UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-15888
IGENE Biotechnology, Inc.
(Exact name of small business issuer in its
charter)
Maryland 52-1230461
(State of other jurisdiction of (I.R.S. Employer
Identification No.)
incorporation or organization)
9110 Red Branch Road
Columbia, Maryland 21045
(Address of principal executive offices (Zip Code)
Issuer's telephone number, including area code: (410) 997-2599
Securities registered pursuant to Section 12(b) of the Exchange
Act:
Title of each class Name of each exchange on which
registered
None None
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Common Stock (par value $.01
per share)
(Title of each
class)
Check whether the issuer (1) has filed all reports required
to be
filed by Section 13 or 15(d) of the Exchange Act during the past
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
Check if there is no disclosure of delinquent filers in
response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be
contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's net revenues for its most recent fiscal year
were $274,978.
As of March 1, 1996, there were 18,572,805 shares of the
issuer's Common Stock and
225,342 shares of the issuer's 8% Cumulative Convertible
Preferred Stock, Series A,
outstanding. The aggregate market value of the Common Stock and
Preferred Stock
held by non-affiliates was $3,699,682, based on the last bid
quotation prices of the
Common Stock as reported by the National Association of
Securities Dealers pink sheets
on such date and, with respect to the Preferred Stock for which
no quotations were
available, based on the conversion rate applicable to the
Preferred Stock and the last bid
price of the Common Stock as reported above. (The officers and
directors of the issuer
are considered affiliates only for purposes of this calculation.)<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
IGENE Biotechnology, Inc. ("The Company") is engaged in the
business of industrial
microbiology and related biotechnologies. The Company was formed
on October 27,
1981 to develop, produce and market value-added specialty
biochemical products derived
from abundant, inexpensive and renewable agricultural residues
and wastes through the
use of state-of-the-art fermentation technology, physical and
chemical separation
technology, and related chemical and biochemical engineering
technologies.
The Company has devoted its resources to the development of
proprietary processes
to convert selected agricultural raw materials or feedstocks into
commercially useful and
cost effective specialty biochemical products for the food, feed,
flavor and agrichemical
industries. In developing these processes and products, the
Company has relied on the
expertise and skills of its in-house scientific staff and, for
special projects, various
consultants.
The Company has no manufacturing facilities other than its
pilot plant facility in
Columbia, Maryland. To date, the Company has either licensed its
products to
third-party manufacturers or joint venture partners.
Government Regulation
The manufacturing and marketing of most of the products the
Company has
developed are and will likely continue to be subject to
regulation by various
governmental agencies in the United States, including the Food
and Drug Administration
("FDA"), the Department of Agriculture ("USDA"), and the
Environmental Protection
Agency ("EPA"), and comparable agencies in other countries.
Substantially all of the
food products developed by the Company to date have been reviewed
by a panel of
independent scientific experts (the "Product Review Panel") who
are qualified by
scientific training and experience to evaluate, among other
things, the safety
of ingredients intended to be used directly or indirectly in
foods. The Product Review
Panel has advised the Company that it considers such products to
be Generally
Recognized As Safe ("GRAS") under the regulations of the FDA.
The Company is not
aware of any action by the FDA, the USDA or the EPA contesting
these affirmations or
of any basis for their doing so. There can be no assurance,
however, that such
independent expert evaluations will be accepted by the FDA, the
USDA or the EPA and
that the Company will not be required to obtain costly and
time-consuming approvals
from these agencies or comparable agencies in foreign countries.
The Company, as a
matter of policy, requires that its products conform to current
Good Manufacturing
Practices (as defined under the Federal Food, Drug and Cosmetic
Act and the rules and
regulations thereunder) and the Company believes all of its
products so conform. The
extent of any adverse governmental regulation that might arise
from future
administrative or legislative action, including current rules and
regulations pertaining to
the process of GRAS affirmations, cannot be predicted.
Research and Development
As of December 31, 1995, the Company had expended
approximately $9,900,000 on
research and development since its inception on October 27, 1981
and has, as of
December 31, 1995, received revenues from product sales of
approximately $1,738,000
from the proprietary processes resulting from such research and
development, excluding
one-time license fees received in 1982 and 1985. The Company
will continue to incur
research and development costs in connection with improvements in
its existing processes
and products, but it does not anticipate development of new
processes and products in
1996.
