash
contributions by the following Plan participants: Dr. and Mrs.
Samour-2,053; Mr. Karloff-1,524; Dr. Schechter-1,524; Dr. Riggi-1,121.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a)(1) The following Financial Statements as of December 31, 1999 and 1998 and
for the three years in the period ended December 31, 1999 are filed herewith:
Page
Independent Auditors' Report 19
Balance Sheets 20
Statements of Operations 21
Statements of Stockholders' Equity 22
Statements of Cash Flows 23-24
Notes to Financial Statements 25-33
(a)(2) The following Financial Statement Schedules are filed herewith:
None.
Schedules not included herein are omitted because they are not applicable
or the required information appears in the Financial Statements or Notes
thereto.
(a)(3) The following exhibits are filed herewith or are incorporated by
reference as may be indicated:
3a Certificate of Incorporation as amended, incorporated by reference to
exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
3b Amended and Restated By-Laws of the Company, incorporated by reference to
exhibits to the Company's Current Report on Form 8-K dated August 13, 1999.
4a Stock Purchase Warrant, incorporated by reference to exhibits to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
4b Rights Agreement dated as of August 13, 1999 between the Company and American
Stock Transfer & Trust Company, as Rights Agent, including Form of Certificate
of Designation with respect to the Series B Preferred Stock, par value $.01 per
share (attached as Exhibit A to the Rights Agreement), Form of Rights
Certificate (attached as Exhibit B to the Rights Agreement), and Summary of
Rights (attached as Exhibit C to the Rights Agreement), incorporated by
reference to exhibits to the Company's Current Report on Form 8-K dated August
13, 1999.
4c Common Stock Certificate, filed herewith.
10.10.1 1994 Equity Incentive Plan as amended November 14, 1997,
incorporated by reference to exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.*
41
<PAGE>
10.10.2 1984 Non-Qualified Stock Option Plan as amended November 15,
1996, incorporated by reference to exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996.*
10.10.2 1984 Incentive Stock Option Plan as amended November 15, 1996,
incorporated by reference to exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.*
10a Form of Employment Agreement between the Company and Dr. Carlos M. Samour,
incorporated by reference to exhibits to the Company's Registration Statement
on Form S-1 (No. 33-62042).*
10a.1 Amendment to Employment Agreement between the Company and Dr. Carlos M.
Samour, incorporated by reference to exhibits to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999.*
10b Form of Employment Agreement between the Company and Mr. Alvin J. Karloff,
incorporated by reference to exhibits to the Company's Registration Statement on
Form S-1 (No. 33-62042).*
10b.1 Amendment to Employment Agreement between the Company and Mr. Alvin J.
Karloff, incorporated by reference to exhibits to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999.*
10c Form of Employment Agreement between the Company and Dr. Stephen J. Riggi,
incorporated by reference to exhibits to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.*
10c.1 Letter Agreement dated August 10, 1999 between the Company and Dr.
Stephen J. Riggi, incorporated by reference to exhibits to the Company's
Quarterly Report of Form 10-Q for the quarter ended September 30, 1999.*
10d Form of Employment Agreement between the Company and Dr. Paul J. Schechter,
incorporated by reference to exhibits to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.*
10e Form of Employment Agreement between the Company and Mr. Kenneth L. Rice,
filed herewith.*
10.11 Lease between GLB Lexington Limited Partnership and the Company dated as
of July 21, 1999, for space located at 110 Hartwell Avenue, Lexington, MA 02421,
filed herewith.
23.1 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
42
<PAGE>
(b) No current reports on Form 8-K were filed in the three-month period ended
December 31, 1999.
- --------------------------
*Management contract or compensatory plan or arrangement
43
<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.
MACROCHEM CORPORATION
Dated: March 30, 2000 By: /s/ Alvin J. Karloff
---------------------
Alvin J. Karloff
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on March 30, 2000. .
/s/ Alvin J. Karloff Chief Executive Officer, President,
- --------------------- and Director
Alvin J. Karloff
/s/ Kenneth L. Rice Vice President and Chief Financial Officer
- ---------------------
Kenneth L. Rice
/s/ Carlos M. Samour Chairman of the Board of Directors
- ---------------------- and Scientific Director
Carlos M. Samour, Ph.D.
/s/ Willard M. Bright Director
- ----------------------
Willard M. Bright, Ph.D.
/s/ Peter G. Martin Director
- ----------------------
Peter G. Martin
/s/ Michael A. Davis Director
- ----------------------
Michael A. Davis, M.D.
44
<PAGE>
MACROCHEM CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
R 5104
COMMON STOCK
SEE LEGEND
ENDORSED ON REVERSE SIDE CUSIP 555903 10 3
THIS CERTIFIES THAT
SPECIMEN
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER
SHARE OF
MACROCHEM CORPORATION
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued under
and subject to the laws of the State of Delaware and to the Certificate of
Incorporation and the By-Laws of the Corporation, all as in effect from time to
time. This certificate is not valid until countersigned by the Transfer Agent
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ William P. Johnson /s/ Alvin J. Karloff
Treasurer and Corporate Secretary President
MACROCHEM CORPORATION
CORPORATE SEAL
1992
DELAWARE
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(New York, N.Y.)
Transfer Agent
/s/ George Karfunkle
Authorized Officer
<PAGE>
Classes of Stock
The preferences, voting powers, qualifications and special and relative
rights of the shares of stock of each class and series of the corporation are
set forth in the Certificate of Incorporation. The corporation will furnish a
copy of the Certificate of Incorporation to the holder of this certificate
without charge upon written request.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to the applicable laws or regulations.
TEN COM -as tenants in common UNIF GIFT MIN ACT- Custodian
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act__________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED____________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE.
________________________
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING POSTAL ZIP CODE OF ASSIGNEE)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________ Shares
of the capital stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated_____________________
_________________________________________________
NOTICE: The Signature to this assignment
must correspond with the name as written upon
the face of this Certificate in every particular,
without alteration or enlargement, or any change
whatever.
This certificate also evidences and entitles the holder to Rights set forth in a
Rights Agreement between the issuer and American Stock Transfer & Trust Company,
as Rights Agent (the "Rights Agent"), dated as of August 13, 1999 (the "Rights
Agreement"), the terms of which are incorporated herein by reference and a copy
of which is on file at the principal offices of both the issuer and the Rights
Agent. The Rights Agent will mail to the registered holder of this certificate a
copy of the Rights Agreement, as in effect on the date of the mailing, without
charge upon written request. Under certain circumstances set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. Under certain circumstances set forth
in the Rights Agreement, Rights issued to, or held by any Person who is, was or
becomes, or acquires shares from, an Acquiring Person or any Affiliate of an
Acquiring Person (as each such term is defined in the Rights Agreement and
generally relating to the ownership or purchase of large shareholdings), whether
currently held by or on behalf of such Person or Affiliate or by certain
subsequent holders, may become null and void.
KEY EMPLOYEE AGREEMENT
To: Kenneth L. Rice, Jr. August 19, 1999
119 Brook Street
Wellesley, MA 02482
The undersigned, MacroChem Corporation, a Delaware corporation (the
"Company"), hereby agrees with you as follows:
1. POSITION AND RESPONSIBILITIES.
1.1 You shall serve as Vice President and Chief Financial Officer of the
Company, (or in such other executive capacity as shall be designated by the
Board of Directors and reasonably acceptable to you) and shall perform the
duties customarily associated with such capacity from time to time and at such
place or places as the Company shall designate are appropriate and necessary in
connection with such employment.
1.2 You will, to the best of your ability, devote your full time and
best efforts to the performance of your duties hereunder and the business and
affairs of the Company. You agree to perform such executive duties as may be
assigned to you by or on authority of the Company's Board of Directors from time
to time.
1.3 You will duly, punctually and faithfully perform and
observe any and all reasonable rules and regulations which the Company may now
or shall hereafter establish governing the conduct of its business.
2. TERM OF EMPLOYMENT.
2.1 Subject to the provisions hereof, specifically including, without
limitation, Section 2.2, the term of your employment shall be indefinite.
2.2 The Company shall have the right to terminate your employment at any
time under this Agreement in any of the following ways:
(a) on thirty (30) days prior written notice to you upon your disability
(disability shall be defined as your inability to perform duties under this
Agreement for an aggregate of sixty (60) days, which need not be consecutive,
out of any one hundred twenty (120) day period due to mental or physical
disability or incapacity); you shall be provided benefits under the Company's
workers compensation and disability insurance policies, to the extent and upon
the terms and conditions of such plans that are in effect at the time;
(b) immediately without prior notice to you by the Company for "Cause",
as hereinafter defined, provided however, that prior to any such termination for
Cause, you have had a reasonable opportunity to be heard thereon;
(c) immediately without prior notice to you in the event of
the bankruptcy or liquidation of the Company or the appointment of a receiver of
the assets of the Company instigated by a creditor of the Company that is not an
affiliate thereof; or
(d) at any time without Cause, provided the Company shall be obligated
to pay to you after such termination an amount equal to six (6) months' Base
Salary, plus benefits provided by the Company to you at the time of such
termination for such period, less applicable taxes and other required
withholdings and any amounts you may owe to the Company. If the financial
condition of the Company so warrants, the Board of Directors of the Company may,
in its sole discretion, delay payment of such amounts due under this paragraph
2.2(d) until such time as the Board of Directors deems that such monies are
available.
2.3 You shall have the right to terminate your employment hereunder for
any reason, upon not less than four (4) weeks' prior written notice to the
Company.
2.4 "Cause" for the purpose of Section 2 of this Agreement shall
include: (i) the falseness or material inaccuracy of any of your warranties or
representations herein; (ii) your willful failure or refusal to comply with
explicit directives of the Board of Directors of the Company or to render the
services required herein; (iii) fraud or embezzlement involving assets of the
Company, its customers, suppliers or affiliates or other misappropriation of the
Company's assets or funds; (iv) your conviction for a criminal offense carrying
a potential sentence of more than twelve months in jail; (v) the willful breach
or habitual neglect of your obligations under this Agreement or your duties as
an employee of the Company; and (vi) use of non-prescription or illegal drugs
affecting your ability to perform the duties hereunder.
2.5 If your employment is terminated because of your death, all
obligations of the Company hereunder shall cease, except with respect to amounts
and obligations accrued to you, including accrued vacation pay, insurance,
vested stock options, and out-of-pocket expenses, through the last day of the
month during which your death has occurred.
3. COMPENSATION. You shall receive the compensation and benefits set forth
on Exhibit A hereto ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights if any, pursuant to an
agreement relating to proprietary information and inventions of even date
herewith attached hereto as Exhibit B between you and the Company (the
"Confidential Information, Inventions and Noncompetition Agreement").
4. CONFIDENTIAL INFORMATION, INVENTIONS AND NONCOMPETITION. You agree to
execute, deliver and be bound by the provisions of the Confidential Information,
Inventions and Noncompetition Agreement attached hereto as Exhibit B.
5. REMEDIES. Your obligations under the Confidential Information,
Inventions and Noncompetition Agreement and the provisions of Sections 5 and 6
of this Agreement (as modified by Section 7, if applicable) shall survive the
expiration or termination of your employment with the Company in accordance with
the terms thereof. You acknowledge that a remedy at law for any breach or
threatened breach by you of the provisions of the Confidential Information,
Inventions and Noncompetition Agreement would be inadequate and you therefore
agree that the Company shall be entitled to injunctive relief in case of any
such breach or threatened breach.
6. ASSIGNMENT. Subject to Section 2.2(c), this Agreement and the rights and
obligations of the parties hereto shall bind and inure to the benefit of any
successor or successors of the Company by reorganization, merger or
consolidation and any assignee of all or substantially all of its business and
properties, but, except as to any such successor or assignee of the Company,
neither this Agreement nor any rights or benefits hereunder may be assigned by
the Company or by you, except by operation of law or by a further written
agreement by the parties hereto.
7. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable laws
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
8. NOTICES. Any notice which the Company is required to or may desire to
give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or five (5) days after the date of
mailing any notice under this Section 8 shall be deemed to be the date of
delivery thereof.
9. WAIVERS. No waiver of any right under this Agreement shall be deemed
effective unless contained in a writing signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
shall be deemed to be a waiver of any future such right or of any other right
arising under this Agreement. If either party should waive any breach of any
provision of this Agreement, he or it shall not thereby be deemed to have waived
any preceding or succeeding breach of the same or any other provision of this
Agreement.
10. COUNSEL. You acknowledge that you have had the opportunity to read
this Agreement in its entirety and to obtain the advice of counsel regarding its
terms and conditions.
11. COMPLETE AGREEMENT; AMENDMENTS. The foregoing, including Exhibits A and
B attached hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver by the
Company of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, upon authorization of the Company's
Board of Directors.
12. HEADINGS. The headings of the Sections contained in this Agreement are
inserted for convenience and reference only and in no way define, limit, extend
or describe the scope of this Agreement or the intent of any provisions hereof,
and shall not be deemed to constitute a part hereof or to affect the meaning of
this Agreement in any way.
13. COUNTERPARTS. This Agreement may be signed in two counterparts, each of
which shall be deemed an original and both of which shall together constitute
one agreement.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts,
excluding its conflict of law principles.
If you are in agreement with the foregoing, please sign your name below and
also at the bottom of the Confidential Information, Inventions and
Noncompetition Agreement, whereupon both Agreements shall become binding in
accordance with their terms. Please then return this Agreement to the Company.
(You may retain for your records the accompanying counterpart of this Agreement
enclosed herewith).
Very truly yours,
MACROCHEM CORPORATION,
a Delaware corporation
By: /S/ ALVIN J. KARLOFF
Alvin J. Karloff
President & C.E.O.
Read, Accepted and Agreed:
/S/ KENNETH L. RICE , JR.
Kenneth L. Rice, Jr.
<PAGE>
EXHIBIT A
COMPENSATION AND BENEFITS
OF KENNETH L. RICE, JR.
COMPENSATION. Your initial Base Salary, commencing on August 16, 1999, shall be
$165,000 per year, less applicable deductions, payable in accordance with the
Company's payroll policies. An increase in your Base Salary shall be reviewed
and adjusted from time to time by the Board of Directors of the Company.
VACATION. You shall be entitled to all state statutory holidays, and four (4)
weeks paid vacation for the first year of employment. Thereafter, any additional
vacation time, over and above the vacation time already referred to herein shall
be determined by the Board of Directors.
INSURANCE AND BENEFITS. You shall be eligible to receive medical, dental, life,
short and long term disability insurance, currently offered through the
Company's insurance carriers. The Company currently pays 70% of these premiums.
You shall also be eligible to participate in the Company's 401(k) plan.
SICK DAYS AND EXCUSED ABSENCE DAYS. You shall be entitled to compensation for
sick days and excused absence days in accordance with Company policy.
STOCK OPTIONS. You have been granted incentive stock options to purchase shares
of the Common Stock of the Company, $.01 par value per share. Future stock
options may be granted by the Company based in part on your performance.
<PAGE>
EXHIBIT B
CONFIDENTIAL INFORMATION, INVENTIONS AND NONCOMPETITION AGREEMENT
To: MacroChem Corporation Date: August 19, 1999
110 Hartwell Avenue
Lexington, Massachusetts 02421-3134
The undersigned, in consideration of and as a condition of my employment
or continued employment by you and/or by companies that you own, control, or are
affiliated with or their successors in business (collectively, the "Company"),
hereby agrees as follows:
1. CONFIDENTIALITY. I agree to keep confidential, except as the Company
may otherwise consent in writing, and except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, franchises, processes, know-how, techniques, methods, designs,
formulas, test data, customer lists, business plans, marketing plans and
strategies, pricing strategies, or other subject matter pertaining to any
business of the Company or any of its affiliates, which I may produce, obtain,
or otherwise acquire during the course of my employment, except as herein
provided. I further agree not to deliver, reproduce or in any way allow any such
trade secrets, confidential information, knowledge, data or other information,
or any documentation relating thereto, to be delivered to or used by any third
parties without specific direction or consent of the Chairman of the Board or
the Chief Executive Officer of the Company. The provisions of this Section 1
shall not apply to such knowledge, data or other information that is generally
known to the public.
2. CONFLICTING EMPLOYMENT; RETURN OF CONFIDENTIAL MATERIAL. I agree that
during my employment with the Company I will not engage in any other employment,
occupation, consulting or other activity relating to the business in which the
Company is now or may hereafter become engaged, or which would otherwise
conflict with my obligations to the Company. In the event my employment with the
Company terminates for any reason whatsoever, I agree to promptly surrender and
deliver to the Company all trade secrets, confidential information, processes
and records, including, but not limited to, designs, formulae, test data,
customer lists, business plans and strategies, Inventions or other written
memoranda, materials, equipment, drawings, documents and data that I may obtain
or produce during the course of my employment, and I will not take with me any
description containing or pertaining to any confidential information, knowledge
or data of the Company that I may produce or obtain during the course of my
employment.
<PAGE>
3. ASSIGNMENT OF INVENTIONS.
3.1 I hereby acknowledge and agree that the Company is the owner of
all Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, methods, techniques, devices, or
improvements in any of the foregoing or other ideas, whether or not patentable
or copyrightable and whether or not reduced to practice, made or conceived by me
(whether solely or jointly with others) during the period of my employment with
the Company that relate to the actual or demonstrably anticipated business,
work, or research and development of the Company, or result from or are
suggested by any task assigned to me or any work performed by me for or on
behalf of the Company.
3.3 Any discovery, process, design, method, technique, technology,
device, or improvement in any of the foregoing or other ideas, whether or not
patentable or copyrightable and whether or not reduced to practice, made or
conceived by me (whether solely or jointly with others) that I develop entirely
on my own time not using any of the Company's equipment, supplies, facilities,
or trade secret information ("Personal Invention") is excluded from this
Agreement provided such Personal Invention (a) does not relate to the actual or
demonstrably anticipated business, research and development of the Company, and
(b) does not result, directly or indirectly, from any work performed by me for
the Company.
4. DISCLOSURE OF INVENTIONS. I agree that in connection with any
Invention, I will promptly disclose such Invention to the Board of Directors of
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company. If the Company in good faith decides not
to use an Invention, it will advise me of same and the rights to such Invention
will revert to me within a reasonable period of time.
5. PATENTS AND COPYRIGHTS; EXECUTION OF DOCUMENTS.
5.1 Upon request, I agree to assist the Company or its nominee (at
its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
protect the Company's or its nominee's interest in Inventions, and/or to use in
obtaining patents or copyrights in any and all countries and to vest title
thereto in the Company or its nominee to any of the foregoing.
6. MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings, flowcharts, printouts, diskettes and other records as may be
specified by the Company), which records shall be available to and remain the
sole property of the Company at all times.
7. PRIOR INVENTIONS. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions that
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company that appears to threaten
or conflict with proprietary rights I claim in any Personal Invention. In the
event of my failure to give such notice, I agree that I will make no claim
against the Company with respect to any such Personal Invention.