The Company's research and development activities have
resulted in the
development of processes to produce the products hereinafter
discussed.<PAGE>
Commercial Products
1. AstaXin
AstaXin is the Company's tradename for its dried yeast
product made from a
proprietary microorganism developed by the Company. AstaXin is
a natural source of
astaxanthin, a pigment which imparts the characteristic red color
to the flesh of salmon,
trout, and prawns. In the ocean, salmon and trout obtain
astaxanthin from krill and
other planktonic crustaceans in their diet. A crustacean diet
would be prohibitively
expensive for farm raised salmonids; without the addition of
astaxanthin, the flesh of
such fish is a pale, off-white color which is less appealing to
consumers expecting
"salmon-colored" fish. Efficacy of AstaXin has been
demonstrated by fish feeding trials
in Europe, Asia, and North and South America. An estimated
285,000 metric tons of
farm raised salmon are produced annually worldwide.
In 1991 the Company entered into a business arrangement with
Lefersa Alimentos,
S.A., ("Lefersa") in Chile to manufacture AstaXin on a
non-exclusive basis. During
1991, Lefersa experienced manufacturing problems attributed to
microbial contamination
which delayed Scale-Up and commercial production. During 1992,
Lefersa discontinued
further attempts to manufacture AstaXin . The Company has
produced ton quantities of
the product on a limited basis for evaluation and testing
purposes at a contract
manufacturing facility in Michigan.
During 1993, commercial quantities of AstaXin were
manufactured by the
Fleischmann's Yeast Division of Burns Philp Food Inc. under
contract as part of a
Technology License Agreement. On October 5, 1993, Burns Philp
informed the
Company that it would no longer manufacture AstaXin .
During 1994 commercial quantities of AstaXin were
manufactured by Pfizer Inc for
testing purposes as part of a Technology Evaluation Agreement.
Pfizer did not commit
to any long-term manufacture of the product and the Agreement was
terminated in July
1995.
In 1995 the Company signed a nonexclusive licensing
Agreement with Archer Daniels
Midland Company for manufacture and sale of AstaXin . The
Agreement provided for
an initial payment and royalties based on sales. On February
29, 1996 Archer Daniels
Midland Company informed IGENE that it would no longer use
IGENE's astaxanthin
technology and terminated the licensing agreement. The Company
is in contact with
other potential manufacturers for the product.
2. Crustacean Shell Products
ClandoSan is the Company's registered trademark for its
natural nematicide made
from crab and crawfish exoskeletons and processed into pellets or
granules by patented
and patent pending technology developed by the Company. The
product acts in soils as
a biological control agent by stimulating the growth of normal
soil microorganisms which
produce chitinase and other enzymes that degrade chitin present
in the cuticles and eggs
of plant-pathogenic nematodes. It has secondary effects as a
slow release organic
fertilizer. ClandoSan does not have a direct adverse effect on
plant-pathogenic
nematodes either in vitro or in sterilized or irradiated soils
and only acts indirectly to
suppress nematode populations in soils. The product generally is
not water soluble and,
consequently, does not contribute to ground water contamination.
On March 17, 1988, ClandoSan was registered by the EPA for
use with all
agricultural and horticultural crops in accordance with the
Federal Insecticide, Fungicide,
and Rodenticide Act ("FIFRA") section 3(c)(5). ClandoSan is now
registered in 49
states and is produced at two contract manufacturing facilities
in the United States.
During 1991, the inventories related to the Company's ClandoSan
product line
were written down to net realizable value due to the then
prevailing market conditions.<PAGE>
3. Whey-Based Products
(a) MacroMin and MinraLac
MacroMin and MinraLac are the Company's registered trade
names for coproducts
it developed for converting low economic value cheese whey into
economically and
biologically useful products for the food industry. In spite of
extensive sales efforts
throughout 1989, the Company was not able to develop a market for
these products and
they were phased out in 1990.
(b) Weyco-Serv
Weyco-Serv (or NaturServ ) is the Company's trade name for
a fermented
whey-based product containing calcium propionate and calcium
acetate that can be used
as a food preservative and mold inhibitor in the baked goods
industry, in condiments,
and in other foods and beverages. The product is produced by
fermenting modified
cheese whey residues using a patented microbial co-culture and
fermentation process
developed by the Company.
A license to manufacture and sell Weyco-Serv was granted by
the Company to
Hercules Incorporated ("Hercules"), Wilmington, Delaware, in
exchange for an initial
license fee of $500,000, pursuant to a license agreement dated as
of September 16, 1985.
Hercules had not produced commercially any quantities of
Weyco-Serv and by an
agreement dated October 15, 1987, the Company and Hercules
terminated the license
agreement.
The termination arrangement provided that the Company pay
Hercules $25,000 for
termination of the license. If the Company commercializes
Weyco-Serv , the Company
will pay Hercules up to an additional $600,000 from revenues from
the sale or licensing
of the product.
The Company continues to be interested in licensing the
Weyco-Serv technology.
4. Diagnostic Reagents
The Company has developed a number of enzymes that are
suitable as reagents for
clinical diagnostic applications. Two such microorganisms and
fermentation processes
yield high concentrations of stabilized enzymes that can be used
for the isolation of
strain-specific cell wall components in rapid diagnostic tests
for streptococcal diseases.
The Company has been granted a patent for industrial production
of a lytic enzyme
specific for Group A Streptococcus. To date, the Company has
produced only small
commercial quantities of these enzymes and continues to be
interested in manufacturing
and marketing these enzymes for use in diagnostic test kits.
5. Flavors and Fragrances
The Company has developed natural flavor and fragrance
chemicals by fermentation
of whey and other carbohydrates. Patent applications on the
proprietary microorganisms
developed by the Company have been submitted in Europe and in the
United States.
The fermentation processes yield a range of water-soluble
low molecular weight
organic (carboxylic)acids which can be converted with naturally
occurring alcohols into
esters which are commercially useful both as food flavors and as
fragrances in cosmetic
and toiletry products.
The Company has also developed a fermentation process for
the production of
Poly-LevuLan , its trademark for a high molecular weight fructose
polymer which can be
used as a flavor carrier or as a foam stabilizer and thickener in
food and cosmetic
applications.
The Company is continuing to seek opportunities to
commercialize its
flavors/fragrances technology.<PAGE>
Patents and Trademarks
It is the Company's policy to protect its intellectual
property rights by a variety of
means, including applying for patents and trade marks in the
United States and in other
countries. The Company also relies upon trade secrets and
improvements, unpatented
proprietary know-how and continuing technological innovation to
develop and maintain
its competitive position. In this regard, the Company places
restrictions in its
agreements with third parties with respect to the use and
disclosure of any of its
proprietary technology. The Company also has internal
nondisclosure safeguards,
including confidentiality agreements with employees and
consultants.
During fiscal years 1993, 1994, and 1995, as part of the
Company's stringent cost
containment efforts, all patents and trademarks were carefully
reviewed and those with
no foreseeable commercial value have been abandoned to eliminate
costly maintenance
fees. Patents (and applications) and/or trademarks on technology
with recognized
commercial value include those for AstaXin , ClandoSan ,
Weyco-Serv , and
streptococcus lytic enzyme. Extensive additional foreign
applications for AstaXin have
been submitted.
Competition
Competitors in the biotechnology field in the United States
and elsewhere are
numerous and include major chemical, pharmaceutical and food
companies, as well as
specialized biotechnology companies. Competition can be expected
to increase as small
biotechnology companies continue to be purchased by major
multinational corporations
with their huge resources. Competition is also expected to
increase with the
introduction of more diverse products developed by biotechnology
firms, increasing
research cooperation among academic institutions and large
corporations, and continued
government funding of research and development activities in the
biotechnology field,
both in the United States and overseas. Unlike the majority of
biotechnology
companies, which are developing products principally for the
pharmaceutical industry,
the Company has focused its own activities on the development of
proprietary products
for use in food, fermentation and agricultural industries. In
the future, however,
competitors may offer products which, by reason of price or
efficacy or more
adequate resources for technology advances, may be superior to
the Company's existing
or future products.