8. OTHER OBLIGATIONS. I acknowledge that the Company from time to time
may have agreements with other persons, companies, entities, Governments or
agencies thereof, that impose obligations or restrictions on the Company
regarding Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all actions necessary to discharge the Company's
obligations.
9. TRADE SECRETS OF OTHERS. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge, or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. OTHER ACTIVITIES DURING EMPLOYMENT.
10.1 Except for any outside employments and directorships currently
held by me as listed on Schedule B hereto, and except with the prior written
consent of a majority of the Company's Board of Directors, which consent will
not be unreasonably withheld, I will not, during my employment by the Company,
undertake or engage in any other employment, occupation or business enterprise,
other than one in which I am an inactive investor, that would interfere with my
obligations to the Company.
10.2 I hereby agree, that except as disclosed on Schedule B hereto,
during my employment by the Company, I will not, directly or indirectly, engage
(a) individually, (b) as an officer, (c) as a director, (d) as an employee, (e)
as a consultant, (f) as an advisor, (g) as an agent (whether a salesperson or
otherwise), (h) as a broker, or (i) as a partner, coventurer, stockholder or
other proprietor owning directly or indirectly more than five percent (5%)
interest in any firm, corporation, partnership, trust, association, or other
organization which is engaged in the development and licensing of transdermal
delivery products or any other line of business in competition with, or engaged
in or under demonstrable development by the Company (such firm, corporation,
partnership, trust, association, or other organization being hereinafter
referred to as a "Prohibited Enterprise"), without the consent of the Company,
which consent will not be unreasonably withheld. Except as may be shown on
Schedule B hereto, I hereby represent that I am not engaged in any of the
foregoing capacities (a) through (i) in any Prohibited Enterprise.
11. POST-EMPLOYMENT ACTIVITIES.
11.1 For a period of two (2) years after the termination, for any
reason, of my employment with the Company, absent the Company's prior written
approval, I will not directly or indirectly engage in activities similar or
reasonably related to those in which I shall have engaged for the Company during
the two years immediately preceding termination, nor render services similar or
reasonably related to those which I shall have rendered during such time to, any
person or entity whether existing or hereafter established that DIRECTLY
competes with (or proposes or plans to directly compete with) the Company, or in
other areas where the Company carries on a substantial amount of business
("Direct Competitor"). In addition, I shall not entice, induce or encourage any
of the Company's other employees to engage in any activity that, were it done by
me, would violate any provision of this Agreement.
11.2 No provision of this Agreement shall be construed to preclude me
from performing the same services that the Company retains me to perform for any
person or entity that is not a Direct Competitor of the Company upon the
termination of my employment (or any post-employment consultation) so long as I
do not thereby violate any term of this Agreement.
12. REMEDIES. My obligations under this Agreement shall survive the
termination of my employment with the Company. I acknowledge that a remedy at
law for any breach or threatened breach by me of the provisions of this
Agreement would be inadequate and I therefore agree that the Company shall be
entitled to injunctive relief in case of any such breach or threatened breach.
13. MODIFICATION. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
15. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any one
or more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any provision of this Agreement is or becomes or
is deemed invalid, illegal or unenforceable or in case any one or more of the
provisions contained in this Agreement shall for any reason be held to be
excessively broad as to duration, geographical scope, activity or subject, such
provision shall be construed by amending, limiting and/or reducing it to conform
to applicable laws so as to be valid and enforceable or, if it cannot be so
amended without materially altering the intention of the parties, it shall be
stricken and the remainder of this Agreement shall remain in full force and
effect.
16. WAIVERS. No waiver of any right under this Agreement shall be deemed
effective unless contained in a writing signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
shall be deemed to be a waiver of any future such right or of any other right
arising under this Agreement. If either party should waive any breach of any
provision of this Agreement, he or it shall not thereby be deemed to have waived
any preceding or succeeding breach of the same or any other provision of this
Agreement.
17. COMPLETE AGREEMENT, AMENDMENTS. The foregoing including Schedules A
and B attached hereto is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver by the
Company of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, upon authorization of the Company's
Board of Directors.
18. HEADINGS. The headings of the Sections contained in this Agreement
are inserted for convenience and reference only and in no way define, limit,
extend or describe the scope of this Agreement, or the intent of any provision
hereof, and shall not be deemed to constitute a part hereof nor to affect the
meaning of this Agreement in any way.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts,
excluding its conflict of law principles.
20. NOTICES. All notices, requests, demands and communications which are
or may be required to be given hereunder shall be deemed effectively given if
and when sent by registered or certified mail, return receipt requested, postage
prepaid, to the following addresses:
If to the Company: Mr. Alvin J. Karloff, President
MacroChem Corporation
110 Hartwell Avenue
Lexington, MA 02421
If to Employee: Kenneth L. Rice, Jr.
119 Brook Street
Wellesley, MA 02482
21. CONFLICTS. In the event of any conflict between the provisions of
this agreement and the provisions of the Employment Agreement, the provisions of
the Employment Agreement will govern.
Very truly yours,
/S/ KENNETH L. RICE, JR.
Kenneth L. Rice, Jr.
Vice President & Chief Financial
Officer
Agreed:
MacroChem Corporation
By: /S/ ALVIN J. KARLOFF
Alvin J. Karloff
President & C.E.O.
<PAGE>
SCHEDULE A
LIST OF PRIOR INVENTIONS
OF KENNETH L. RICE, JR.
TITLE DATE IDENTIFYING NUMBER
OR BRIEF DESCRIPTION
<PAGE>
SCHEDULE B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS
OF KENNETH L. RICE, JR.
TABLE OF CONTENTS
1. LEASE OF PREMISES.........................................................1
2. DEFINITIONS...............................................................1
3. EXHIBITS AND ADDENDA......................................................2
4. DELIVERY OF POSSESSION....................................................3
5. INTENDED USE OF THE PREMISES..............................................3
6. RENT......................................................................3
6.1. PAYMENT OF RENT.....................................................3
6.2. ADJUSTED BASE RENT..................................................3
6.3. ADDITIONAL RENT FOR INCREASES IN TAX COSTS AND OPERATING EXPENSES...3
6.4. DEFINITION OF RENT..................................................5
6.5. TAXES ON TENANT'S USE AND OCCUPANCY.................................5
7. LATE CHARGES..............................................................6
8. SECURITY DEPOSIT..........................................................6
9. TENANT'S USE OF THE PREMISES..............................................6
9.1. USE..............................................................6
9.2. OBSERVANCE OF LAW................................................6
9.3. INSURANCE........................................................7
9.4. NUISANCE AND WASTE...............................................7
9.5. LOAD AND EQUIPMENT LIMITS........................................7
9.6. HAZARDOUS MATERIAL...............................................7
10. SERVICES AND UTILITIES....................................................7
11. REPAIRS AND MAINTENANCE...................................................8
11.1. LANDLORD'S OBLIGATIONS...........................................8
11.2. TENANT'S OBLIGATIONS.............................................8
11.3. COMPLIANCE WITH LAW..............................................9
11.4. NOTICE OF DEFECT.................................................9
11.5. LANDLORD'S LIABILITY.............................................9
12. CONSTRUCTION, ALTERATIONS AND ADDITIONS...................................9
12.1. LANDLORD'S CONSTRUCTION OBLIGATIONS..............................9
12.2. TENANT'S CONSTRUCTION OBLIGATIONS................................9
12.3. TENANT'S ALTERATIONS AND ADDITIONS...............................9
12.4. PAYMENT..........................................................9
12.5. PROPERTY OF LANDLORD............................................10
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY................................10
13.1. LEASEHOLD IMPROVEMENTS..........................................10
13.2. TENANT'S PROPERTY...............................................10
14. INDEMNIFICATION..........................................................10
14.1. TENANT INDEMNIFICATION..........................................10
14.2. LANDLORD NOT LIABLE.............................................10
15. TENANT'S INSURANCE.......................................................11
15.1. INSURANCE REQUIREMENT...........................................11
15.2. MINIMUM SCOPE OF COVERAGE.......................................11
15.3. MINIMUM LIMITS OF INSURANCE.....................................11
15.4. DEDUCTIBLE AND SELF-INSURED RETENTION...........................12
15.5. INCREASES IN INSURANCE POLICY LIMITS............................12
15.6. WAIVER OF SUBROGATION...........................................12
15.7. LANDLORD'S RIGHT TO OBTAIN INSURANCE FOR TENANT.................12
16. DAMAGE OR DESTRUCTION....................................................12
16.1. DAMAGE..........................................................12
16.2. REPAIR OF PREMISES IN EXCESS OF ONE HUNDRED EIGHTY DAYS.........12
16.3. REPAIR OUTSIDE PREMISES.........................................12
16.4. TENANT REPAIR...................................................12
16.5. ELECTION NOT TO PERFORM LANDLORD'S WORK.........................12
16.6. EXPRESS AGREEMENT...............................................13
17. EMINENT DOMAIN...........................................................13
17.1. WHOLE TAKING....................................................13
17.2. PARTIAL TAKING..................................................13
17.3. PROCEEDS........................................................13
17.4. LANDLORD'S RESTORATION..........................................13
<PAGE>
18. ASSIGNMENT AND SUBLETTING................................................13
18.1. NO ASSIGNMENT OR SUBLETTING.....................................13
18.2. LANDLORD'S CONSENT..............................................13
18.3. TENANT REMAINS RESPONSIBLE......................................14
18.4. CONVERSION TO A LIMITED LIABILITY ENTITY........................14
18.5. PAYMENT OF FEES.................................................15
19. DEFAULT..................................................................15
19.1. TENANT'S DEFAULT................................................15
19.2. LANDLORD REMEDIES...............................................15
19.3. DAMAGES RECOVERABLE.............................................16
19.4. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT.......................16
19.5. LANDLORD'S DEFAULT..............................................16
19.6. MORTGAGEE PROTECTION............................................17
19.7. TENANT'S RIGHT TO CURE LANDLORD'S DEFAULT.......................17
20. WAIVER...................................................................17
21. SUBORDINATION AND ATTORNMENT.............................................17
22. TENANT ESTOPPEL CERTIFICATES.............................................17
22.1. LANDLORD REQUEST FOR ESTOPPEL CERTIFICATE.......................17
22.2. FAILURE TO EXECUTE..............................................18
23. NOTICE...................................................................18
24. TRANSFER OF LANDLORD'S INTEREST..........................................18
25. SURRENDER OF PREMISES....................................................18
25.1. CLEAN AND SAME CONDITION........................................18
25.2. FAILURE TO DELIVER POSSESSION...................................18
25.3. PROPERTY ABANDONED..............................................18
26. HOLDING OVER.............................................................18
27. RULES AND REGULATIONS....................................................18
28. CERTAIN RIGHTS RESERVED BY LANDLORD......................................19
29. ADVERTISEMENTS AND SIGNS.................................................19
30. RELOCATION OF PREMISES...................................................19
31. GOVERNMENT ENERGY OR UTILITY CONTROLS....................................19
32. FORCE MAJEURE............................................................19
33. BROKERAGE FEES...........................................................20
34. QUIET ENJOYMENT..........................................................20
35. TELECOMMUNICATIONS.......................................................20
35.1. TELECOMMUNICATIONS COMPANIES....................................20
35.2. TENANT'S OBLIGATIONS............................................20
35.3. LANDLORD'S CONSENT..............................................20
35.4. INDEMNIFICATION.................................................21
35.5. LANDLORD'S OPERATION OF BUILDING TELECOMMUNICATIONS LINES AND
SYSTEMS.........................................................21
36. MISCELLANEOUS............................................................21
36.1. ACCORD AND SATISFACTION; ALLOCATION OF PAYMENTS.................21
36.2. ADDENDA.........................................................21
36.3. ATTORNEYS' FEES.................................................21
36.4. CAPTIONS AND SECTION NUMBERS....................................21
36.5. CHANGES REQUESTED BY LENDER.....................................21
36.6. CHOICE OF LAW...................................................21
36.7. CONSENT.........................................................21
36.8. AUTHORITY.......................................................22
36.9. WAIVER OF RIGHT TO JURY TRIAL...................................22
36.10. COUNTERPARTS....................................................22
36.11. EXECUTION OF LEASE; NO OPTION...................................22
36.12. FURNISHING OF FINANCIAL STATEMENTS; TENANT'S REPRESENTATIONS....22
36.13. FURTHER ASSURANCES..............................................22
36.14. PRIOR AGREEMENTS; AMENDMENTS....................................22
36.15. RECORDING.......................................................22
36.16. SEVERABILITY....................................................22
36.17. SUCCESSORS AND ASSIGNS..........................................22
36.18. TIME OF THE ESSENCE.............................................22
<PAGE>
LEASE
This lease (the Lease) between GLB Lexington Limited Partnership, a Delaware
limited partnership (herein Landlord), and MacroChem Corporation, a Delaware
Corporation (herein Tenant), is dated for reference purposes only as of this
21st day of July, 1999.
1. LEASE OF PREMISES.
In consideration of the Rent (as defined in Section 6.) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A", and further described in Section 2.13. The Premises are located within the
Building and Project (as described in Sections 2.13. and 2.14.). Tenant shall
have the nonexclusive right (unless otherwise provided herein) in common with
Landlord, other tenants, subtenants and invitees, to use the Common Area (as
defined in Section 2.5.).
2. DEFINITIONS.
As used in this Lease, the following terms shall have the following meanings:
2.1. DELETED
2.2. ANNUAL BASE RENT: SEE ATTACHED ADDENDUM.
2.3. BASE YEAR (Section 6.3.): Operating costs and real estate taxes
calendar year 2000.
2.4. COMMENCEMENT DATE: November 1, 1999. If the Commencement Date is
other than the first day of a month, then the Expiration Date of the
Lease shall be extended to the last day of the month in which the
Lease expires. Please refer to Article Four (4) fo the Lease.
2.5. COMMON AREA: The building lobbies, common corridors and hallways,
rest rooms, parking areas and other generally understood public or
common areas.
2.6. EXPIRATION DATE: February 28, 2005, unless otherwise sooner
terminated in accordance with the provisions of this Lease.
2.7. DELETED
2.8. LANDLORD'S ADDRESS FOR NOTICE:
GLB Lexington Limited Partnership
c/o Glenborough Realty Trust Incorporated
400 South El Camino Real, Suite 1100
San Mateo, CA 94402-1708
ATTN: Legal Department
RENT PAYMENT ADDRESS:
GLB Lexington
c/o Glenborough Realty Trust, Inc.
300 Nickerson Road
Marlborough, MA 01752
TENANT'S MAILING ADDRESS:
MacroChem Corporation
110 Hartwell Avenue
Lexington, MA 02421
(1)
<PAGE>
2.9. LISTING AND LEASING AGENT(S): Fallon Hines and O'Connor.
2.10. MONTHLY INSTALLMENTS OF BASE RENT: SEE ATTACHED ADDENDUM.
2.11. NOTICE: Except as otherwise provided herein, Notice shall mean any
notices, approvals and demands permitted or required to be given
under this Lease. Notice shall be given in the form and manner set
forth in Section 23.
2.12. PARKING: Tenant shall be entitled to the nonexclusive use of 39
parking spaces. The charge for parking shall be $0.00 per month per
parking space for the initial term of this Lease. Landlord may permit
Tenant to rent additional spaces, if available, at the then current
parking rate. Each such additional parking space, however, shall not
be a part of this Lease, and Landlord reserves the right to adjust
the parking rate for each additional parking space at any time and to
terminate the rental of such additional parking spaces at any time.
2.13. PREMISES: That portion of the 1st floor(s) of the Building located at
110 Hartwell Avenue, Lexington, MA, commonly referred to as Suite(s)
110-01, as shown by diagonal lines on Exhibit "A". For purposes of
this Lease, the Premises is deemed to contain approximately 9,961
square feet of Rentable Area.
2.14. PROJECT: The building of which the Premises are a part (the Building)
and any other buildings or improvements on the real property (the
Property) located at 110 Hartwell Avenue, Lexington, MA and further
described in Exhibit "B". The Project is commonly known as Hartwood
Building.
2.15. RENTABLE AREA: As to both the Premises and the Project, the
respective measurements of floor area as may from time to time be
subject to lease by Tenant and all tenants of the Project,
respectively, as determined by Landlord and applied on a consistent
basis throughout the Project.
2.16. SECURITY DEPOSIT (Section 8.): $29,042.54 .
2.17. STATE: The Commonwealth of Massachusetts.
2.18. DELETED.
2.19. TENANT'S PROPORTIONATE SHARE: 13.88%. Such share is a fraction, the
numerator of which is the Rentable Area of the Premises, and the
denominator of which is the Rentable Area of the Project, as
determined by Landlord from time to time. The Project consists of
1 Building(s), and, for purposes of this Lease, the Building(s) are
deemed to contain approximately 52,721 square feet of Rentable Area.
2.20. TENANT'S USE (Section 9.): For General Office, R&D and pharmaceutical
production for a pharmaceutical products company. .
2.21. TERM: The period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
(2)
<PAGE>
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are attached hereto and
incorporated by reference in this Lease:
3.1. Exhibit A - Floor Plan showing the Premises.
3.2. Exhibit B - Site Plan of the Project.
3.3. Exhibit C - Building Standard Tenant Improvements.
3.4. Exhibit D - Work Letter and Drawings.
3.5. Exhibit E - Rules and Regulations.
3.6. Addenda: Attached hereto and made a part of this Lease by reference
are Sections 37-43.
4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, and such failure is not caused by an act or omission
of Tenant, the Expiration Date shall be extended by the number of days the
Commencement Date has been delayed and the validity of this Lease shall not be
impaired nor shall Landlord be subject to any liability for such failure; but
Rent shall be abated until delivery of possession. Provided, however, if the
Commencement Date has been delayed by an act or omission of Tenant then Rent
shall not be abated until delivery of possession and the Expiration Date shall
not be extended. Delivery of possession shall be deemed to occur on the earlier
of the date Landlord receives a Certificate of Occupancy or upon substantial
completion of the Premises (as certified by Landlord's architect). If Landlord
permits Tenant to enter into possession of the Premises before the Commencement
Date, such possession shall be subject to the provisions of this Lease,
including, without limitation, the payment of Rent (unless otherwise agreed in
writing).
Within ten (10) days of delivery of possession Landlord shall deliver to Tenant
and Tenant shall execute an Acceptance of Premises in which Tenant shall
certify, among other things, that (a) Landlord has satisfactorily completed
Landlord's Work to the Premises pursuant to Exhibit "D", unless written
exception is set forth thereon, and (b) that Tenant accepts the Premises.
Tenant's failure to execute and deliver the Acceptance of Premises shall be
conclusive evidence, as against Tenant, that Landlord setting forth objections,
if any, has satisfactorily completed Landlord's Work to the Premises pursuant to
Exhibit "D".