In addition, the aquaculture market into which the Company's
product, AstaXin , will
be sold is a highly competitive industry worldwide and certain
large companies are
presently known to be developing and marketing competitive
products.
Employees
At December 31, 1995, the Company had 9 employees, two of
whom are in
administration and marketing, while the remainder are engaged in
process development
and support of manufacturing activities.
None of the Company's employees is represented by a labor
union and the Company
has experienced no work stoppages. The Company believes its
relations with its
employees are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases 8,480 square feet of space in the Oakland
Ridge Industrial Park
located at 9110 Red Branch Road, Columbia, Maryland. The Company
occupies the
space under leases which expired on January 31, 1996 with an
approximate rental
expense of $72,000 for 1995. In late 1995 the Company signed a
five year lease expiring
on January 31, 2001. Approximate rental expense for the year
1996 is $70,000 and
$73,000 for each remaining year of the lease expiring on January
31, 2001.
Approximately 2,000 square feet of the space occupied by the
Company is used for
executive and administrative offices and approximately 2,300 feet
is used for research and
development activities. Approximately 4,000 square feet of space
is used for the
Company's intermediate-stage or scale-up pilot plant facility.<PAGE>
In addition,
the Company has a 180 square-foot Biosafety
Level 2 Laboratory
suitable for manufacturing bacterial enzymes for in vitro
diagnostic kits.
The Company owns all equipment necessary for its current
operations and all
equipment is in satisfactory condition.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's
security holders during
the fourth quarter of the fiscal year ended December 31, 1995.<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Preferred Stock
Prices for the Preferred Stock were quoted on the
over-the-counter market on the
National Association of Securities Dealers, Inc. Automated
Quotation System
("NASDAQ") from November 25, 1987 through January 25, 1988.
Prior to November
25, 1987 there was no public market for the Preferred Stock and
since January 25,
1988, no quotations for the Preferred Stock have been reported on
NASDAQ. The
aggregate number of record holders of Preferred Stock as of March
1, 1996 was 17 (17 in
1995).
Common Stock
The Common Stock has been traded in the over-the-counter
market since July 23,
1986. Prior to July 23, 1986, there was no public market for the
Common Stock.
On or about June 9, 1989, the Company was advised by NASDAQ
that its capital
and surplus (exclusive of Redeemable Preferred Stock), based on
its financial statements
at and for the quarter ended March 31, 1989, did not meet
requirements for continued
inclusion in the NASDAQ System. Accordingly, the quotation of
Common Stock in the
NASDAQ System was terminated.
Commencing on or about June 12, 1989, the Company's Common
Stock began
trading on the over-the-counter market on a limited basis and is
quoted in the national
bureau's "Pink Sheets". The following table shows, by calendar
quarter, the range of
representative bid prices for the Common Stock for 1994 and 1995.
<TABLE>
<CAPTION>
Calendar Quarter High Low
<S> <C> <C>
1994: First Quarter $1.06 $ .13
Second Quarter $ .75 $ .25
Third Quarter $ .56 $ .31
Fourth Quarter $ .38 $ .31
1995: First Quarter $ .13 $ .06
Second Quarter $ .31 $ .02
Third Quarter $ .13 $ .02
Fourth Quarter $ .13 $ .01
</TABLE>
The above information was obtained by management from the
National Quotation
Bureau. Such quotations are inter-dealer quotations without
retail mark-up,
mark-downs, or commissions, and may not represent actual
transactions. The above
quotations do not reflect the "asking price" quotations of the
stock.
The aggregate number of record holders of the Common Stock
as of March 1, 1996
was 252. As of March 1, 1996, the high and low bid prices for
the Common Stock, as
shown in the "pink sheets" were $0.09 and $0.01, respectively.
<PAGE>
Warrants
On or about February 15, 1991, the Company issued Warrants
to purchase an
aggregate of 800,000 shares of Common Stock to Kimelman & Baird,
LLC, an employee
of the same and Anthony B. Low-Beer, exercisable at $.25 per
share until February 14,
1995. The Warrants were issued to the aforementioned for acting
as placement agent in
the Company's private placement of $1,149,000 in gross proceeds
which closed February
15, 1991 and there are substantial restrictions against the
transfer of these Warrants.
The Warrants were not publicly traded and there were no trades of
these Warrants
before the expiration date.
On or about June 26, 1992, the Company issued Warrants to
purchase an aggregate
of 252,400 shares of Common Stock to Kimelman & Baird, LLC, at
$.75 per share until
June 26, 1996. The Warrants were issued to the aforementioned
for acting as placement
agent in the Company's private placement of $510,500 in gross
proceeds which closed
June 26, 1992 and there are substantial restrictions against the
transfer of these
Warrants. In addition, 680,667 warrants to purchase common stock
at $.75 per share
were issued to other qualified investors as part of the private
placement. These
warrants expired June 26, 1995. These Warrants were not publicly
traded and there
were no trades of these Warrants before the expiration date.
On December 14, 1995 stockholders of the Company approved
the cancellation of
certain promissory notes of the Company in favor of those
directors who made loans to
the Company on various dates from August 25, 1993 through March
7, 1995 for an
aggregate amount of $536,300, and to issue common stock and
warrants to purchase the
same number of shares as common stock at the per share price of
$.125, which warrants
shall expire on April 3, 1998.
The aggregate number of record holders of all Warrants
as of March 1, 1996 was
6.
Dividend Policy
When and if funds are legally available for such payment
under statutory restrictions,
the Company may pay annual cumulative dividends on the Preferred
Stock of $.64 per
share on a quarterly basis. During 1988 the Company declared and
paid a cash dividend
of $.16 per share. In December 1988, the Company suspended
payment of the quarterly
dividend of $.16 per share of Preferred Stock. No dividends have
been declared or
paid since 1988. Any resumption of dividend payments on
Preferred Stock would
require significant improvement in cash flow. Preferred Stock
dividends are payable
when and if declared by the Company's board. Unpaid dividends
accumulate for future
payment or addition to the liquidation preference and redemption
price of the Preferred
Stock. As of December 31, 1995 the total amount of dividends in
arrears with respect to
the Company's Preferred Stock was $1,047,907.
Dividends on Common Stock are currently prohibited because
of the preferential
rights of holders of Preferred Stock. The Company has paid no
cash dividends on its
Common Stock in the past and does not intend to declare or pay
any dividends on its
Common Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
1995 Compared with 1994
Sales revenue for the year ended December 31, 1995 decreased
from $113,166 in 1994
to $25,563 in 1995. The decrease in overall sales revenues
(77%) resulted from a
decrease in domestic sales of ClandoSan . Until results of
additional in progress field
testing of ClandoSan are completed, the Company expects to
continue to focus its
efforts on AstaXin . However, long-term production and sales of
AstaXin will depend
on the Company's ability to find suitable manufacturing partners
since it has no
commercial scale manufacturing facilities of its own. No
commercial quantities of
AstaXin were available for sale in 1995. In May 1995 the
Company executed a
non-exclusive technology licensing and royalty agreement with
Archer Daniels Midland
Co. However, on February 29, 1996 Archer Daniels Midland
informed the Company
that it would no longer utilize the technology and terminated the
agreement. The
Company is in discussion with other potential manufacturers for
AstaXin and, in
addition, is seeking additional investment to enable it to
purchase or lease a
manufacturing facility of its own. Additional sales of ClandoSan
will depend on
continued marketing arrangements with distributors for the
product, the Company
expects to continue its own limited sale of these products in the
near future.
Cost of product sales as a percentage of product sales
increased to 66% in 1995 from
33% in 1994. The margins in 1994 reflect sales of AstaXin that
was received at a
reduced cost as part of a contract agreement.
Research, development and pilot plant expenses decreased
approximately $44,000 for
the current year. The expenses in 1994 reflected a one-time fee
related to the scale-up
of the Company's AstaXin product which was not incurred in 1995.
Research and
development costs may be expected to increase gradually in
support of increased
manufacturing efforts for AstaXin , but would be offset by
technology licensing and
technology services income.