In the event Tenant fails to take possession of the Premises following execution
of this Lease, Tenant shall reimburse Landlord promptly upon demand for all
costs incurred by Landlord in connection with entering into this Lease
including, but not limited to, broker fees and commissions, sums paid for the
preparation of a floor and/or space plan for the Premises, costs incurred in
performing Landlord's Work pursuant to Exhibit "D", loss of rental income,
attorneys' fees and costs, and any other damages for breach of this Lease
established by Landlord. Notwithstanding the foregoing to the contrary,
Landlord and Tenant hereby acknowledge that Tenant presently occupies
Suite 110-01 of the Premises, pursuant to a prior Lease between Landlord and
Tenant. Consequently, references to delivery of the Premises in this Section 4
shall pertain only to the Expansion Premises.
5. INTENDED USE OF THE PREMISES.
The statement in this Lease of the nature of the business to be conducted by
Tenant in the Premises does not constitute a representation or guaranty by the
Landlord as to the present or future suitability of the Premises for the conduct
of such business in the Premises, or that it is lawful or permissible under the
Certificate of Occupancy issued for the Building, or is otherwise permitted by
law. Tenant's taking possession of the Premises shall be conclusive evidence, as
against Tenant, that, at the time such possession was taken, the Premises were
satisfactory for Tenant's intended use.
6. RENT.
6.1. PAYMENT OF RENT. Tenant shall pay Rent for the Premises. Monthly
Installments of Rent shall be payable in advance on the first day of each
calendar month of the Term. If the Term begins (or ends) on other than the first
(or last) day of a calendar month, Rent for the partial month shall be prorated
based on the number of days in that month. Rent shall be paid to Landlord at the
Rent Payment Address set forth in Section 2.8., or to such other person at such
place as Landlord may from time to time designate in writing, without any prior
demand therefor and without deduction or offset, in lawful money of the United
States of America.
6.2. DELETED.
(3)
<PAGE>
6.3. ADDITIONAL RENT FOR INCREASES IN TAX COSTS AND OPERATING EXPENSES. If,
in any calendar year during the Term of this Lease, Landlord's Tax Costs and
Operating Expenses (as hereinafter defined) for the Project (hereinafter
sometimes together referred to as Direct Costs) shall be higher than in the Base
Year specified in Section 2.3., Additional Rent for such Direct Costs payable
hereunder shall be increased by an amount equal to Tenant's Proportionate Share
of the difference between Landlord's actual Direct Costs for such calendar year
and the actual Direct Costs of the Base Year. However, if during any calendar
year of the Term the occupancy of the Project is less than ninety-five percent
(95%), then Landlord shall make an appropriate adjustment of the variable
components of Operating Expenses, as reasonably determined by Landlord, to
determine the amount of Operating Expenses that would have been incurred had the
Project been ninety-five percent (95%) occupied during that calendar year. This
estimated amount shall be deemed the amount of Operating Expenses for that
calendar year. For purposes hereof, "variable components" shall include only
those Operating Expenses that are affected by variations in occupancy levels.
6.3.1. DEFINITIONS. As used in this Section 6.3., the following
terms shall have the following meanings:
6.3.1.1. Tax Costs shall mean any and all real estate taxes,
other similar charges on real property or improvements, assessments,
water and sewer charges, and all other charges (but in no event
Landlord's income or estate taxes) assessed, levied, imposed or
becoming a lien upon part or all of the Project or the appurtenances
thereto, or attributable thereto, or on the rents, issues, profits or
income received or derived therefrom which may be imposed, levied,
assessed or charged by the United States or the state, county or city
in which the Project is located, or any other local government
authority or agency or political subdivision thereof. Tax Costs for
each tax year shall be apportioned to determine the Tax Costs for the
subject calendar years.
Landlord, at Landlord's sole discretion, may contest
any taxes levied or assessed against the Building or Project during
the Term. If Landlord contests any taxes levied or assessed during the
Term, Tenant shall pay Landlord Tenant's Proportionate Share of all
costs incurred by Landlord in connection with the contest. Landlord
shall promptly upon receipt by Landlord of any tax rebate, credit to
Tenant its proportionate net share of any such rebate against future
payment of taxes by Tenant.
6.3.1.2. Operating Expenses shall mean any and all expenses
incurred by Landlord in connection with the management, maintenance,
operation, and repair of the Project, the equipment, adjacent walks,
Common Area, parking areas, the roof, landscaped areas, including, but
not limited to, salaries, wages, benefits, pension payments, payroll
taxes, worker's compensation, and other costs related to employees
engaged in the management, operation, maintenance and/or repair of the
Project; any and all assessments or costs incurred with respect to
Covenants, Conditions and/or Restrictions, Reciprocal Easement
Agreements or similar documents affecting the Building or Project, if
any; the cost of all charges to Landlord for electricity, natural gas,
air conditioning, steam, water, and other utilities furnished to the
Project, other than utilities for other tenants which are seperately
metered, including any taxes thereon; reasonable attorneys' fees
and/or consultant fees incurred by Landlord in contracting with a
company or companies to provide electricity (or any other utility) to
the Project, any fees for the installation, maintenance, repair or
removal of related equipment, and any exit fees or stranded cost
charges mandated by the State; the cost and expense for third-party
consultants, accountants and attorneys; a management fee, not to
exceed 5% of gross receipts; energy studies and the amortized cost of
any energy or other cost saving equipment used by Landlord to provide
services pursuant to the terms of the Lease (including the amortized
cost to upgrade the efficiency or capacity of Building
telecommunication lines and systems if responsibility therefor is
assumed by Landlord as discussed in Section 35. hereof); reasonable
reserves for replacements as may be customary in the geographic area
in which the Project is located; the cost of license fees related to
the Project; the cost of all charges for property (all risk),
liability, rent loss and all other insurance for the Project to the
extent that such insurance is required to be carried by Landlord under
any lease, mortgage or deed of trust covering the whole or a
substantial part of the Project or the Building, or, if not required
under any such lease, mortgage or deed of trust, then to the extent
such insurance is carried by owners of properties comparable to the
Project; the cost of all building and cleaning supplies and materials;
the cost of all charges for security services, cleaning, maintenance
and service contracts and other services with independent contractors,
including but not limited to the maintenance, operation and repair of
all electrical, plumbing and mechanical systems of the Project and
maintenance, repair and replacement of any intrabuilding cabling
(4)
<PAGE>
network (ICN), if any; and the cost of any janitorial, utility or
other services to be provided by Landlord.
Notwithstanding the foregoing, the following shall not be
included within Operating Expenses: (i) costs of capital improvements
(except any improvements that might be deemed "capital improvements"
related to the enhancement or upgrade of the ICN and related
equipment) and costs of curing design or construction defects; (ii)
depreciation; (iii) interest and principal payments on mortgages and
other debt costs and ground lease payments, if any, and any penalties
assessed as a result of Landlord's late payments of such amounts; (iv)
real estate broker leasing commissions or compensation; (v) any cost
or expenditure (or portion thereof) for which Landlord is reimbursed,
whether by insurance proceeds or otherwise; (vi) attorneys' fees,
costs, disbursements, advertising and marketing and other expenses
incurred in connection with the negotiation of leases with prospective
tenants of the Building; (vii) rent for space which is not actually
used by Landlord in connection with the management and operation of
the Building; (viii) all costs or expenses (including fines, penalties
and legal fees) incurred due to the violation by Landlord, its
employees, agents, contractors or assigns of the terms and conditions
of the Lease, or any valid, applicable building code, governmental
rule, regulation or law; (ix) except for the referenced management
compensation, any overhead or profit increments to any subsidiary or
affiliate of Landlord for services on or to the Building, to the
extent that the costs of such services exceed competitive costs for
such services; (x) the cost of constructing tenant improvements for
Tenant or any other tenant of the Building or Project; (xi) Operating
Expenses specially charged to and paid by any other tenant of the
Building or Project; and (xii) the cost of special services, goods or
materials provided to any other tenant of the Building or Project.
6.3.2. DETERMINATION AND PAYMENT OF TAX COSTS AND OPERATING EXPENSES.
6.3.2.1. On or before the last day of each December during the
Term of this Lease, Landlord shall furnish to Tenant a written
statement showing in reasonable detail Landlord's projected Direct
Costs for the succeeding calendar year. If such statement of projected
Direct Costs indicates the Direct Costs will be higher than in the
Base Year, then the Rent due from Tenant hereunder for the next
succeeding year shall be increased by an amount equal to Tenant's
Proportionate Share of the difference between the projected Direct
Costs for the calendar year and the Base Year. If during the course of
the calendar year Landlord determines that actual Direct Costs will
vary from its estimate by more than five percent (5%), Landlord may
deliver to Tenant a written statement showing Landlord's revised
estimate of Direct Costs. On the next payment date for Monthly
Installments of Rent following Tenant's receipt of either such
statement, Tenant shall pay to Landlord an additional amount equal to
such monthly Rent increase adjustment (as set forth on Landlord's
statement). Thereafter, the monthly Rent adjustment payments becoming
due shall be in the amount set forth in such projected Rent adjustment
statement from Landlord. Neither Landlord's failure to deliver nor
late delivery of such statement shall constitute a default by Landlord
or a waiver of Landlord's right to any Rent adjustment provided for
herein.
6.3.2.2. On or before the first day of each April during the
Term of this Lease, Landlord shall furnish to Tenant a written
statement of reconciliation (the Reconciliation) showing in reasonable
detail Landlord's actual Direct Costs for the prior year, together
with a full statement of any adjustments necessary to reconcile any
sums paid as estimated Rent adjustments during the prior year with
those sums actually payable for such prior year. In the event such
Reconciliation shows that additional sums are due from Tenant, Tenant
shall pay such sums to Landlord within ten (10) days of receipt of
such Reconciliation. In the event such Reconciliation shows that a
credit is due Tenant, such credit shall be credited against the sums
next becoming due from Tenant, unless this Lease has expired or been
terminated pursuant to the terms hereof (and all sums due Landlord
have been paid), in which event such sums shall be refunded to Tenant.
Neither Landlord's failure to deliver nor late delivery of such
Reconciliation to Tenant by April first shall constitute a default by
Landlord or operate as a waiver of Landlord's right to collect all
Rent due hereunder.
6.3.2.3. So long as Tenant is not in default after expiration
of applicable grace or cure period, under the terms of the Lease and
provided Notice of Tenant's request is given to Landlord within thirty
(30) days after Tenant's receipt of the Reconciliation, Tenant may
inspect Landlord's Reconciliation accounting records relating to
Direct Costs at Landlord's corporate office, during normal business
hours, for the purpose of verifying the charges contained in such
statement. The audit must be completed within sixty (60) days of
Landlord's receipt of Tenant's Notice, unless such period is extended
by Landlord (in Landlord's reasonable discretion). Before conducting
any audit however, Tenant must pay in full the amount of Direct Costs
(5)
<PAGE>
billed. Tenant may only review those records that specifically relate
to Direct Costs. Tenant may not review any other leases or Landlord's
tax returns or financial statements. In conducting an audit, Tenant
must utilize an independent certified public accountant experienced in
auditing records related to commercial property operations. The
proposed accountant is subject to Landlord's reasonable prior
approval. The audit shall be conducted in accordance with generally
accepted rules of auditing practices. Tenant may not conduct an audit
more often than once each calendar year. Tenant may audit records
relating to a calendar year only one time. No audit shall cover a
period of time other than the calendar year from which Landlord's
Reconciliation was generated. Upon receipt thereof, Tenant shall
deliver to Landlord a copy of the audit report and all accompanying
data. Tenant and Tenant's auditor shall keep confidential any
agreements involving the rights provided in this section and the
results of any audit conducted hereunder. As a condition precedent to
Tenant's right to conduct an audit, Tenant's auditor shall sign a
confidentiality agreement in a form reasonably acceptable to Landlord.
However, Tenant shall be permitted to furnish information to its
attorneys, accountants and auditors to the extent necessary to perform
their respective services for Tenant.
6.4. DEFINITION OF RENT. All costs and expenses which Tenant assumes
or agrees or is obligated to pay to Landlord under this Lease shall be deemed
Additional Rent (which, together with the Base Rent, is sometimes referred to
as Rent).
6.5. TAXES ON TENANT'S USE AND OCCUPANCY. In addition to the Rent and
any other charges to be paid by Tenant hereunder, Tenant shall pay Landlord upon
demand for any and all taxes payable by Landlord (other than net income taxes)
which are not otherwise reimbursable under this Lease, whether or not now
customary or within the contemplation of the parties, where such taxes are upon,
measured by or reasonably attributable to (a) the cost or value of Tenant's
equipment, furniture, fixtures and other personal property located in the
Premises, or the cost or value of any leasehold improvements made in or to the
Premises by or for Tenant, other than Building Standard Tenant Improvements made
by Landlord, regardless of whether title to such improvements is held by Tenant
or Landlord; (b) the gross or net Rent payable under this Lease, including,
without limitation, any rental or gross receipts tax levied by any taxing
authority with respect to the receipt of the Rent hereunder; (c) the possession,
leasing, operation, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion thereof; or (d) this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises. If it becomes unlawful for Tenant to
reimburse Landlord for any costs as required under this Lease, the Base Rent
shall be revised to net Landlord the same net Rent after imposition of any tax
or other charge upon Landlord as would have been payable to Landlord but for the
reimbursement being unlawful.
7. LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, then Tenant shall pay
Landlord a late charge equal to ten percent (10%) of each such installment if
any such installment is not received by Landlord within five (5) business days
from the date it is due. Tenant acknowledges that the late payment of any Rent
will cause Landlord to lose the use of that money and incur costs and expenses
not contemplated under this Lease including, without limitation, administrative
costs and processing and accounting expenses, the exact amount of which is
extremely difficult to ascertain. Landlord and Tenant agree that this late
charge represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss from such nonpayment by Tenant. However,
the late charge is not intended to cover Landlord's attorneys' fees and costs
relating to delinquent Rent. Acceptance of any late charge shall not constitute
a waiver of Tenant's default with respect to such nonpayment by Tenant nor
prevent Landlord from exercising any other rights or remedies available to
Landlord under this Lease. Late charges are deemed Additional Rent.
In no event shall this provision for the imposition of a late charge be deemed
to grant to Tenant a grace period or an extension of time within which to pay
any Rent due hereunder or prevent Landlord from exercising any right or remedy
available to Landlord upon Tenant's failure to pay such Rent when due.
8. SECURITY DEPOSIT.
Upon execution of this Lease, Tenant agrees to deposit with Landlord a Security
Deposit in the amount set forth in Section 2.16. as security for Tenant's
performance of its obligations under this Lease. Landlord and Tenant agree that
the Security Deposit may be commingled with funds of Landlord and Landlord shall
have no obligation or liability for payment of interest on such deposit. Tenant
shall not mortgage, assign, transfer or encumber the Security Deposit without
the prior written consent of Landlord and any attempt by Tenant to do so shall
be void, without force or effect and shall not be binding upon Landlord.
(6)
<PAGE>
If Tenant fails to timely pay any Rent or other amount due under this Lease, or
fails to perform any of the terms hereof, Landlord may, at its option and
without prejudice to any other remedy which Landlord may have, appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any
other amount then due and unpaid, for payment of any amount for which Landlord
has become obligated as a result of Tenant's default or breach, and for any loss
or damage sustained by Landlord as a result of Tenant's default or breach. If
Landlord so uses any of the Security Deposit, Tenant shall, within ten (10) days
after written demand therefor, restore the Security Deposit to the full amount
originally deposited. Tenant's failure to do so shall constitute an act of
default hereunder and Landlord shall have the right to exercise any remedy
provided for in Section 19. hereof.
If Tenant defaults after expiration of applicable grace or cure period under
this Lease more than two (2) times during any calendar year, irrespective of
whether such default is cured, then, without limiting Landlord's other rights
and remedies, Landlord may, in Landlord's sole discretion, modify the amount of
the required Security Deposit. Within ten (10) days after Notice of such
modification, Tenant shall submit to Landlord the required additional sums.
Tenant's failure to do so shall constitute an act of default, and Landlord shall
have the right to exercise any remedy provided for in Section 19. hereof.
If Tenant complies with all of the terms and conditions of this Lease, and
Tenant is not in default on any of its obligations hereunder, then within the
time period statutorily prescribed after Tenant vacates the Premises, Landlord
shall return to Tenant (or, at Landlord's option, to the last subtenant or
assignee of Tenant's interest hereunder) the Security Deposit less any
expenditures made by Landlord to repair damages to the Premises caused by Tenant
and to clean the Premises upon expiration or earlier termination of this Lease.
Landlord shall use reasonable efforts to walk the Premises with the Tenant
within seven (7) days after expiration of the Lease. However, if Landlord does
not walk the Premises with the Tenant within such time, all terms and conditions
of th Lease regarding the return of Tenant's Security Deposity will remain in
effect.
In the event of bankruptcy or other debtor-creditor proceedings against Tenant,
such Security Deposit shall be deemed to be applied first to the payment of Rent
and other sums due Landlord for all periods prior to the filing of such
proceedings.
9. TENANT'S USE OF THE PREMISES.
The provisions of this Section are for the benefit of the Landlord and are
not nor shall they be construed to be for the benefit of any tenant of the
Building or Project.
9.1. USE. Tenant shall use the Premises solely for the purposes set forth
in Section 2.20. No change in the Use of the Premises shall be permitted, except
as provided in this Section 9.
9.1.1. If, at any time during the Term hereof, Tenant desires
to change the Use of the Premises, including any change in Use
associated with a proposed assignment or sublet of the Premises, Tenant
shall provide Notice to Landlord of its request for approval of such
proposed change in Use. Tenant shall promptly supply Landlord with such
information concerning the proposed change in Use as Landlord may
reasonably request. Landlord shall have the right to approve such
proposed change in Use, which approval shall not be unreasonably
withheld. Landlord's consent to any change in Use shall not be
construed as a consent to any subsequent change in Use.
9.2. OBSERVANCE OF LAW. Tenant shall not use or occupy the Premises or
permit anything to be done in or about the Premises in violation of any
declarations, covenant, condition or restriction, or law, statute, ordinance or
governmental rules, regulations or requirements now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense,
upon Notice from Landlord, immediately discontinue any use of the Premises which
is declared by any governmental authority having jurisdiction to be a violation
of law or of the Certificate of Occupancy. Tenant shall promptly comply, at its
sole cost and expense, with all laws, statutes, ordinances and governmental
rules, regulations or requirements now in force or which may hereafter be
imposed which shall by reason of Tenant's Use or occupancy of the Premises,
impose any duty upon Tenant or Landlord with respect to Tenant's Use or
occupation. Further, Tenant shall, at Tenant's sole cost and expense, bring the
Premises into compliance with all such laws, including the Americans With
Disabilities Act of 1990, as amended (ADA), whether or not the necessity for
compliance is triggered by Tenant's Use, and Tenant shall make, at its sole cost
and expense, any changes to the Premises required to accommodate Tenant's
employees with disabilities (any work performed pursuant to this Section shall
be subject to the terms of Section 12. hereof). The judgment of any court of
competent jurisdiction or the admission by Tenant in any action or proceeding
against Tenant, whether Landlord is a party thereto or not, that Tenant has
violated any such law, statute, ordinance, or governmental regulation, rule or
requirement in the use or occupancy of the Premises, Building or Project shall
be conclusive of that fact as between Landlord and Tenant.
9.3. INSURANCE. Tenant shall not do or permit to be done anything which
will contravene, invalidate or increase the cost of any insurance policy
covering the Building or Project and/or property located therein, and shall
comply with all rules, orders, regulations, requirements and recommendations of
Landlord's insurance carrier(s) or any board of fire insurance underwriters or
other similar body now or hereafter constituted, relating to or affecting the
condition, use or occupancy of the Premises, excluding structural changes not
(7)
<PAGE>
related to or affected by Tenant's improvements or acts. Tenant shall promptly
upon demand reimburse Landlord for any additional premium charged for violation
of this Section.
9.4. NUISANCE AND WASTE. Tenant shall not do or permit anything to be done
in or about the Premises which will in any way obstruct or interfere with the
rights of other tenants or occupants of the Building or Project, or injure or
annoy them, or use or allow the Premises to be used for any improper, unlawful
or objectionable purpose. Tenant shall not cause, maintain or permit any
nuisance in, on or about the Premises. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises.
9.5. LOAD AND EQUIPMENT LIMITS. Tenant shall not place a load upon any
floor of the Premises which exceeds the load per square foot which such floor
was designed to carry as determined by Landlord or Landlord's structural
engineer. The cost of any such determination made by Landlord's structural
engineer in connection with Tenant's occupancy shall be paid by Tenant upon
Landlord's demand. Tenant shall not install business machines or mechanical
equipment which will in any manner cause noise objectionable to other tenants
or injure, vibrate or shake the Premises or Building.
9.6. HAZARDOUS MATERIAL. Unless Tenant obtains the prior written consent of
Landlord, Tenant shall not create, generate, use, bring, allow, emit, dispose,
or permit on the Premises, Building or Project any toxic or hazardous gaseous,
liquid, or solid material or waste, or any other hazardous material defined or
listed in any applicable federal, state or local law, rule, regulation or
ordinance. If Landlord grants its consent, Tenant shall comply with all
applicable laws with respect to such hazardous material, including all laws
affecting the use, storage and disposal thereof. If the presence of any
hazardous material brought to the Premises, Building or Project by Tenant or
Tenant's employees, agent or contractors results in contamination, Tenant shall
promptly take all actions necessary, at Tenant's sole cost and expense, to
remediate the contamination and restore the Premises, Building or Project to the
condition that existed before introduction of such hazardous material. Tenant
shall first obtain Landlord's approval of the proposed remedial action and shall
keep Landlord informed during the process of remediation.
Tenant shall indemnify, defend and hold Landlord harmless from any claims,
liabilities, costs or expenses incurred or suffered by Landlord arising from
such bringing, allowing, using, permitting, generating, creating, emitting, or
disposing of toxic or hazardous material whether or not consent to same has been
granted by Landlord. Tenant's duty to defend, hold-harmless and indemnify
Landlord hereunder shall survive the expiration or termination of this Lease.
The consent requirement contained herein shall not apply to ordinary office
products that may contain de minimis quantities of hazardous material; however,
Tenant's indemnification obligations are not diminished with respect to the
presence of such products. Tenant acknowledges that Tenant has an affirmative
duty to immediately notify Landlord of any release or suspected release of
hazardous material in the Premises or on or about the Project.
Medical waste and any other waste, the removal of which is regulated, shall be
contracted for and disposed of by Tenant, at Tenant's expense, in accordance
with all applicable laws and regulations. No material shall be placed in Project
trash boxes, receptacles or Common Areas if the material is of such a nature
that it cannot be disposed of in the ordinary and customary manner of removing
and disposing of trash and garbage in the State without being in violation of
any law or ordinance.
10. SERVICES AND UTILITIES.
Landlord agrees to furnish services and utilities to the Premises during normal
business hours on generally recognized business days subject to the Rules and
Regulations of the Building or Project and provided that Tenant is not in
default hereunder. Normal business hours shall be deemed Monday-Friday 7:00
AM-6:00PM, excluding holidays. The overtime HVAC rate shall be initially $25.00
per hour, subject to the Landlord's cost of providing such utilities. Tenant
shall give Landlord twenty-four (24) hours notice for an Overtime HVAC request.
Services and utilities shall include reasonable quantities of heating,
ventilation and air conditioning (HVAC) as required in Landlord's reasonable
judgment for the comfortable use and occupancy of the Premises; lighting
replacement for building standard lights; window washing and janitor services in
a manner that such services are customarily furnished to comparable office
buildings in the area. Landlord shall supply common area water for drinking,
cleaning and restroom purposes only. Tenant, at Tenant's sole cost and expense,
shall supply all paper and other products used within the Premises. During
normal business hours on generally recognized business days, Landlord shall also
maintain and keep lighted the common stairs, common entries and restrooms in the
Building and shall furnish elevator service and restroom supplies. If Tenant
desires HVAC or other services at any other time, Landlord shall use reasonable
efforts to furnish such service upon reasonable notice from Tenant, and Tenant
shall pay Landlord's charges therefor on demand. Landlord may provide
telecommunications lines and systems as discussed in Section 35. hereof.
Notwithstanding the foregoing, Tenant shall obtain from Landlord at
Tenant's sole cost and expense all electiric utilities used at the Premises.
Tenant's cost for electricity for lights and plugs shall initially be $1.00 per
square foot, subject to change based on increaes in Landlord's cost providing
such electricity.
If permitted by law, Landlord shall have the right, in Landlord's reasonable
discretion, at any time and from time to time during the Term, to contract for
the provision of electricity (or any other utility) with, and to switch from,
any company providing such utility. Tenant shall cooperate with Landlord and any
such utility provider at all times, and, as reasonably necessary, Tenant shall
(8)
<PAGE>
allow such parties access to the electric (or other utility) lines, feeders,
risers, wiring and other machinery located within the Premises.
Landlord shall not be in default hereunder or be liable for any damages directly
or indirectly resulting from, nor shall Rent be abated by reason of (a) the
installation, use or interruption of use of any equipment in connection with the
furnishing of any of the foregoing services, or (b) failure to furnish or delay
in furnishing any such services where such failure or delay is caused by
accident or any condition or event beyond the reasonable control of Landlord, or
by the making of necessary repairs or improvements to the Premises, Building or
Project, or (c) any change, failure, interruption, disruption or defect in the
quantity or character of the electricity (or other utility) supplied to the
Premises or Project, or (d) the limitation, curtailment or rationing of, or
restrictions on, use of water, electricity, gas or any other form of energy
serving the Premises, Building or Project. Landlord shall not be liable under
any circumstances for a loss of or injury to property or business, however
occurring, through, in connection with or incidental to the failure to furnish
any such services.
Tenant shall not, without the prior written consent of Landlord, use any
apparatus or device in the Premises, including, without limitation, electronic
data processing machines, punch card machines, word processing equipment,
personal computers, or machines using in excess of 120 volts, which consumes
more electricity than is usually furnished or supplied for the use of desk top
office equipment and photocopy equipment ordinarily in use in premises
designated as general office space, as determined by Landlord. Tenant shall not
connect any apparatus to electric current except through existing electrical
outlets in the Premises.
Tenant shall not consume electric current in excess of that usually furnished or
supplied for the use of premises as office space (as determined by Landlord),
without first procuring the written consent of Landlord, which Landlord may
refuse. In the event of consent, electrical current shall be separately metered
in Tenant's name and paid for by Tenant. The cost of any such meter and its
installation, maintenance and repair shall be paid by Tenant.
Notwithstanding anything contained herein to the contrary, if Tenant is granted
the right to purchase electricity from a provider other than the company or
companies used by Landlord, Tenant shall indemnify, defend, and hold harmless
Landlord from and against all losses, claims, demands, expenses and judgments
caused by, or directly or indirectly arising from, the acts or omissions of
Tenant's electricity provider (including, but not limited to, expenses and/or
fines incurred by Landlord in the event Tenant's electricity provider fails to
provide sufficient power to the Premises, as well as damages resulting from the
improper or faulty installation or construction of facilities or equipment in or
on the Premises by Tenant or Tenant's electricity provider.
Nothing contained in this Section shall restrict Landlord's right to require at
any time separate metering of utilities furnished to the Premises. If the
separate metering of utilities furnished to the Premises is due to Tenant's
excessive use of electric current, then the cost of any such meter and its
installation, maintenance and repair shall be paid by Tenant. If Landlord
requires separate metering for reasons other than Tenant's excessive consumption
of electric current, then the cost of any such meter and its installation,
maintenance and repair shall be paid by Landlord. In either event, accounts for
all such separately metered utilities shall be in Tenant's name and paid for by
Tenant.
If Tenant uses heat generating machines or equipment in the Premises which
effect the temperature otherwise maintained by the HVAC system, Landlord
reserves the right to install supplementary air conditioning units in the
Premises and the cost thereof, including the cost of installation, operation and
maintenance thereof, shall be paid by Tenant to Landlord upon demand therefor.
11. REPAIRS AND MAINTENANCE.
11.1. LANDLORD'S OBLIGATIONS. Landlord shall make at Landlord's sole
expense, all structural repairs except as specified herein and shall maintain in
good order, condition and repair the Building and all other portions of the
Project not the obligation of Tenant or of any other tenant in the Building or
any other third party. If applicable, Landlord shall also maintain in good
order, condition and repair the ICN, the cost of which is reimbursable pursuant
to Section 6.3.1.2.unless responsibility therefor is assigned to a particular
tenant.
11.2. TENANT'S OBLIGATIONS.
11.2.1. Tenant shall, at Tenant's sole expense and except for
services furnished by Landlord pursuant to Section 10. hereof, maintain the
Premises in good order, condition and repair. For the purposes of this
Section 11.2.1., the term Premises shall be deemed to include all items and
equipment installed by or for the benefit of or at the expense of Tenant,
including without limitation the interior surfaces of the ceilings, walls
and floors; all doors; all interior and exterior windows; dedicated
heating, ventilating and air conditioning equipment; all plumbing, pipes
and fixtures; electrical switches and fixtures; internal wiring as it
connects to the ICN (if applicable); and Building Standard Tenant
Improvements.
(9)
<PAGE>
11.2.2. Tenant shall be responsible for all repairs and alterations
in and to the Premises, Building and Project and the facilities and systems
thereof to the satisfaction of Landlord, the need for which arises out of
(a) Tenant's use or occupancy of the Premises, (b) the installation,
removal, use or operation of Tenant's Property (as defined in Section 13.)
in the Premises, (c) the moving of Tenant's Property into or out of the
Building, or (d) the act, omission, misuse or negligence of Tenant, its
agents, contractors, employees or invitees.
11.2.3. If Tenant fails to maintain the Premises in good order,
condition and repair, Landlord shall give Notice to Tenant to do such acts
as are reasonably required to so maintain the Premises. If Tenant fails to
promptly commence such work and diligently prosecute it to completion, then
Landlord shall have the right to do such acts and expend such funds at the
expense of Tenant as are reasonably required to perform such work.
11.3. COMPLIANCE WITH LAW. Landlord and Tenant shall each do all acts
necessary to comply with all applicable laws, statutes, ordinances, and rules of
any public authority relating to their respective maintenance obligations as set
forth herein. The provisions of Section 9.2. are deemed restated here.
11.4. NOTICE OF DEFECT. If it is Landlord's obligation to repair, Tenant
shall give Landlord prompt Notice, regardless of the nature or cause, of any
damage to or defective condition in any part or appurtenance of the Building's
mechanical, electrical, plumbing, HVAC or other systems serving, located in, or
passing through the Premises.
11.5. LANDLORD'S LIABILITY. Except as otherwise expressly provided in this
Lease, Landlord shall have no liability to Tenant nor shall Tenant's obligations
under this Lease be reduced or abated in any manner by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or permitted
by this Lease or by any other tenant's lease or required by law to make in or to
any portion of the Project, Building or Premises. Landlord shall nevertheless
use reasonable efforts to minimize any interference with Tenant's conduct of its
business in the Premises.
12. CONSTRUCTION, ALTERATIONS AND ADDITIONS.
12.1. LANDLORD'S CONSTRUCTION OBLIGATIONS. Landlord shall perform
Landlord's Work to the Premises as described in Exhibit "D".
12.2. TENANT'S CONSTRUCTION OBLIGATIONS. Tenant shall perform Tenant's Work
to the Premises as described in Exhibit "D" and shall comply with all of the
provisions of this Section 12.
12.3. TENANT'S ALTERATIONS AND ADDITIONS. Except as provided in Section
12.2. above, Tenant shall not make any other additions, alterations or
improvements to the Premises without obtaining the prior written consent of
Landlord. Landlord's consent may be conditioned, without limitation, on Tenant
removing any such additions, alterations or improvements upon the expiration of
the Term and restoring the Premises to the same condition as on the date Tenant
took possession. All work with respect to Tenant's Work described in Exhibit
"D", as well as any addition, alteration or improvement, shall comply with all
applicable laws, ordinances, codes and rules of any public authority (including,
but not limited to the ADA) and shall be done in a good and professional manner
by properly qualified and licensed personnel approved by Landlord. All work
shall be diligently prosecuted to completion. Upon completion, Tenant shall
furnish Landlord "as-built" plans. Prior to commencing any such work, Tenant
shall furnish Landlord with plans and specifications; names and addresses of
contractors; copies of all contracts; copies of all necessary permits; evidence
of contractor's and subcontractor's insurance coverage for Builder's Risk at
least as broad as Insurance Services Office (ISO) special causes of loss form CP
10 30, Commercial General Liability at least as broad as ISO CG 00 01, workers'
compensation, employer's liability and auto liability, all in amounts reasonably
satisfactory to Landlord; and indemnification in a form reasonably satisfactory
to Landlord. The work shall be performed in a manner that will not interfere
with the quiet enjoyment of the other tenants in the Building in which the
Premises is located.
Landlord may require, in Landlord's sole discretion and at Tenant's sole cost
and expense, that Tenant provide Landlord with a lien and completion bond in an
amount equal to at least one and one-half (1-1/2) times the total estimated cost
of any additions, alterations or improvements to be made in or to the Premises
for any alteration or addition costing greater than $50,000.00. Nothing
contained in this Section 12.3. shall relieve Tenant of its obligation under
Section 12.4. to keep the Premises, Building and Project free of all liens.
(10)
<PAGE>
12.4. PAYMENT. Tenant shall pay the costs of any work done on the Premises
pursuant to Sections 12.2. and 12.3., and shall keep the Premises, Building and
Project free and clear of liens of any kind. Tenant hereby indemnifies, and
agrees to defend against and keep Landlord free and harmless from all liability,
loss, damage, costs, attorneys' fees and any other expense incurred on account
of claims by any person performing work or furnishing materials or supplies for
Tenant or any person claiming under Tenant.
Tenant shall give Notice to Landlord at least ten (10) business days prior to
the expected date of commencement of any work relating to alterations, additions
or improvements to the Premises. Landlord retains the right to enter the
Premises and post such notices as Landlord deems proper at any reasonable time.
12.5. PROPERTY OF LANDLORD. Except as otherwise set forth herein, all
additions, alterations and improvements made to the Premises shall become the
property of Landlord and shall be surrendered with the Premises upon the
expiration of the Term unless their removal is required by Landlord as provided
in Section 12.3., provided, however, Tenant's equipment, machinery and trade
fixtures shall remain the Property of Tenant and shall be removed, subject to
the provisions of Section 12.2.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
13.1. LEASEHOLD IMPROVEMENTS. All fixtures, equipment (including
air-conditioning or heating systems), improvements and appurtenances attached to
or built into the Premises and/or Building at the commencement or during the
Term of the Lease (Leasehold Improvements), whether or not by or at the expense
of Tenant, shall be and remain a part of the Premises, shall be the property of
Landlord and shall not be removed by Tenant, except as expressly provided in
Section 13.2., unless Landlord, by Notice to Tenant not later than thirty (30)
days prior to the expiration of the Term, elects to have Tenant remove any
Leasehold Improvements installed by Tenant. In such case, Tenant, at Tenant's
sole cost and expense and prior to the expiration of the Term, shall remove the
Leasehold Improvements and repair any damage caused by such removal.
13.2. TENANT'S PROPERTY. All signs, notices, displays, movable partitions,
business and trade fixtures, machinery and equipment (excluding air-conditioning
or heating systems, whether installed by Tenant or not), Tenant's personal
telecommunications equipment and office equipment located in the Premises and
acquired by or for the account of Tenant, without expense to Landlord, which can
be removed without structural damage to the Building, and all furniture,
furnishings and other articles of movable personal property owned by Tenant and
located in the Premises (collectively, Tenant's Property) shall be and shall
remain the property of Tenant and may be removed by Tenant at any time during
the Term; provided that if any of Tenant's Property is removed, Tenant shall
promptly repair any damage to the Premises or to the Building resulting from
such removal, including without limitation repairing the flooring and patching
and painting the walls where required by Landlord to Landlord's reasonable
satisfaction, all at Tenant's sole cost and expense.
14. INDEMNIFICATION.
14.1. TENANT INDEMNIFICATION. Tenant shall indemnify and hold Landlord
harmless from and against any and all liability and claims of any kind for loss
or damage to any person or property arising out of: (a) Tenant's use and
occupancy of the Premises, or the Building or Project, or any work, activity or
thing done, allowed or suffered by Tenant in, on or about the Premises, the
Building or the Project; (b) any breach or default by Tenant of any of Tenant's
obligations under this Lease; or (c) any negligent or otherwise tortious act or
omission of Tenant, its agents, employees, subtenants, licensees, customers,
guests, invitees or contractors (including agents or contractors who perform
work outside of the Premises for Tenant). At Landlord's request, Tenant shall,
at Tenant's expense, and by counsel reasonably satisfactory to Landlord, defend
Landlord in any action or proceeding arising from any such claim. Tenant shall
indemnify Landlord against all costs, attorneys' fees, expert witness fees and
any other expenses or liabilities incurred in such action or proceeding. As a
material part of the consideration for Landlord's execution of this Lease,
Tenant hereby assumes all risk of damage or injury to any person or property in,
on or about the Premises from any cause and Tenant hereby waives all claims in
respect thereof against Landlord, except in connection with damage or injury
resulting solely from the negligence or willful misconduct of Landlord or
its authorized agents.
14.2. LANDLORD NOT LIABLE. Landlord shall not be liable for injury or
damage which may be sustained by the person or property of Tenant, its
employees, invitees or customers, or any other person in or about the Premises,
caused by or resulting from fire, steam, electricity, gas, water or rain which
may leak or flow from or into any part of the Premises, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air conditioning, lighting fixtures or mechanical or electrical
systems, whether such damage or injury results from conditions arising upon the
Premises or upon other portions of the Building or Project or from other
sources, unless the condition was the sole result of Landlord's gross negligence
or willful misconduct. Landlord shall not be liable for any damages arising from
any act or omission of any other tenant of the Building or Project or for the
(11)
<PAGE>
acts of persons in, on or about the Premises, Building or the Project who are
not the authorized agents of Landlord or for losses due to theft, vandalism or
like causes.