Marketing, general and administrative expenses in 1995 were
comparable to the
expenses in 1994. Marketing expenses related to the Company's
AstaXin product could
be expected to increase if production and sale of AstaXin
proceeds, but this will depend
on marketing arrangements with distributors of the product.
This increase would be
offset by sales income from licensing additional technology.
General and administrative
expenses could be expected to rise to reflect increasing costs
of maintaining and
enforcing the Company's patents and patent applications for
AstaXin and ClandoSan
worldwide, but only if commercial quantities of the products are
manufactured.
Interest expense for the year ended December 31, 1995
decreased by approximately
$10,000 over the prior year. This decrease reflects the decrease
in accumulating interest
due on promissory notes issued to certain directors of the
Company after conversion of
some of the notes for equity.
In 1995, the Company's operational costs were offset by
aggregate payments totalling
$249,215, which are part of a Licensing Agreement for AstaXin .
As a result of the foregoing, the Company reported a net loss
of $503,156, or $.04 per
common share in 1995, compared to a net loss of $540,260, or $.04
per common share in
1994. The weighted average number of common shares outstanding
increased to
13,694,343 in 1995 from 13,002,050 in 1994. This increase in
shares in 1995 reflects the
annual issuance of common stock as payment of interest on a
variable note subordinated
debenture, a private placement of 1,200,000 shares of common
stock by certain directors
of the Company and the issuance of an additional 4,290,400 shares
of common stock in
cancellation of promissory notes to certain directors of the
Company.
On January 19, 1995, 250 shares of redeemable preferred stock
was converted into 500
shares of common stock of the Company.
Financial Position
In December 1988, as part of an overall effort to contain
costs and conserve working
capital, the Company suspended payment of the quarterly dividend
on its Preferred
Stock. Resumption of the dividend will require significant
improvements in cash flow.
Unpaid dividends cumulate for future payment or addition to the
liquidation preference
or redemption value of the Preferred Stock. As of December 31,
1995, total dividends
in arrears on the Company's Preferred Stock was $1,047,907 of
which $177,907 ($4.64
per share) was included in the carrying value of the redeemable
Preferred Stock and
$870,000 ($4.64 per share) was included in the liquidation
preference of the Preferred
Stock.
<PAGE>
Liquidity and Capital Resources
Historically, the Company has been funded primarily by equity
contributions, loans
from stockholders and license fees. As of December 31, 1995 the
Company had a
working capital deficit of $336,992, and cash and cash
equivalents of $8,326.
Beginning in September of 1989, and continuing through 1995,
the Company followed
a plan designed to reduce expenses and conserve working capital.
This plan included the
reduction in staff as well as reductions in all areas of the
Company's selling, research,
general and administrative expenses and refocusing of research
and development
activities solely on the Company's AstaXin product. These
budgeted expenditures
provided for minimizing capital expenditures for the Company's
pilot plant facility in
Columbia, Maryland or for any new manufacturing facilities.
Cash used by operations in 1994 and 1995 amounted to $287,195
and $340,904,
respectively. IGENE continues to focus on research and
development of its products,
achieving only minimal sales of its ClandoSan and AstaXin
products. IGENE was able
to reduce the amount of cash required to fund 1995 operations
through a Licensing
Agreement for AstaXin with Archer Daniels Midland Co. ("ADM"),
Decatur, Illinois,
signed in May 1995. That Agreement provided for a cash payment
of $200,000 at signing
and a royalty based on sales. In addition, the Company has
received $24,415 from ADM
for technology services related to the Agreement. On December 4,
1995, the Company
also received a payment of $25,000 from ADM as stipulated in the
licensing Agreement.
On February 29, 1996, ADM terminated its Licensing Agreement with
the Company.
Cash used in investing activities amounted to $ 2,369 and
$5,973, respectively in 1995
and 1994. Capital expenditures decreased from $20,973 in 1994 to
$2,369 in 1995,
reflecting the continuation of plans to minimize capital
expenditures. IGENE believes its
existing equipment is substantially sufficient to meet its needs
in continuing its research
and development activities in the foreseeable future. Also, cash
of $15,000 was provided
in 1994 by the sale of unused equipment. No equipment was sold
in 1995.