Tenant acknowledges that Landlord's election to provide mechanical surveillance
or to post security personnel in the Building or on the Project is solely within
Landlord's discretion. Landlord shall have no liability in connection with the
decision whether or not to provide such services, and, to the extent permitted
by law, Tenant hereby waives all claims based thereon.
15. TENANT'S INSURANCE.
15.1. INSURANCE REQUIREMENT. Tenant shall procure and maintain insurance
coverage in accordance with the terms hereof, either as specific policies or
within blanket policies. Coverage shall begin on the date Tenant is given access
to the Premises for any purpose and shall continue until expiration of the Term,
except as otherwise set forth in the Lease. The cost of such insurance shall be
borne by Tenant.
Insurance shall be with insurers licensed to do business in the State, and
acceptable to Landlord. The insurers must have a current A.M. Best's rating of
not less than A:VII, or equivalent (as reasonably determined by Landlord) if the
Best's rating system is discontinued.
Tenant shall furnish Landlord with original certificates and amendatory
endorsements extending coverage to the Expansion Premises effecting coverage
required by this Section 15. before the date Tenant is first given access to the
Premises. All certificates and endorsements are to be received and approved by
Landlord before any work commences. Landlord reserves the right to inspect
and/or copy any insurance policy required to be maintained by Tenant hereunder,
or to require complete, certified copies of all required insurance policies,
including endorsements effecting the coverage required herein at any time.
Tenant shall comply with such requirement within thirty (30) days of demand
therefor by Landlord. Tenant shall furnish Landlord with renewal certificates
and amendments or a "binder" of any such policy prior to the expiration thereof.
Each insurance policy required herein shall be endorsed to state that coverage
shall not be canceled, except after thirty (30) days prior written notice to
Landlord and Landlord's lender (if such lender's address is provided).
The Commercial General Liability policy, as hereinafter required, shall contain,
or be endorsed to contain, the following provisions: (a) Landlord and any
parties reasonably designated by Landlord shall be covered as additional
insureds as their respective interests may appear; and (b) Tenant's insurance
coverage shall be primary insurance as to any insurance carried by the parties
designated as additional insureds. Any insurance or self-insurance maintained by
Landlord shall be excess of Tenant's insurance and shall not contribute with it.
15.2. MINIMUM SCOPE OF COVERAGE. Coverage shall be at least as broad as set
forth herein. However, if, because of Tenant's Use or occupancy of the Premises,
Landlord determines, in Landlord's reasonable judgment, that additional
insurance coverage or different types of insurance are necessary, then Tenant
shall obtain such insurance at Tenant's expense in accordance with the terms of
this Section 15.
15.2.1. Commercial General Liability (ISO occurrence form CG 00 01)
which shall cover liability arising from Tenant's Use and occupancy of the
Premises, its operations therefrom, Tenant's independent contractors,
products-completed operations, personal injury and advertising injury, and
liability assumed under an insured contract.
15.2.2. Workers' Compensation insurance as required by law, and
Employers Liability insurance.
15.2.3. Commercial Property Insurance (ISO special causes of loss
form CP 10 30) against all risk of direct physical loss or damage
(including flood, if applicable), earthquake excepted, for: (a) all
leasehold improvements (including any alterations, additions or
improvements made by Tenant pursuant to the provisions of Section 12.
hereof) in, on or about the Premises; and (b) trade fixtures, merchandise
and Tenant's Property from time to time in, on or about the Premises. The
proceeds of such property insurance shall be used for the repair or
replacement of the property so insured. Upon termination of this Lease
following a casualty as set forth herein, the proceeds under (a) shall be
paid to Landlord, and the proceeds under (b) above shall be paid to Tenant.
15.2.4. Business Auto Liability.
Landlord shall, during the Term hereof, maintain in effect insurance on the
Building and Common Area comparable to coverage described in Sections 15.2
through 15.4.
15.2.5. Business Interruption and Extra Expense Insurance.
(12)
<PAGE>
15.3. MINIMUM LIMITS OF INSURANCE. Tenant shall maintain limits not less
than:
15.3.1. Commercial General Liability: $1,000,000 per occurrence. If
the insurance contains a general aggregate limit, either the general
aggregate limit shall apply separately to this location or the general
aggregate limit shall be at least twice the required occurrence limit.
15.3.2. Employer's Liability: $1,000,000 per accident for bodily
injury or disease.
15.3.3. Commercial Property Insurance: 100% replacement cost with no
coinsurance penalty provision.
15.3.4. Business Auto Liability: $1,000,000 per accident.
15.3.5. Business Interruption and Extra Expense Insurance: In a
reasonable amount and comparable to amounts carried by comparable tenants
in comparable projects.
15.4. DEDUCTIBLE AND SELF-INSURED RETENTION. Any deductible or self-insured
retention in excess of $5,000 per occurrence must be declared to and approved by
Landlord. At the option of Landlord, either the insurer shall reduce or
eliminate such deductible or self-insured retention or Tenant shall provide
separate insurance conforming to this requirement.
15.5. INCREASES IN INSURANCE POLICY LIMITS. If the coverage limits set
forth in this Section 15. are deemed inadequate by Landlord or Landlord's
lender, then Tenant shall increase the coverage limits to the amounts reasonably
recommended by either Landlord or Landlord's lender. Landlord agrees that any
such required increases in coverage limits shall not occur more frequently than
once every three (3) years.
15.6. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive all
rights of recovery against the other and against the officers, employees, agents
and representatives, contractors and invitees of the other, on account of loss
by or damage to the waiving party or its property or the property of others
under its control, to the extent that such loss or damage is insured against
under any insurance policy which may have been in force at the time of such loss
or damage.
15.7. LANDLORD'S RIGHT TO OBTAIN INSURANCE FOR TENANT. If Tenant fails to
obtain the insurance coverage or fails to provide certificates and endorsements
as required by this Lease, Landlord may, at its option, obtain such insurance
for Tenant. Tenant shall pay, as Additional Rent, the reasonable cost thereof
together with a twenty-five percent (25%) service charge.
16. DAMAGE OR DESTRUCTION.
16.1. DAMAGE. If, during the Term of this Lease, the Premises or the
portion of the Building necessary for Tenant's occupancy is damaged by fire or
other casualty covered by fire and extended coverage insurance carried by
Landlord, Landlord shall promptly repair the damage provided (a) such repairs
can, in Landlord's opinion, be completed, under applicable laws and regulations,
within one hundred eighty (180) days of the date a permit for such construction
is issued by the governing authority, (b) insurance proceeds are available to
pay eighty percent (80%) or more of the cost of restoration, and (c) Tenant
performs its obligations pursuant to Section 16.4. hereof. In such event, this
Lease shall continue in full force and effect, except that if such damage is not
the result of the negligence or willful misconduct of Tenant, its agents or
employees, Tenant shall be entitled to a proportionate reduction of Rent to the
extent Tenant's use of the Premises is impaired, commencing with the date of
damage and continuing until completion of the repairs required of Landlord under
Section 16.4. If the damage is due to the fault or neglect of Tenant, its agents
or employees and loss of rental income insurance is denied as a result, there
shall be no abatement of Rent.
Notwithstanding anything contained in the Lease to the contrary, in the event of
partial or total damage or destruction of the Premises during the last twelve
(12) months of the Term, either party shall have the option to terminate this
Lease upon thirty (30) days prior Notice to the other party provided such Notice
is served within thirty (30) days after the damage or destruction. For purposes
of this Section 16.1., "partial damage or destruction" shall mean the damage or
destruction of at least thirty-three and one-third percent (33 and 1/3%) of the
Premises, as determined by Landlord in Landlord's reasonable discretion.
16.2. REPAIR OF PREMISES IN EXCESS OF ONE HUNDRED EIGHTY DAYS. If in
Landlord's opinion, such repairs to the Premises or portion of the Building
necessary for Tenant's occupancy cannot be completed under applicable laws and
regulations within one hundred eighty (180) days of the date a permit for such
construction is issued by the governing authority, Landlord may elect, upon
Notice to Tenant given within thirty (30) days after the date of such fire or
other casualty, to repair such damageand to diligently prosecute repair to
completion, in which event this Lease shall continue in full force and effect,
but Rent shall be partially abated as provided in this Section 16. If Landlord
does not so elect to make such repairs, this Lease shall terminate as of the
date of such fire or other casualty.
(13)
<PAGE>
16.3. REPAIR OUTSIDE PREMISES. If any other portion of the Building or
Project is totally destroyed or damaged to the extent that in Landlord's opinion
repair thereof cannot be completed under applicable laws and regulations within
one hundred eighty (180) days of the date a permit for such construction is
issued by the governing authority, Landlord may elect upon Notice to Tenant
given within thirty (30) days after the date of such fire or other casualty, to
repair such damage, in which event this Lease shall continue in full force and
effect, but The Base Rent shall be partially abated as provided in this Section
16.1. If Landlord does not elect to make such repairs, this Lease shall
terminate as of the date of such fire or other casualty.
16.4. TENANT REPAIR. If the Premises are to be repaired under this Section
16., Landlord shall repair at its cost any injury or damage to the Building and
Building Standard Tenant Improvements, if any. Notwithstanding anything
contained herein to the contrary, Landlord shall not be obligated to perform
work other than Landlord's Work performed previously pursuant to Section 12.1.
hereof. Tenant shall be responsible at its sole cost and expense for the repair,
restoration and replacement of any other Leasehold Improvements and Tenant's
Property (as well as reconstructing and reconnecting Tenant's internal
telecommunications wiring and related equipment). Landlord shall not be liable
for any loss of business, inconvenience or annoyance arising from any repair or
restoration of any portion of the Premises, Building or Project as a result of
any damage from fire or other casualty.
16.5. ELECTION NOT TO PERFORM LANDLORD'S WORK. Notwithstanding anything to
the contrary contained herein, Landlord shall provide Notice to Tenant of its
intent to repair or replace the Premises (if Landlord elects to perform such
work), and, within ten (10) days of its receipt of such Notice, Tenant shall
provide Notice to Landlord of its intent to reoccupy the Premises. Should Tenant
fail to provide such Notice to Landlord, then such failure shall be deemed an
election by Tenant not to re-occupy the Premises and Landlord may elect not to
perform the repair or replacement of the Premises. Such election shall not
result in a termination of this Lease and all obligations of Tenant hereunder
shall remain in full force and effect, including the obligation to pay Rent.
16.6. EXPRESS AGREEMENT. This Lease shall be considered an express
agreement governing any case of damage to or destruction of the Premises,
Building or Project by fire or other casualty, and any present or future law
which purports to govern the rights of Landlord and Tenant in such circumstances
in the absence of an express agreement shall have no application.
17. EMINENT DOMAIN.
17.1. WHOLE TAKING. If the whole of the Building or Premises is lawfully
taken by condemnation or in any other manner for any public or quasi-public
purpose, this Lease shall terminate as of the date of such taking, and Rent
shall be prorated to such date.
17.2. PARTIAL TAKING. If less than the whole of the Building or Premises is
so taken, this Lease shall be unaffected by such taking, provided that (a)
Tenant shall have the right to terminate this Lease by Notice to Landlord given
within ninety (90) days after the date of such taking if twenty percent (20%) or
more of the Premises is taken and the remaining area of the Premises is not
reasonably sufficient for Tenant to continue operation of its business, and (b)
Landlord shall have the right to terminate this Lease by Notice to Tenant given
within ninety (90) days after the date of such taking. If either Landlord or
Tenant so elects to terminate this Lease, the Lease shall terminate on the later
of (i) the thirtieth (30th) calendar day after either such Notice, or (ii) the
date Tenant loses possession. Rent shall be prorated to the date of termination.
If this Lease continues in force upon such partial taking, Base Rent and
Tenant's Proportionate Share shall be equitably adjusted according to the
remaining Rentable Area of the Premises and Project.
17.3. PROCEEDS. In the event of any taking, partial or whole, all of the
proceeds of any award, judgment or settlement payable by the condemning
authority shall be the exclusive property of Landlord, and Tenant hereby assigns
to Landlord all of its right, title and interest in any award, judgment or
settlement from the condemning authority; however, Tenant shall have the right,
to the extent that Landlord's award is not reduced or prejudiced, to claim from
the condemning authority (but not from Landlord) such compensation as may be
recoverable by Tenant in its own right for relocation expenses and damage to
Tenant's Property and damage to Leasehold Improvements installed at the sole
expense of Tenant.
17.4. LANDLORD'S RESTORATION. In the event of a partial taking of the
Premises which does not result in a termination of this Lease, Landlord shall
restore the remaining portion of the Premises as nearly as practicable to its
condition prior to the condemnation or taking; provided however, Landlord shall
not be obligated to perform work other than Landlord's Work performed previously
pursuant to Section 12.1. hereof. Tenant shall be responsible at its sole cost
and expense for the repair, restoration and replacement of Tenant's Property and
any other Leasehold Improvements.
(14)
<PAGE>
18. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Section 18.
Not withstanding anything in this Section 18 to the contrary, Tenant may
sublease all or part of the Premises to an existing Tenant or Tenants at the
Project in the event that the Landlord cannot accomodate the space needs of
such other Tenant or Tenants.
18.1. NO ASSIGNMENT OR SUBLETTING. Tenant shall not, without the prior
written consent of Landlord, in accordance with Section 18.2, assign or
hypothecate this Lease or any interest herein or sublet the Premises or any part
thereof, or permit the use of the Premises or any part thereof by any party
other than Tenant. Any of the foregoing acts without such consent shall be
voidable and shall, at the option of Landlord, constitute a default hereunder.
This Lease shall not, nor shall any interest of Tenant herein, be assignable by
operation of law without the prior written consent of Landlord, in accordance
with Section 18.2.
18.1.1. For purposes of this Section 18., the following shall be
deemed an assignment:
18.1.1.1. If Tenant is a partnership, any withdrawal or
substitution (whether voluntary, involuntary, or by operation of law,
and whether occurring at one time or over a period of time) of any
partner(s) owning forty-nine percent (49%) or more (cumulatively) of
any interest in the capital or profits of the partnership, or the
dissolution of the partnership;
18.1.1.2. If Tenant is a corporation, any dissolution,
merger, consolidation, or other reorganization of Tenant, any sale or
transfer (or cumulative sales or transfers) of the capital stock of
Tenant in excess of forty-nine percent (49%), or any sale (or
cumulative sales) or transfer of fifty-one (51%) or more of the value
of the assets of Tenant provided, however, the foregoing shall not
apply to corporations the capital stock of which is publicly traded.
18.2. LANDLORD'S CONSENT. If, at any time or from time to time during the
Term hereof, Tenant desires to assign this Lease or sublet all or any part of
the Premises, and if Tenant is not then in default under the terms of the Lease,
Tenant shall submit to Landlord a written request for approval setting forth the
terms and provisions of the proposed assignment or sublease, the identity of the
proposed assignee or subtenant, and a copy of the proposed form of assignment or
sublease. Tenant's request for consent shall be submitted to Landlord at least
thirty (30) days prior to the intended date of such transfer. Tenant shall
promptly supply Landlord with such information concerning the business
background and financial condition of such proposed assignee or subtenant as
Landlord may reasonably request. Landlord shall have the right to approve such
proposed assignee or subtenant, which approval shall not be unreasonably
withheld or delayed. Landlord's consent to any assignment shall not be construed
as a consent to any subsequent assignment, subletting, transfer of partnership
interest or stock, occupancy or use.
18.2.1. Landlord's approval shall be conditioned, among other things,
on Landlord's receiving adequate assurances of future performance under
this Lease and any sublease or assignment. In determining the adequacy of
such assurances, Landlord may base its decision on such factors as it deems
appropriate, including but not limited to:
18.2.1.1. that the source of rent and other consideration due
under this Lease, and, in the case of assignment, that the financial
condition and operating performance and business experience of the
proposed assignee and its guarantors, if any, shall be equal to or
greater than the financial condition and operating performance and
experience of Tenant and its guarantors, if any, as of the time
Tenant became the lessee under this Lease.
Notwithstanding the foregoing, in the event of a (i) sublease
immediately following Tenant's decision not to re-occupy the Premises
after damage and destruction thereof, or (ii) if such sublessee is to
occupy less than 15% of the total Premises, such sublessee shall not
be subject to the financial requirements for sublessee approval set
forth in Section 18.2.1.1.;
18.2.1.2. that any assumption or assignment of this Lease
will not result in increased cost or expense, wear and tear, greater
traffic or demand for services and utilities provided by Landlord
pursuant to Section 10. hereof and will not disturb or be detrimental
to other tenants of Landlord;
18.2.1.3. whether the proposed assignee's use of the Premises
will include the use of Hazardous Material, or will in any way
increase any risk to Landlord relating to Hazardous Material; and
18.2.1.4. that the proposed assignee or subtenant shall use
the Premises for office, lab or research/development use compatible
with the Project of similar Buildings in the Lexington area.
18.2.2. The assignment or sublease shall be on the same terms and
conditions set forth in the written request for approval given to Landlord,
or, if different, upon terms and conditions consented to by Landlord;
18.2.3. No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises or any part thereof until
an executed counterpart of such assignment or sublease has been delivered
to Landlord;
(15)
<PAGE>
18.2.4. No assignee or sublessee shall have a further right to assign
or sublet except on the terms herein contained;
18.2.5. Any sums or other economic considerations received by Tenant
as a result of such assignment or subletting, however denominated under the
assignment or sublease, which exceed, in the aggregate (a) the total sums
which Tenant is obligated to pay Landlord under this Lease (prorated to
reflect obligations allocable to any portion of the Premises subleased),
plus (b) any real estate brokerage commissions or fees payable to third
parties in connection with such assignment or subletting, shall be shared
equally by Tenant and Landlord as Additional Rent under this Lease without
effecting or reducing any other obligations of Tenant hereunder.
If Landlord consents to the proposed transfer, Tenant shall deliver to Landlord
three (3) fully executed original documents (in the form previously approved by
Landlord) and Landlord shall attach its consent thereto. Landlord shall retain
one (1) fully executed original document. No transfer of Tenant's interest in
this Lease shall be deemed effective until the terms and conditions of this
Section 18. have been fulfilled.
18.3. TENANT REMAINS RESPONSIBLE. No subletting or assignment shall release
Tenant of Tenant's obligations under this Lease or alter the primary liability
of Tenant to pay the Rent and to perform all other obligations to be performed
by Tenant hereunder. The acceptance of Rent by Landlord from any other person
shall not be deemed to be a waiver by Landlord of any provision hereof. Consent
to one assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by an assignee or subtenant of
Tenant or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against such assignee, subtenant or successor. Landlord may consent to
subsequent assignments or sublets of the Lease or amendments or modifications to
the Lease with assignees of Tenant, without notifying Tenant, or any successor
of Tenant, and without obtaining its or their consent thereto and any such
actions shall not relieve Tenant of liability under this Lease.
18.4. CONVERSION TO A LIMITED LIABILITY ENTITY. Notwithstanding anything
contained herein to the contrary, if Tenant is a limited or general partnership
(or is comprised of two (2) or more persons, individually or as co-partners, or
entities), the change or conversion of Tenant to (a) a limited liability
company, (b) a limited liability partnership, or (c) any other entity which
possesses the characteristics of limited liability (any such limited liability
entity is collectively referred to herein as a "Successor Entity") shall be
prohibited unless the prior written consent of Landlord is obtained, which
consent may be withheld in Landlord's sole discretion.
18.4.1. Notwithstanding Section 18.4., Landlord agrees not
to unreasonably withhold or delay such consent provided that:
18.4.1.1. The Successor Entity succeeds to all or
substantially all of Tenant's business and assets;
18.4.1.2. The Successor Entity shall have a tangible net
worth (Tangible Net Worth), determined in accordance with generally
accepted accounting principles, consistently applied, of not less
than the greater of the Tangible Net Worth of Tenant on (a) the date
of execution of the Lease, or (b) the day immediately preceding the
proposed effective date of such conversion; and
18.4.1.3. Tenant is not in default beyond any applicable
grace or cure period of any of the terms, covenants, or conditions
of this Lease on the propose effective date of such conversion.
18.5. PAYMENT OF FEES. If Tenant assigns the Lease or sublets the Premises
or requests the consent of Landlord to any assignment, subletting or conversion
to a limited liability entity, then Tenant shall, upon demand, pay Landlord,
whether or not consent is ultimately given, an administrative fee of Three
Hundred and 00/100 Dollars ($300.00) plus costs and other reasonable expenses
incurred by Landlord in connection with each such act or request.
19. DEFAULT.
19.1. TENANT'S DEFAULT. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant.
19.1.1. If Tenant abandons or vacates the Premises.
Notwithstanding the foregoing, Tenant may temporarily vacate
the Premises for a period not to exceed thirty (30) days for
renovations with intent to reoccupy.
19.1.2. If Tenant fails to pay any Rent or Additional Rent or any
other charges required to be paid by Tenant under this Lease and such
failure continues for three (3) days after receipt of Notice thereof from
Landlord to Tenant.
(16)
<PAGE>
19.1.3. If Tenant fails to promptly and fully perform any other
covenant, condition or agreement contained in this Lease and such failure
continues for thirty (30) days after Notice thereof from Landlord to
Tenant, or, if such default cannot reasonably be cured within thirty (30)
days, if Tenant fails to commence to cure within that thirty (30) day
period and diligently prosecute to completion.
19.1.4. Tenant's failure to occupy the Premises within thirty (30)
days after delivery of possession (as defined in Section 4. hereof).
19.1.5. Tenant's failure to provide any document, instrument or
assurance as required by Sections 12., 15., 18. and/or 35. if the failure
continues for five (5) days after receipt of Notice from Landlord to
Tenant.
19.1.6. To the extent provided by law:
19.1.6.1. If a writ of attachment or execution is levied on
this Lease or on substantially all of Tenant's Property; or
19.1.6.2. If Tenant or Tenant's Guarantor makes a general
assignment for the benefit of creditors; or
19.1.6.3. If Tenant files a voluntary petition for relief or
if a petition against Tenant in a proceeding under the federal
bankruptcy laws or other insolvency laws is filed and not withdrawn
or dismissed within sixty (60) days thereafter, or if under the
provisions of any law providing for reorganization or winding up of
corporations, any court of competent jurisdiction assumes
jurisdiction, custody or control of Tenant or any substantial part of
its property and such jurisdiction, custody or control remains in
force unrelinquished, unstayed or unterminated for a period of sixty
(60) days; or
19.1.6.4. If in any proceeding or action in which Tenant is a
party, a trustee, receiver, agent or custodian is appointed to take
charge of the Premises or Tenant's Property (or has the authority to
do so); or
19.1.6.5. If Tenant is a partnership or consists of more than
one (1) person or entity, if any partner of the partnership or other
person or entity is involved in any of the acts or events described
in Sections 19.1.6.1. through 19.1.6.4. above.
19.2. LANDLORD REMEDIES. In the event of Tenant's default hereunder, then,
in addition to any other rights or remedies Landlord may have under any law or
at equity, Landlord shall have the right to collect interest on all past due
sums (14% per annum), and, at Landlord's option and without further notice or
demand of any kind, to do the following:
19.2.1. Terminate this Lease and Tenant's right to possession of the
Premises and reenter the Premises and take possession thereof, and Tenant
shall have no further claim to the Premises or under this Lease; or
19.2.2. Continue this Lease in effect, reenter and occupy the
Premises for the account of Tenant, and collect any unpaid Rent or other
charges which have or thereafter become due and payable; or
19.2.3. Reenter the Premises under the provisions of Section 19.2.2.,
and thereafter elect to terminate this Lease and Tenant's right to
possession of the Premises.
If Landlord reenters the Premises under the provisions of Sections 19.2.2. or
19.2.3. above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing unless
Landlord notifies Tenant in writing of Landlord's election to terminate this
Lease. Acts of maintenance, efforts to relet the Premises or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's obligations under the
Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any part
of Tenant's Property in the Premises and to place such property in storage at a
public warehouse at the expense and risk of Tenant. If Landlord elects to relet
the Premises for the account of Tenant, the rent received by Landlord from such
reletting shall be applied as follows: first, to the payment of any indebtedness
other than Rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such reletting; third, to the payment of the cost of any
alterations or repairs to the Premises; fourth to the payment of Rent due and
unpaid hereunder; and the balance, if any, shall be held by Landlord and applied
in payment of future Rent as it becomes due. If that portion of Rent received
from the reletting which is applied against the Rent due hereunder is less than
the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly
upon demand by Landlord. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as determined, any costs and expenses
incurred by Landlord in connection with such reletting or in making alterations
and repairs to the Premises which are not covered by the rent received from the
reletting.
Notwithstanding anything herein to the contrary, Landlord shall utilize
reasonable efforts to mitigate its damages in the event of a default by Tenant.
(17)
<PAGE>
19.3. DAMAGES RECOVERABLE. Should Landlord elect to terminate this Lease
under the provisions of Section 19.2., Landlord may recover as damages from
Tenant the following:
19.3.1. PAST RENT. The worth at the time of the award of any unpaid
Rent that had been earned at the time of termination including the value of
any Rent that was abated during the Term of the Lease (except Rent that was
abated as a result of damage or destruction or condemnation); plus
19.3.2. RENT PRIOR TO AWARD. The worth at the time of the award of
the amount by which the unpaid Rent that would have been earned between the
time of the termination and the time of the award exceeds the amount of
unpaid Rent that Tenant proves could reasonably have been avoided; plus
19.3.3. RENT AFTER AWARD. The worth at the time of the award of the
amount by which the unpaid Rent for the balance of the Term after the time
of award exceeds the amount of the unpaid Rent that Tenant proves could be
reasonably avoided; plus
19.3.4. PROXIMATELY CAUSED DAMAGES. Any other amount necessary to
compensate Landlord for all detriment proximately caused by Tenant's
failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom, including,
but not limited to, any costs or expenses (including attorneys' fees),
incurred by Landlord in (a) retaking possession of the Premises, (b)
maintaining the Premises after Tenant's default, (c) preparing the Premises
for reletting to a new tenant, including any repairs or alterations, and
(d) reletting the Premises, including brokers' commissions.
"The worth at the time of the award" as used in Sections 19.3.1. and 19.3.2.
above, is to be computed by allowing interest at the maximum rate permitted by
law to be charged by an individual. "The worth at the time of the award" as used
in Section 19.3.3. above, is to be computed by discounting the amount at the
discount rate of the Federal Reserve Bank situated nearest to the Premises at
the time of the award plus one percent (1%).
19.4. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. If Tenant defaults in the
performance of any of its obligations under this Lease and Tenant has not timely
cured the default after Notice, Landlord may (but shall not be obligated to),
without waiving such default, perform the same for the account and at the
expense of Tenant. Tenant shall pay Landlord all costs of such performance
immediately upon written demand therefor, and if paid at a later date these
costs shall bear interest at fourteen percent (14%) per annum.
19.5. LANDLORD'S DEFAULT. If Landlord fails to perform any covenant,
condition or agreement contained in this Lease within thirty (30) days after
receipt of Notice from Tenant specifying such default, or, if such default
cannot reasonably be cured within thirty (30) days if Landlord fails to commence
to cure within that thirty (30) day period and diligently prosecute to
completion, then Landlord shall be liable to Tenant for any damages sustained by
Tenant as a result of Landlord's breach; provided, however, it is expressly
understood and agreed that if Tenant obtains a money judgment against Landlord
resulting from any default or other claim arising under this Lease, that
judgment shall be satisfied only out of the rents, issues, profits, and other
income actually received on account of Landlord's right, title and interest in
the Premises, Building or Project, and no other real, personal or mixed property
of Landlord (or of any of the partners which comprise Landlord, if any),
wherever situated, shall be subject to levy to satisfy such judgment.
19.6. MORTGAGEE PROTECTION. Tenant agrees to send by certified or
registered mail to any first mortgagee or first deed of trust beneficiary of
Landlord whose address has been furnished to Tenant, a copy of any notice of
default served by Tenant on Landlord. If Landlord fails to cure such default
within the time provided for in this Lease, then such mortgagee or beneficiary
shall have such additional time to cure the default as is reasonably necessary
under the circumstances.
19.7. TENANT'S RIGHT TO CURE LANDLORD'S DEFAULT. If, after Notice to
Landlord of default, Landlord (or any first mortgagee or first deed of trust
beneficiary of Landlord) fails to cure the default as provided herein, then
Tenant shall have the right to cure that default at Landlord's expense. Tenant
shall not have the right to terminate this Lease or to withhold, reduce or
offset any amount against any payments of Rent or any other charges due and
payable under this Lease except as otherwise specifically provided herein.
Tenant expressly waives the benefits of any statute now or hereafter in effect
which would otherwise afford Tenant the right to make repairs at Landlord's
expense or to terminate this Lease because of Landlord's failure to keep the
Premises in good order, condition and repair.
20. WAIVER.
No delay or omission in the exercise of any right or remedy of Landlord upon any
default by Tenant shall impair such right or remedy or be construed as a waiver
of such default. The receipt and acceptance by Landlord of delinquent Rent shall
(18)
<PAGE>
not constitute a waiver of any other default: it shall constitute only a waiver
of timely payment for the particular Rent payment involved (excluding the
collection of a late charge or interest).
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only written
acknowledgement from Landlord to Tenant shall constitute acceptance of the
surrender of the Premises and accomplish a termination of this Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of this
Lease.
21. SUBORDINATION AND ATTORNMENT.
This Lease is and shall be subject and subordinate to all ground or underlying
leases (including renewals, extensions, modifications, consolidations and
replacements thereof) which now exist or may hereafter be executed affecting the
Building or the land upon which the Building is situated, or both, and to the
lien of any mortgages or deeds of trust in any amount or amounts whatsoever
(including renewals, extensions, modifications, consolidations and replacements
thereof) now or hereafter placed on or against the Building or on or against
Landlord's interest or estate therein, or on or against any ground or underlying
lease, without the necessity of the execution and delivery of any further
instruments on the part of Tenant to effectuate such subordination.
Nevertheless, Tenant covenants and agrees to execute and deliver upon demand,
without charge therefor, such further instruments evidencing such subordination
of this Lease to such ground or underlying leases, and to the lien of any such
mortgages or deeds of trust as may be required by Landlord.
Notwithstanding the foregoing, Landlord shall use reasonable efforts to assist
Tenant, at no cost to Landlord, in obtaining a subordination and nondisturbance
agreement form any present or future Lender.
Notwithstanding anything contained herein to the contrary, if any mortgagee,
trustee or ground lessor shall elect that this Lease is senior to the lien of
its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of
trust or ground lease, whether this Lease is dated prior or subsequent to the
date of said mortgage, deed of trust, or ground lease, or the date of the
recording thereof.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to the
purchaser, transferee or lessor as the case may be, and recognize that party as
Landlord under this Lease, provided such party acquires and accepts the Premises
subject to this lease.
22. TENANT ESTOPPEL CERTIFICATES.
22.1. LANDLORD REQUEST FOR ESTOPPEL CERTIFICATE. Within ten (10) days after
written request from Landlord, Tenant shall execute and deliver to Landlord or
Landlord's designee, in the form requested by Landlord, a written statement
certifying, among other things, (a) that this Lease is unmodified and in full
force and effect, or that it is in full force and effect as modified and stating
the modifications; (b) the amount of Base Rent and the date to which Base Rent
and Additional Rent have been paid in advance; (c) the amount of any security
deposited with Landlord; and (d) that Landlord is not in default hereunder or,
if Landlord is claimed to be in default, stating the nature of any claimed
default. Any such statement may be conclusively relied upon by a prospective
purchaser, assignee or encumbrancer of the Premises.
22.2. FAILURE TO EXECUTE. Tenant's failure to execute and deliver such
statement within the time required shall at Landlord's election be a default
under this (without the requirment of giving Notice of Default and an
opportunity to cure) Lease and shall also be conclusive upon Tenant that: (a)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (b) there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counter-claim or deduction
against Rent and (c) not more than one month's Rent has been paid in advance.
23. NOTICE.
Notice shall be in writing and shall be deemed duly served or given if
personally delivered, sent by certified or registered U.S. Mail, postage prepaid
with a return receipt requested, or sent by overnight courier service, fee
prepaid with a return receipt requested, as follows: (a) if to Landlord, to
Landlord's Address for Notice with a copy to the Building manager, and (b) if to
Tenant, to Tenant's Mailing Address; provided, however, Notices to Tenant shall
be deemed duly served or given if delivered or sent to Tenant at the Premises.
Landlord and Tenant may from time to time by Notice to the other designate
another place for receipt of future Notice. Notwithstanding anything contained
herein to the contrary, when an applicable State statute requires service of
(19)
<PAGE>
Notice in a particular manner, service of that Notice in accordance with those
particular requirements shall replace rather than supplement any Notice
requirement set forth in the Lease.
24. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, provided the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. This Lease shall not be affected by any such sale and Tenant agrees to
attorn to the purchaser or assignee provided all of Landlord's obligations
hereunder are assumed by such transferee. If any security deposit or prepaid
Rent has been paid by Tenant, Landlord shall transfer the security deposit or
prepaid Rent to Landlord's successor and upon such transfer, Landlord shall be
relieved of any and all further liability with respect thereto.
25. SURRENDER OF PREMISES.
25.1. CLEAN AND SAME CONDITION. Upon the Expiration Date or earlier
termination of this Lease, Tenant shall peaceably surrender the Premises to
Landlord clean and in the same condition as when received, except for (a)
reasonable wear and tear, (b) loss by fire or other casualty, and (c) loss by
condemnation. Tenant shall remove Tenant's Property no later than the Expiration
Date. If Tenant is required by Landlord to remove any additions, alterations, or
improvements under Section 12.3., Tenant shall complete such removal no later
than the Expiration Date. Any damage to the Premises, including any structural
damage, resulting from removal of any addition, alteration, or improvement made
pursuant to Section 12.3. and/or from Tenant's use or from the removal of
Tenant's Property pursuant to Section 13.2. shall be repaired (in accordance
with Landlord's reasonable direction) no later than the Expiration Date by
Tenant at Tenant's sole cost and expense. On the Expiration Date, Tenant shall
surrender all keys to the Premises.
25.2. FAILURE TO DELIVER POSSESSION. If Tenant fails to vacate and deliver
possession of the Premises to Landlord on the expiration or sooner termination
of this Lease as required by Section , Tenant shall indemnify, defend and hold
Landlord harmless from all claims, liabilities and damages resulting from
Tenant's failure to vacate and deliver possession of the Premises, including,
without limitation, claims made by a succeeding tenant resulting from Tenant's
failure to vacate and deliver possession of the Premises and rental loss which
Landlord suffers.
25.3. PROPERTY ABANDONED. If Tenant abandons or surrenders the Premises, or
is dispossessed by process of law or otherwise, any of Tenant's Property left on
the Premises shall be deemed to be abandoned, and, at Landlord's option, title
shall pass to Landlord under this Lease as by a bill of sale. If Landlord elects
to remove all or any part of such Tenant's Property, the cost of removal,
including repairing any damage to the Premises or Building caused by such
removal, shall be paid by Tenant.
26. HOLDING OVER.
Tenant shall not occupy the Premises after the Expiration Date without
Landlord's consent. If after expiration of the Term, Tenant remains in
possession of the Premises with Landlord's permission (express or implied),
Tenant shall become a tenant from month to month only upon all the provisions of
this Lease (except as to the term and Base Rent). Monthly Installments of Base
Rent payable by Tenant during this period shall be increased to one hundred
fifty percent (150%) of the Monthly Installments of Base Rent payable by Tenant
in the final month of the Term. Such monthly rent shall be payable in advance on
or before the first day of each month. The tenancy may be terminated by either
party by delivering a thirty (30) day Notice to the other party. Nothing
contained in this Section 26. shall be construed to limit or constitute a waiver
of any other rights or remedies available to Landlord pursuant to this Lease or
at law.
27. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"E" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make. Landlord agrees to enforce the rules and
regulations uniformly against all tenants of the Project. Landlord shall not be
liable, however, for any violation of said rules and regulations by other
tenants or occupants of the Building or Project.
(20)
<PAGE>
28. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without (a) liability to
Tenant for damage or injury to property, person or business; (b) being found to
have caused an actual or constructive eviction from the Premises; or (c) being
found to have disturbed Tenant's use or possession of the Premises.
28.1. To name the Building and Project and to change the name or
street address of the Building or Project.
28.2. To install and maintain all signs on the exterior and
interior of the Building and Project.
28.3. To have pass keys to the Premises and all doors within the
Premises, excluding Tenant's files, vaults and safes.
28.4. To stripe or re-stripe, re-surface, enlarge, change
the grade or drainage of and control access to the parking lot; to assign and
reassign spaces for the exclusive or nonexclusive use of tenants (including
Tenant); and to locate or relocate parking spaces assigned to Tenant.
28.5. At any time during the Term, and on prior telephonic
notice to Tenant, to inspect the Premises, and to show the Premises to any
person having an existing or prospective interest in the Project or Landlord,
and during the last six months of the Term, to show the Premises to prospective
tenants thereof.
28.6. To enter the Premises for the purpose of making inspections,
repairs, alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or balancing
controls and other parts of the HVAC system), and to take all steps as may be
necessary or desirable for the safety, protection, maintenance or preservation
of the Premises or the Building or Landlord's interest therein, or as may be
necessary or desirable for the operation or improvement of the Building or in
order to comply with laws, orders or requirements of governmental or other
authority. Landlord agrees to use its best efforts (except in an emergency) to
minimize interference with Tenant's business in the Premises in the course of
any such entry.
28.7. To exclusively regulate and control use of
the Common Area.
29. ADVERTISEMENTS AND SIGNS.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation the inside or outside of windows or doors,
without the prior written consent of Landlord. Landlord shall have the right to
remove any signs or other matter installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the cost
of removal to Tenant as Additional Rent hereunder, payable within ten (10) days
of written demand by Landlord.