Following is a detail of the Company's financing activities for
1995:
On January 23, 1995, and March 7, 1995, the Company issued
Promissory Notes to
certain directors of the Company (Kimelman, Kempner, Abeles,
Cenerazzo and Knafel)
for an aggregate consideration of $126,750. The notes specify
that interest will be paid
quarterly in arrears at Prime Rate. In addition, at any time
before repayment, the value
of the notes may be converted to common shares of the Company at
$.1875 per share for
the notes dated January 23, 1995, and $.125 per share for the
notes dated March 7, 1995.
On December 14, 1995 the January 23, 1995 and March 7, 1995
notes were terminated,
with equal amounts of common stock and warrants being issued in
their place equal to
the principal amount of each of the notes divided by $.125 which
was the per share price
of the stock at the time.
On July 24, 1995 the Directors approved a Resolution to
purchase from the Company
1,200,000 shares of common stock of the Company at a price of
$.125 per share for an
aggregate purchase amount of $150,000. Such shares were issued
on August 15, 1995.
On November 16, and December 22, 1995, the Company issued
Promissory Notes to
certain Directors of the Company for an aggregate consideration
of $100,000. These
notes specify that at any time prior to repayment the holder has
the right to convert the
notes to common stock of the Company at $.05 per share and to
receive a warrant for an
equivalent number of common shares at $.05 per share. $55,320 of
this total was
received prior to December 31, 1995, the remaining $44,680 was
received during January
1996.
At its Annual Meeting on December 14, 1995 the shareholders of
the Company
approved the conversion of all Promissory Notes issued to certain
directors of the
Company (Kimelman, Kempner, Abeles, Cenerazzo, Knafel, and
Low-Beer) from
August 1993 until February 10, 1994, into Common Stock, along
with Warrants to
purchase additional shares of Common Stock at a price of $.125
per share at any time
during the period from April 3, 1995 to April 3, 1998, all shares
being equal to the
aggregate principal amount of the Loans divided by $.125, which
was the fair market
value of the Common Stock as quoted on April 3, 1995 by the
National Quotation
Bureau. These shares were issued on December 14, 1995.
To continue operations short term, the Company will consider
issuing additional stock
to officers and directors and encouraging holders of outstanding
warrants to exercise
these rights. To increase its working capital position the
Company will also encourage
the holders of promissory notes to convert them into common
stock. To meet
short-term cash needs the Company plans to issue additional notes
to certain directors in
February of 1996.
In the long-term, the Company is also continuing its
development of additional
AstaXin technology which it plans to license and market and
which it hopes will benefit
future periods.
The Company does not believe that inflation has had a
significant impact on the
Company's operations during the past three years.
ITEM 7. FINANCIAL STATEMENTS
The financial statements appear after Part IV of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
None.<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL
PERSONS, AND KEY
EMPLOYEES
The Company's directors are elected annually by the shareholders
of the Company. The
directors, executive officers and key employees of the Company
are as follows:
<TABLE>
<CAPTION>
Name Age Position with IGENE
<S> <C> <C>
Michael G. Kimelman 57 Chairman of the Board of
Directors
Thomas L. Kempner 68 Vice Chairman of the Board
of Directors
Stephen F. Hiu 39 Director, President,
Secretary, Acting Treasurer,
and Director of Research and
Development
Dexter W. Gaston * 50 Chief Executive Officer
Patrick F. Monahan 45 Director, and Director of
Manufacturing
Joseph C. Abeles 81 Director
John A. Cenerazzo 72 Director
Sidney R. Knafel 65 Director
Anthony Low-Beer ** 53 Director
R. Todd Lorenz 35 Senior Research Microbiologist
* Mr. Gaston was appointed CEO of the Company on January
12, 1996.
** Mr. Low-Beer resigned as Director on May 15, 1995.
</TABLE>
MICHAEL G. KIMELMAN was elected a Director of the Company in
February 1991
and Chairman of the Board of Directors in March 1991. He is the
Managing Partner of
Kimelman & Baird, LLC. He is a founder of Blue Chip Farms, a
standardbred
horse-breeding farm, and has been an officer of the same since
its inception
in 1968. Mr. Kimelman is currently a Director of the Harness
Horse Breeders of New
York State and serves on the Board of the Hambletonian Society.