30. DELETED
31. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities (including telecommunications) during the Term, both Landlord and
Tenant shall be bound thereby. In the event of a difference in interpretation by
Landlord and Tenant of any such controls, the reasonable interpretation of
Landlord shall prevail and Landlord shall have the right to enforce compliance
therewith, including the right of entry into the Premises to effect compliance.
(21)
<PAGE>
32. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder, other
than financial incapacity of Landlord or Tenant, shall excuse performance of the
work by that party for a period equal to the duration of that prevention, delay
or stoppage. Nothing in this Section 32. shall excuse or delay Tenant's
obligation to pay Rent or other charges under this Lease.
33. BROKERAGE FEES.
Landlord and Tenant each warrant and represent that it has not dealt with any
real estate broker or agent in connection with this Lease or its negotiation
except the Listing and Leasing Agent(s) set forth in Section 2.9. of this Lease.
Each party shall indemnify, defend and hold the other harmless from any cost,
expense or liability (including costs of suit and reasonable attorneys' fees)
for any compensation, commission or fees claimed by any other real estate broker
or agent in connection with this Lease or its negotiation by reason of any act
of such party.
34. QUIET ENJOYMENT.
Tenant, upon payment of Rent and performance of all of its obligations under
this Lease, shall peaceably, quietly and exclusively enjoy possession of the
Premises without unwarranted interference by Landlord or anyone acting or
claiming through Landlord, subject to the terms of this Lease and to any
mortgage, lease, or other agreement to which this Lease may be subordinate.
35. TELECOMMUNICATIONS.
35.1. TELECOMMUNICATIONS COMPANIES. Tenant and Tenant's telecommunications
companies, including but not limited to local exchange telecommunications
companies and alternative access vendor services companies ("Telecommunications
Companies"), shall have no right of access to and within the lands or Buildings
comprising the Project for the installation and operation of telecommunications
lines and systems including but not limited to voice, video, data, and any other
telecommunications services provided over wire, fiber optic, microwave, wireless
and any other transmission systems, for part or all of Tenant's
telecommunications within the Building and from the Building to any other
location (hereinafter collectively referred to as "Telecommunications Lines"),
without Landlord's prior written consent, which Landlord may withhold in its
sole and absolute discretion. Notwithstanding the foregoing, Tenant may perform
any installation, repair and maintenance to its Telecommunications Lines without
Landlord's consent where the equipment being installed, repaired or maintained
is not located in an area in which the Telecommunications Lines or any part
thereof of any other tenant or of Landlord are located.
35.2. TENANT'S OBLIGATIONS. If at any time, Tenant's Telecommunications
Companies or appropriate governmental authorities relocate the point of
demarcation from the location of Tenant's telecommunications equipment in
Tenant's telephone equipment room or other location, to some other point, or in
any other manner transfer any obligations or liabilities for telecommunications
to Landlord or Tenant, whether by operation of law or otherwise, upon Landlord's
election, Tenant shall, at Tenant's sole expense and cost: (1) within thirty
(30) days after notice is first given to Tenant of Landlord's election, cause to
be completed by an appropriate telecommunications engineering entity approved in
advance in writing by Landlord, all details of the Telecommunications Lines
serving Tenant in the Building which details shall include all appropriate
plans, schematics, and specifications; and (2) if Landlord so elects,
immediately undertake the operation, repair and maintenance of the
Telecommunications Lines serving Tenant in the Building; and (3) upon the
termination of the Lease for any reason, or upon expiration of the Lease,
immediately effect the complete removal of all or any portion or portions of the
Telecommunications Lines serving Tenant in the Building and repair any damage
caused thereby (to Landlord's reasonable satisfaction).
Prior to the commencement of any alterations, additions, or modifications
to the Telecommunications Lines serving Tenant in the Building, except for minor
changes, Tenant shall first obtain Landlord's prior written consent by written
request accompanied by detailed plans, schematics, and specifications showing
all alterations, additions and modifications to be performed, with the time
schedule for completion of the work, and the identity of the entity which will
perform the work, for which, except as otherwise provided in Section 35.3.
below, Landlord may withhold consent in its sole and absolute discretion.
(22)
<PAGE>
35.3. LANDLORD'S CONSENT. Without in any way limiting Landlord's right to
withhold its consent to a proposed request for access, or for alterations,
additions or modifications of the Telecommunications Lines serving Tenant in the
Building, Landlord shall consider the following factors in making its
determination:
35.3.1. If the proposed actions of Tenant and its Telecommunications
Companies will impose new obligations on Landlord, or expose Landlord to
liability of any nature or description, or increase Landlord's insurance
costs for the Building, or create liabilities for which Landlord is unable
to obtain insurance protection, or imperil Landlord's insurance coverage;
35.3.2. If Tenant's Telecommunications Companies are unwilling to pay
reasonable monetary compensation for the use and occupation of the Building
for the Telecommunications Lines;
35.3.3. If Tenant and its Telecommunications Companies would cause
any work to be performed that would adversely affect the land and Building
or any space in the Building in any manner;
35.3.4. If Tenant encumbers or mortgages its interest in any
telecommunications wiring or cabling; or
35.3.5. If Tenant is in default under this Lease.
35.4. INDEMNIFICATION. Tenant shall indemnify, defend and hold harmless
Landlord and its employees, agents, officers and directors from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs, or
expenses of any kind or nature, known or unknown, contingent or otherwise,
arising out of or in any way related to the acts and omissions of Tenant,
Tenant's officers, directors, employees, agents, contractors, subcontractors,
subtenants and invitees with respect to (1) any Telecommunications Lines serving
Tenant in the Building which are on, from, or affecting the Project and
Building; (2) any bodily injury (including wrongful death) or property damage
(real or personal) arising out of or related to any Telecommunications Lines
serving Tenant in the Building which are on, from, or affecting the Building;
(3) any lawsuit brought or threatened, settlement reached, or governmental order
relating to such Telecommunications Lines; (4) any violations of laws, orders,
regulations, requirements, or demands of governmental authorities, or any
reasonable policies or requirements of Landlord, which are based upon or in any
way related to such Telecommunications Lines, including, without limitation,
attorney and consultant fees, court costs and litigation expenses. This
indemnification and hold harmless agreement will survive this Lease. Under no
circumstances shall Landlord be required to maintain, repair or replace any
Building systems or any portions thereof, when such maintenance, repair or
replacement is caused in whole or in part by the failure of any such system or
any portions thereof, and/or the requirements of any governmental authorities.
Under no circumstances shall Landlord be liable for interruption in
telecommunications services to Tenant or any other entity affected, for
electrical spikes or surges, or for any other cause whatsoever, whether by Act
of God or otherwise, even if the same is caused by the ordinary negligence of
Landlord, Landlord's contractors, subcontractors, or agents or other tenants,
subtenants, or their contractors, subcontractors, or agents.
35.5. LANDLORD'S OPERATION OF BUILDING TELECOMMUNICATIONS LINES AND
SYSTEMS. Notwithstanding anything contained herein to the contrary, if the point
of demarcation is relocated, Landlord may, but shall not be obligated to,
undertake the operation, repair and maintenance of telecommunications lines and
systems in the Building. If Landlord so elects, Landlord shall give Notice of
its intent to do so, and Landlord shall, based on Landlord's sole business
discretion, make such lines and systems available to tenants of the Building
(including Tenant) in the manner it deems most prudent. Landlord may include in
Operating Expenses all or a portion of the expenses related to the operation,
repair and maintenance of the telecommunications lines and systems.
36. MISCELLANEOUS.
36.1. ACCORD AND SATISFACTION; ALLOCATION OF PAYMENTS. No payment by Tenant
or receipt by Landlord of a lesser amount than the Rent provided for in this
Lease shall be deemed to be other than on account of the earliest due Rent, nor
shall any endorsement or statement on any check or letter accompanying any check
or payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease. In
connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
36.2. ADDENDA. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.
(23)
<PAGE>
36.3. CAPTIONS AND SECTION NUMBERS. The captions appearing in the body of
this Lease have been inserted as a matter of convenience and for reference only
and in no way define, limit or enlarge the scope or meaning of this Lease. All
references to Section numbers refer to Sections in this Lease.
36.4. CHANGES REQUESTED BY LENDER. Neither Landlord nor Tenant shall
unreasonably withhold its consent to changes or amendments to this Lease
requested by the lender on Landlord's interest, so long as such changes do not
alter the basic business terms of this Lease or otherwise materially diminish
any rights or materially increase any obligations of the party from whom consent
to such change or amendment is requested.
36.5. CHOICE OF LAW. This Lease shall be construed and enforced in
accordance with the Laws of the State.
36.6. CONSENT. Notwithstanding anything contained in this Lease to the
contrary, Tenant shall have no claim, and hereby waives the right to any claim
against Landlord for money damages, by reason of any refusal, withholding or
delaying by Landlord of any consent, approval or statement of satisfaction, and,
in such event, Tenant's only remedies therefor shall be an action for specific
performance, injunction or declaratory judgment to enforce any right to such
consent, approval or statement of satisfaction.
36.7. AUTHORITY. If Tenant is not an individual signing on his or her own
behalf, then each individual signing this Lease on behalf of the business entity
that constitutes Tenant represents and warrants that the individual is duly
authorized to execute and deliver this Lease on behalf of the business entity,
and that this Lease is binding on Tenant in accordance with its terms. Tenant
shall, at Landlord's request, deliver a certified copy of a resolution of its
board of directors, if Tenant is a corporation, or other memorandum of
resolution if Tenant is a limited partnership, general partnership or limited
liability entity, authorizing such execution.
36.8. WAIVER OF RIGHT TO JURY TRIAL. Landlord and Tenant hereby waive their
respective rights to a trial by jury of any claim, action, proceeding or
counterclaim by either party against the other on any matters arising out of or
in any way connected with this Lease, the relationship of Landlord and Tenant,
and/or Tenant's Use or occupancy of the Premises, Building or Project (including
any claim of injury or damage or the enforcement of any remedy under any current
or future laws, statutes, regulations, codes or ordinances).
36.9. COUNTERPARTS. This Lease may be executed in multiple counterparts,
all of which shall constitute one and the same Lease.
36.10. EXECUTION OF LEASE; NO OPTION. The submission of this Lease to
Tenant shall be for examination purposes only and does not and shall not
constitute a reservation of or option for Tenant to Lease, or otherwise create
any interest of Tenant in the Premises or any other premises within the Building
or Project. Execution of this Lease by Tenant and its return to Landlord shall
not be binding on Landlord, notwithstanding any time interval, until Landlord
has in fact signed and delivered this Lease to Tenant.
36.11. FURNISHING OF FINANCIAL STATEMENTS; TENANT'S REPRESENTATIONS. In
order to induce Landlord to enter into this Lease, Tenant agrees that it shall
promptly furnish Landlord, from time to time, upon Landlord's written request,
with financial statements reflecting Tenant's current financial condition.
Tenant represents and warrants that all financial statements, records and
information furnished by Tenant to Landlord in connection with this Lease are
true, correct and complete in all respects.
36.12. FURTHER ASSURANCES. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
36.13. PRIOR AGREEMENTS; AMENDMENTS. This Lease and the schedules and
addenda attached, if any, form a part of this Lease together with the rules and
regulations set forth on Exhibit "E" attached hereto, and set forth all the
covenants, promises, assurances, agreements, representations, conditions,
warranties, statements, and understandings (Representations) between Landlord
and Tenant concerning the Premises and the Building and Project, and there are
no Representations, either oral or written, between them other than those in
this Lease.
This Lease supersedes and revokes all previous negotiations, arrangements,
letters of intent, offers to lease, lease proposals, brochures, representations,
and information conveyed, whether oral or in writing, between the parties hereto
or their respective representatives or any other person purporting to represent
Landlord or Tenant. Tenant acknowledges that it has not been induced to enter
into this Lease by any Representations not set forth in this Lease, and that it
has not relied on any such Representations. Tenant further acknowledges that no
such Representations shall be used in the interpretation or construction of this
Lease, and that Landlord shall have no liability for any consequences arising as
a result of any such Representations.
Except as otherwise provided herein, no subsequent alteration, amendment,
change, or addition to this Lease shall be binding upon Landlord or Tenant
unless it is in writing and signed by each party.
(24)
<PAGE>
36.14. RECORDING. Tenant shall not record this Lease without the prior
written consent of Landlord. Tenant, upon the request of Landlord, shall execute
and acknowledge a short form memorandum of this Lease for recording purposes.
36.15. SEVERABILITY. A final determination by a court of competent
jurisdiction that any provision of this Lease is invalid shall not affect the
validity of any other provision, and any provision so determined to be invalid
shall, to the extent possible, be construed to accomplish its intended effect.
36.16. SUCCESSORS AND ASSIGNS. This Lease shall apply to and bind the
heirs, personal representatives, and successors and assigns of the parties.
36.17. TIME OF THE ESSENCE. Time is of the essence of this Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date
first set forth on Page 1.
LANDLORD:
GLB LEXINGTON LIMITED PARTNERSHIP,
a Delaware limited partnership
By: GRT Lexington, Inc.,
a Delaware corporation
Its General Partner
By: /s/ Steve Hallsey
Its: Sr. Vice President
Commercial Property Management
TENANT:
MacroChem Corporation
a Delaware Corporation
By: /s/ William P. Johnson
Its: Treasurer
(25)
<PAGE>
EXHIBIT A
MacroChem Corporation
110 Hartwell Avenue
Lexington, MA
PROPOSED GROUND FLOOR PLAN
PRELIMINARY LAYOUT FOR:
MACROCHEM CORPORATION
110 Hartwell Avenue
Lexington, Massachusetts
99236 A1 9/14/99
<PAGE>
EXHIBIT B
MacroChem Corporation
110 Hartwell Avenue
Lexington, MA
PLOT PLAN
N/F TOWN OF LEXINGTON
LOT A
AREA=322,203 S.F.
NO. 119
3 STORY
BRICK
AREA OF BLDG 18,308 S.F.
<PAGE>
EXHIBIT C
BUILDING STANDARD TENANT IMPROVEMENTS
MacroChem Corporation
110 Hartwell Ave., Lexington
1. PARTITIONS
Ceiling height partitions consisting of 3 5/8" 20-gauge metal studs at
16" O.C. with 5/8" gypsum board each side, taped and sanded to receive
paint. Maximum: One (1) lineal foot per 16square feet of area.
2. DOORS AND FRAMES
Tenant entry door shall be solid core with locket and door closer.
Tenant is allowed one (1) entry door per suite up to 10,000 square feet
of area, and an additional entry door is allowed for suites greater
than 10,000 square feet.
Tenant is allowed one (1) interior passage door for every 300 square
feet of area. All interior passage doors to be given standard latchset
hardware, and shall be 1 3/4" solid core Oak veneer door 7'0" X 3'0"
with metal frame.
3. CEILING
Suspended Building Standard 24" X 48" grid configuration with Armstrong
769A acoustical lay-in panels will be used throughout the premises.
4. LIGHTING
24" X 48" Building Standard three (3) tube 40 watt recessed fluorescent
fixtures with lenses. One (1) fixture per 80 square feet.
Any alterations or additions to said existing Building Standard pattern
required to accommodate Tenant Improvements shall be at Tenant's sole
expense.
Elevator lobbies and common toilet facilities will have lighting
selected by Landlord.
5. LIGHT SWITCHES
One (1) Building Standard single pole wall mounted light switch per 300
square feet of area.
6. ELECTRICAL OUTLETS
One (1) Building Standard 120V Duplex electrical wall mounted outlet
for each 175 square feet of area. Each outlet is 120 volts and is
circuited with similar outlets on a 20 amp circuit.
7. LIGHTED EXIT LIGHTS
Building Standard exit signs are provided in the Premises to meet any
requirement by code.
8. FLOOR COVERING AND BASE
Carpeting in elevator lobbies and common corridors on all
multiple-tenancy office floors in color and type as selected by
Landlord; carpeting within office space is required and selected by
Tenant from Building Standard selection of 28 oz. loop carpeting.
Maximum: Two (2) lineal feet of base per twelve (12) square feet of
space.
<PAGE>
9. PAINT
All wall surfaces, except doors, finished with one (1) coat primer
sealer and one (1) coat flat latex paint in colors to be selected by
Tenant from Building Standard selection, with not more than one (1)
color to be in premises.
10. WINDOW COVERING
Building Standard vertical blinds on all exterior windows. No deletions
of substitutions allowed.
11. HVAC
A complete year-round HVAC system engineered to handle normal office
usage with ducted supply air through ceiling diffusers, zoned and
located in existing Building Standard pattern. Return air through
exhaust vents. Any alterations or additions to said system required to
accommodate Tenant Improvements shall be at Tenant's sole expense and
must be done by Landlord-Approved Contractor.
<PAGE>
EXHIBIT D
PROPOSED TENANT IMPROVEMENTS
FOR
MACROCHEM CORPORATION EXPANSION
110 HARTWELL AVENUE, LEXINGTON
7-7-99
1. New Interior Partitions:
3-5/8" metal studs with 1/2" gypsum wallboard both sides. Partitions will extend
to just above finish ceilings.
2. New Doors, Frames and Hardware:
a. Doors within tenant space will be solid core flush, red oak wood veneer.
Widths per plan, height 7'-0", with passage sets and 1-1/2 pair of hinges per
door.
b. All new frames to be hollow metal with 2" face dimension.
c. Existing doors and frames will be reused wherever possible.
3. Acoustical Ceilings:
Existing tiles and grid to remain and be reused wherever possible. Existing
damaged tile and grid will be replaced.
4. Light Fixtures:
2' X 4' recessed fluorescent fixtures with acrylic prismatic lenses. Each room
to be individually switched. Existing fixtures to remain and reused wherever
possible.
5. Electrical:
Standard 115v duplex outlets as required for normal business use, dispersed
throughout premises.
6. HVAC:
a. Ducted supply air system to spaces through perforated ceiling diffusers with
a (above finish ceiling) return air plenum.
b. Relocate diffusers as required by new layout.
c. System to be as required by the BOCA National Mechanical Code.
d. Provide 10' round exhaust duct from tenant furnished hood at the new
instrumentation room to the existing exhaust riser above the lunchroom ceiling
(along wall common to toilet core). Also provide properly sized make up duct
from existing makeup riser to this room (located next to exhaust riser).
<PAGE>
MacroChem Expansion
110 Hartwell Avenue
7-7-99
Page Two
7. Window Treatment:
Existing window blinds to remain and be repaired as required for proper
operation. All exterior windows shall have blinds.
8. Floor Finishes:
a. Provide SHAW Parallels 28 oz. loop pile carpet at all rooms no listed below,
within expansion area.
b. Provide Armstrong Standard Excelon tile at Instrumentation and Unassigned
rooms.
c. Existing floor tile is to remain at the lunchroom and janitor/storage closet.
d. 4" vinyl base t match existing at new walls only.
9. Paint:
a. One primer and two finish coats of an eggshell finish latex on new and
existing walls within expansion area. Color to match existing adjacent space.
b. One primer and two finish coats of an alkyd semi-gloss paint on all door
frames within expansion area. Color to match existing adjacent space.
10. Sprinklers:
Exposed head sprinklers as required by NFPA 13 and Article 10 of the state
building code.
11. Casework:
Existing kitchen wall and base cabinets, counter and sink to remain as is.
12. Items by Tenant; a. Laboratory equipment and furnishings
b. Open office partition systems and furnishings
c. Telephone and computer wiring
13. Miscellaneous:
a. Provide an exhaust fan in the ceiling of each of two storage rooms with an
exhaust to the outside at the exterior wall, each controlled by a switch and
timer.
END
<PAGE>
EXHIBIT D
MacroChem Corporation
110 Hartwell Ave.
Lexington, MA
PROPOSED GROUND FLOOR PLAN
PRELIMINARY LAYOUT FOR:
MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS
<PAGE>
EXHIBIT E
RULES AND REGULATIONS
MacroChem Corporation
Lease at 110 Hartwell Ave., Lexington, MA
1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or used for any purpose
other than for ingress to and egress from the demised premises and for delivery
of merchandise and equipment in a prompt and efficient manner, using elevators
and passageways designated for such delivery by Landlord. There shall not be in
any space, or in public hall of the building, either by any Tenant of by jobbers
or others in the delivery or receipt of merchandise, any hand trucks, except
those equipped with rubber tires and sideguards.
2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any window of
the building; and no Tenant shall sweep or throw or permit to be swept or thrown
from the demised premises any dirt or other substances into any of the corridors
or halls, elevators, or out of the doors or windows or stairways of the
building, and Tenant shall not use, keep or permit to be used or kept any foul
or noxious gas or substance in the demised premises, or permit or suffer the
demised premises to be occupied or used in a manner offensive or objectionable
to Landlord or other occupants of the building by reason of noise, odors and/or
vibrations, or interference in any way with other tenants or those having
business therein, nor shall any animals or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings, antennae, or other projections shall be attached to the outside
walls of the building.
5. No curtains, blinds, shades, or screens other than those furnished by
Landlord shall be attached to, hung in or used in connection with any window or
door of the Premises without the prior written consent of the Landlord.
6. No advertisement, notice or other lettering shall be exhibited, inscribed,
painted or affixed by any Tenant on any part of the outside of the demised
premises or the building or on the inside of the demised premises if the same is
visible from the outside of the premises without the prior written consent of
Landlord, except that the name of Tenant may appear on the entrance door of the
premises. In the event of the violation of the foregoing by any Tenant, Landlord
may remove same without any liability, and may charge the expense incurred by
<PAGE>
such removal to Tenant or Tenants violating this rule. Interior signs on doors
and directory tablet shall be inscribed, painted or affixed for each Tenant by
Landlord at the expense of such Tenant, and shall be of a size, color and style
acceptable to Landlord.
7. No Tenant shall mark, paint, drill into, or in any way deface any part of the
demised premises or the building of which they form a part. No boring, cutting
or stringing of wires shall be permitted, except with the prior written consent
of Landlord, and as Landlord may direct. No tenant shall lay linoleum, or other
similar floor covering, so that the same shall come in direct contact with the
floor of the demised premises, and, if linoleum or other similar floor covering
is desired to be used in interlining of builder's deadening felt shall first be
affixed to the floor, by a paste or other material, soluble in water, the use of
cement or other similar adhesive material being expressly prohibited.
8. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his tenancy,
restore to Landlord all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Landlord the cost
thereof.
9. Freight, furniture, business equipment, safes, merchandise and bulky matter
of any description shall be delivered to and removed from the premises only on
the freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Landlord. Landlord reserves the right
to inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
Lease of which these Rules and Regulations are a part.
10. Canvassing, soliciting and peddling in the building is prohibited and each
Tenant shall cooperate to prevent the same.
11. Landlord shall have the right to prohibit any advertising by any Tenant
which, in Landlord's opinion, tends to impair the reputation of the building or
its desirability as building for offices, and upon written notice from Landlord,
Tenant shall refrain from or discontinuing such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the demised
premises, any flammable, combustible or explosive fluid, material, chemical of
substance or cause or permit any odors of cooking or other processes, or any
unusual or other objectionable odors to permeate in or emanate from the demised
premises.
13. Tenant shall comply with all security measures from time to time established
by Landlord for the Building.
<PAGE>
14. Tenant assumes full responsibility for protecting its space from theft,
robbery and pilferage, which included keeping doors locked and any other means
of entry to the Premises closed and secured,
15. Tenant shall comply with all applicable federal, state and municipal laws,
ordinances and regulations and building rules and shall not, directly or
indirectly, make any use of the Premises which may be prohibited by any thereof
or which shall be dangerous to person or property or shall increase the cost of
insurance or require additional insurance coverage.
16. Tenant shall not waste electricity, water, hear or air conditioning and
agrees to cooperate fully with Landlord to assure the most effective operation
of the Building's heating and air conditioning, and shall refrain from
attempting to adjust any controls other than room thermostats installed for
Tenant's use.
17. Tenant shall not install and operate machinery or any mechanical devices of
a nature not directly related to Tenant's ordinary use of the Premises without
the written permission of Landlord.
18. No person or contractor not employed or approved by Landlord shall be used
to perform window washing, cleaning, repair or other work in the Premises.
19. No vending machines other than those furnished by the Landlord are to be
placed in any hallways or building common areas.
20. No parking in front of the main entrance of the is permitted.
<PAGE>
ADDENDUM TO LEASE BETWEEN
GLB LEXINGTON LIMITED PARTNERSHIP ("Landlord"), and
MACROCHEM CORPORATION ("Tenant")
DATED September 20, 1999
37. TENANT'S EXPANSION
Section 37. adds to and amends the Lease as follows:
Effective as of the date that Landlord substantially completes Landlord's Work
therein as set forth in paragraph 38, hereinbelow, approximately September 1,
1999 (the "Effective Date"), Tenant shall expand into, lease and occupy an
additional approximately 7,316 square feet of Rentable space, more particularly
shown on Exhibit A attached to the Lease (the "Expansion Premises"). The
Premises and the Expansion Premises shall then constitute the "Premises", which
shall consist of a total of approximately 17,227 Rentable square feet of space.
As of the Effective Date, Section 2.2. and 2.10. of the Lease shall be modified
to set forth Monthly Installments of Base Rent for the entire Premises
(including the Expansion Premises) as follows:
Effective Date through February 29, 2000 $29,047.54
March 1, 2000 through August 31, 2000 $34,401.58
September 1, 2000 through February 28, 2001 $34,834.45
March 1, 2001 through August 31, 2001 $35,432.11
September 1, 2001 through February 28, 2002 $35,883.26
March 1, 2002 through August 31, 2002 $36,497.52
September 1, 2002 through February 28, 2003 $36,954.77
March 1, 2003 through August 31, 2003 $37,593.94
September 1, 2003 through February 29, 2004 $38,069.48
March 1, 2004 through August 31, 2004 $38,716.94
September 1, 2004 through February 28, 2005 $39,204.67
As of the Effective Date, Tenant's Proportionate Share under Section 2.19. of
the Lease shall be changed to 32.77%. Further, as of the Effective Date, the
number of nonexclusive parking spaces provided to Tenant pursuant to Section
2.12. of the Lease shall be changed to 61.
38. EXPANSION PREMISES TENANT IMPROVEMENTS.
Section 38. adds to and amends the Lease as follows:
(a) Landlord shall conduct Tenant Improvements in the Expansion
Premises in accordance with Exhibit D attached to Lease and incorporated herein
by this reference.
(b) Landlord shall contribute a total maximum amount of $125,000.00
("Expansion Premises Tenant Improvement Allowance") toward the cost of
constructing the Expansion Premises Tenant Improvements, to include only those
items on Exhibit D. Landlord shall pay the Expansion Premises Tenant
Improvement Allowance directly to any architects, contractors and/or
subcontractors performing the Tenant Improvements in the Expansion Premises on
behalf of Landlord.
(c) If the actual cost of completing the Tenant Improvements is less
than the Expansion Premises Tenant Improvements Allowance, then Landlord shall
retain the difference and no credit shall be due Tenant. If the cost of
completing the Tenant Improvements exceeds the Expansion Premises Tenant
Improvements Allowance, any such excess shall be Tenant's responsibility and
Tenant shall reimburse Landlord (as "Additional Rent") within thirty (30) days
after Tenant's receipt of Landlord's invoice.
1
<PAGE>
39. ASSIGNMENT AND SUBLETTING
Section 39. adds to and amends Section 18. of the Lease as follows:
Notwithstanding the provisions of Section 18. of the Lease, so long as Tenant's
Use does not change, Tenant shall have the right to assign the Lease without
Landlord's consent to: i) Tenant's wholly-owned subsidiary; ii) Tenant's parent
corporation; or iii) the surviving entity if Tenant merges or consolidates,
provided that the surviving entity has a net worth at least equal to that of
Tenant prior to such merger or consolidation. In the event of such an
assignment, Tenant shall provide the identity of the assignee, the anticipated
date of the assignment and the forwarding address of the assignor, if
applicable. Nothing contained herein shall relieve Tenant (or the assignor, as
the case may be) of its obligations under the Lease.
40. HAZARDOUS MATERIAL
Section 40. adds to and amends Section 9.6. of the Lease as follows:
Notwithstanding anything in Section 9.6. of the Lease to the contrary, Landlord
acknowledges that Tenant's Use of the Premises may from time to time include
the occasional storage and usage of standard organic solvents, acids, bases,
and other similar Hazardous Materials commonly utilized in businesses of like
nature to that of Tenant. Landlord hereby consents to the presence of de
minimis amounts of such Hazardous Materials, provided that Tenant hereby agrees
to defend, indemnify and hold harmless Landlord from and against any and all
claims, damages, costs, liabilities, etc., arising from the presence or usage
of any such Hazardous Materials.
41. TENANT'S RIGHT TO AUDIT
Section 41. adds to and amends Section 6.3.2.3. of the Lease as follows:
Notwithstanding anything in Section 6.3.2.3. of the Lease to the contrary,
Landlord agrees to pay the reasonable costs (excluding travel expenses) of
Tenant's audit of Landlord's books and records if such audit reveals that
Landlord has overstated Direct Costs by more than five percent (5%). Any
overpayment of Direct Expenses by Tenant revealed by such audit shall be
credited to Tenant's next installments of Direct Expenses coming due, except
that Tenant shall be refunded any such amounts within thirty (30) days if the
Lease Term has expired. Any underpayment of Direct Costs by Tenant shall be
paid to Landlord within ten (10) business days of Tenant's receipt of
Landlord's request therefor.
42. DAMAGE AND DESTRUCTION
This Section 42. adds to and amends Section 16.2. of the Lease as follows:
Notwithstanding anything in Section 16.2. of the Lease to the contrary, in the
event that Landlord repairs to the Premises or portion of the Building
necessary for Tenant's occupancy are not completed under applicable laws and
regulations within three hundred sixty (360) days of the date of damage and
destruction (subject to force majeure, damage and destruction, and any other
factor beyond Landlord's reasonable control), then Tenant may elect, upon
Notice to Landlord given within ten (10) days after the end of such three
hundred sixty (360) day period, to terminate the Lease. Further, in the event
that Landlord repairs to the Premises or portion of the Building necessary for
Tenant's occupancy of at least fifty percent (50%) of the Premises are not
2
<PAGE>
completed under applicable laws and regulations within one hundred eighty (180)
days of the date of damage and destruction (subject to force majeure, damage
and destruction, and any other factor beyond the Landlord's reasonable
control), then Tenant may elect, upon Notice to Landlord given within ten (10)
days after the end of such one hundred eighty (180) day period, to terminate
the Lease.
43. DELIVERY OF EXPANSION PREMISES
Section 43. adds to and amends Section 4. of the Lease as follows:
Notwithstanding anything herein to the contrary, in the event that Landlord
fails to deliver the Expansion Premises to Tenant by that certain date which is
one hundred twenty (120) days after the later of (i) final Lease execution, or
Tenant's approval of Landlord's construction drawings (subject to force
majeure, damage and destruction, and other causes beyond the reasonable control
of Landlord), then Tenant may render the expansion of the Tenant's Premises as
set forth in Sections 37. and 38. hereinabove null and void. Tenant may elect
to render such expansion null and void by providing Landlord of its intention
to do so not later than five (5) days prior to the end of the above-referenced
one hundred twenty (120) day period.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Addendum to
Lease as of the date first above written.
LANDLORD:
GLB LEXINGTON LIMITED PARTNERSHIP,
a Delaware limited partnership
By: GRT Lexington, Inc.,
a Delaware corporation
Its General Partner
By: /s/ Steve Hallsey
----------------------
Its Sr. Vice President
----------------------
Commercial Property Management
TENANT:
MACROCHEM CORPORATION,
a Delaware corporation
By: /s/ William P. Johnson
----------------------
Its Treasurer
----------------------
3
<PAGE>
TERMINATION OF LEASE
This Termination of Lease Agreement (the "Agreement") is dated this 20th
day of September, 1999, between GLB Lexington Limited Partnership, a Delaware
limited partnership ("Landlord"), whose address is c/o Glenborough Realty Trust
Incorporated, 400 South El Camino Real, Suite 1100, San Mateo, CA 94402-1708,
and MacroChem Corporation, a Delaware corporation ("Tenant"), whose address is
110 Hartwell Avenue, Lexington, MA.
RECITALS
This Agreement is made with reference to the following facts and
objectives:
A. By Lease dated January 17, 1992 and Amendment to Lease dated December
21, 1993, (collectively, the "Lease"), Tenant leased from Phoenix Home Life
Mutual Insurance Company, predecessor-in-interest to Landlord ("Phoenix"), the
premises described in Exhibit "A" of the Lease (the "Premises"), which consists
of approximately 9,961 rentable square feet of area commonly referred to as
Suite 110-01 in that certain building identified as The Hartwood Building
located at 110 Hartwell Avenue, in the City of Lexington, State of
Massachusetts.
B. Landlord has succeeded to the interests of Phoenix in the Lease and
Premises.
C. The parties desire to terminate the Lease so that Landlord and Tenant
can be released and discharged from further performance of the Lease provisions
in accordance with the terms and conditions set forth herein.
NOW, THEREFORE, Landlord and Tenant hereby agree as follows:
1. Effective Date. The effective date of this Agreement shall be the date
upon which Landlord completes Landlord's Work for suite(s) 100 of the Building
pursuant to a new lease between Landlord and Tenant for such suite(s)
approximately November 1, 1999 (the "Effective Date").
2. Termination of Lease. Conditioned on the performance by the parties of
the provisions of this Agreement, on the Effective Date, the term of the Lease
shall expire and possession of the Premises shall be fully and finally
surrendered and terminated.
3. Prepaid Rental. Landlord and Tenant hereby acknowledge that Tenant has
not prepaid any monthly installments of Rent.
1
<PAGE>
4. Operating Expenses. The parties acknowledge that the amount of actual
electricity, real estate taxes, and operating expenses for the calendar year
1999 may not now be known. However, it is the intent of the parties that the
provisions of Articles III. and IV. of the Lease remain in effect until the
actual electricity, real estate taxes, and operating expenses for the calendar
year 1999 have been determined, and any sums which may be due from one party to
the other shall have been paid.
5. Condition of the Premises. On the Effective Date, Tenant shall surrender
possession of the Premises to Landlord pursuant to Article XIX. of the Lease.
6. Security Deposit. Pursuant to Article V. of the Lease, a security
deposit was retained by Landlord in the amount of $5,963.12, which security
deposit shall be transferred to a new lease with Landlord for the Premises.
Tenant hereby acknowledges, understands and agrees that Landlord shall not
return any portion of the security deposit to Tenant with respect to
termination of the Lease.
7. Continuing Obligations. Neither this Agreement nor the acceptance by
Landlord of he Premises and the termination of the Lease shall (a) excuse or
release Tenant from any obligation or liability arising prior to the Effective
Date or arising out of events or matters that took place prior to the Effective
Date, (b) constitute a release by Landlord of Tenant from any claim, liability
or damage under the Lease arising by virtue of a breach of the Lease or this
Agreement by Tenant, or (c) affect any obligation of Tenant under the Lease
which by its terms is to survive the expiration or other termination of the
Lease.
8. Representation of Parties. Each party represents that it has not made
any assignment, sublease, transfer, conveyance, or other disposition of the
Lease, or interest in the Lease, or any claim, demand, obligation, liability,
action or cause of action arising from the Lease.
9. Miscellaneous.
a. Voluntary Agreement. The parties have read this Agreement and on
advice of counsel they have freely and voluntarily entered into this Agreement
with full knowledge of its significance.
2
<PAGE>
b. Attorneys' Fees. If either party commences an action against the
other party arising out of or in connection with this Agreement, the prevailing
party shall be entitled to recover from the other party reasonable attorneys'
fees and costs of suit.
c. Successors. This Agreement hall be binding on and inure to the
benefit of the parties and their successors.
10. Condition Precedent. This Agreement is expressly conditioned upon
Landlord and MacroChem Corporation executing a new lease for the Premises on or
before September 17, 1999 (the "MacroChem Lease"). In the event the MacroChem
Lease is not executed by September 30, 1999, then, at Landlord's option, this
Agreement shall be rendered null and void.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Termination of
Lease Agreement as of the date first above written.
LANDLORD:
GLB LEXINGTON LIMITED PARTNERSHIP
a Delaware limited partnership
By: GRT Lexington, Inc.,
a Delaware corporation
Its General Partner
By: /s/ Steve Hallsey
---------------------
Its Senior Vice President
---------------------
Commercial Property Management
TENANT:
MACROCHEM CORPORATION
a Delaware corporation
By: /s/ William P. Johnson
------------------
Its Treasurer
-------------------
We consent to the incorporation by reference in (i) Registration
Statement No. 33-48876 on Form S-8, (ii) Registration Statement No.
33-85818 on Form S-8, (iii) Registration Statment No. 333-28967 on
Form S-8, (iv) Registration Statment No. 33-82298 on Form S-3 and (v)
Registration Statement No. 333-34533 on Form S-3 of our report dated
March 3, 2000, appearing in this Annual Report on Form 10-K of
MacroChem Corporation for the year ended December 31, 1999.
/s/Deloitte & Touche LLP
Boston, Massachusetts
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's balance sheet, statement of operations, statement of stockholder's
equity and statement of cash flows and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000743884
<NAME> MacroChem Corporation
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 15,183,289
<SECURITIES> 0
<RECEIVABLES> 66,954
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,437,686
<PP&E> 1,305,279
<DEPRECIATION> 929,815
<TOTAL-ASSETS> 16,313,732
<CURRENT-LIABILITIES> 661,313
<BONDS> 0
0
0
<COMMON> 225,976
<OTHER-SE> 14,926,443
<TOTAL-LIABILITY-AND-EQUITY> 16,313,732
<SALES> 0
<TOTAL-REVENUES> 464,332
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,945
<INCOME-PRETAX> (6,787,069)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,787,069)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,787,069)
<EPS-BASIC> (.30)
<EPS-DILUTED> (.30)
</TABLE>