THOMAS L. KEMPNER is Vice Chairman of the Board of Directors and
has been a
Director of the Company since its inception in October 1981. He
is and has been
Chairman and Chief Executive Officer of Loeb Partners
Corporation, investment
bankers, New York, and its predecessors since February 1978. He
is currently a
Director of Alcide Corporation, Arlen Development Corp., Energy
Research Corp.,
Intermagnetics General Corp., Northwest Airlines, Inc., Roper
Worldwide, Inc., and
Silent Radio, Inc.
<PAGE>
STEPHEN F. HIU was appointed President and Treasurer in March
1991, Secretary in
July 1990, and elected a Director in August 1990. He has been
Director of Research
and Development since January 1989 and, priorthereto, was Senior
Scientist since
December 1985, when he joined the Company. He was a
post-doctoral
Research Associate at the Virginia Polytechnic Institute and
State University, Blacksburg,
Virginia, from January 1984 until December 1985. Dr. Hiu holds a
Ph.D. degree in
microbiology from Oregon State University and a B.S. degree in
biological sciences from
the University of California, Irvine.
DEXTER W. GASTON was appointed Chief Executive Officer on January
11, 1996.
Prior positions include CEO of Microbio Resources, Managing
Director of Algatec, CEO
and Chairman of Reclaimex and Director of Technical Operations,
Revlon Health Care.
He is also a Director of the California Wine Company. He holds a
B.S. in chemistry
from Rutgers University and an M.B.A. from the University of
Chicago.
PATRICK F. MONAHAN was appointed Director of Manufacturing and
elected a
Director of the Company in April 1991 and has managed the
Company's fermentation
pilot plant since 1982. Prior thereto, he was a technical
specialist in the fermentation
pilot plant of W.R. Grace and Co. from 1975 to 1982. He received
an Associate
in Arts degree in biology from Allegheny Community College and a
B.S. degree in
biology with a minor in Chemistry from Frostburg State College,
Frostburg, Maryland.
JOSEPH C. ABELES, private investor, was elected Director of the
Company on
February 28, 1991. Mr. Abeles serves as Director of
Intermagnetics General
Corporation, Patten Corporation, Peridot Holdings, Inc. and
Ultralife Batteries, Inc.
JOHN A. CENERAZZO was Chairman of the Board from November 1989 to
April
1991. He served as President of the Company from August 1988
through September
1989 and has been a Director since September 1987. He is
presently Chairman of the
Executive Committee and Director of National Penn Bank Shares,
Inc. of Boyertown,
Pennsylvania and a Director of National Penn Bank, a Director of
U.S. Axle
Corporation, and a Chairman and a Director of InfoCore,
Incorporated.
SIDNEY R. KNAFEL, a Director of the Company since 1982, has been
Managing
Partner of SRK Management Company, a private investment concern,
New York, since
1981, Chairman of Insight Communications, Inc. since 1985, and of
Microbiological
Associates, Inc. since 1985. Mr. Knafel is also currently a
Director of Cellular
Communications, Inc., Cellular Communications International,
Inc., Cellular
Communications of Puerto Rico, Inc., General American Investors
Company, Inc.,
International CableTel Inc., four Prudential mutual funds, and
other private companies.
R. TODD LORENZ joined the Company in October 1992 as Senior
Research
Microbiologist. A specialist in yeast physiology and molecular
genetics, he was a
post-doctoral research associate at North Carolina State
University from January 1990
until October 1992 and has served as a consultant on strain
improvement and
fermentation for carotenoid production. Dr. Lorenz holds a Ph.D.
degree in Microbial
Physiology from North Carolina State University and a B.S. degree
in Microbiology from
Oregon State University.
Compliance with Section 16(a) of the Exchange Act
Forms 3 and 4 were filed by the Company in a timely manner in
accordance with
Section 16(a) of the Securities Act of 1934.
ITEM 10. EXECUTIVE COMPENSATION
During 1995, Michael G. Kimelman, Chairman of the Company's
Board of Directors
served as Chief Executive Officer. Mr. Kimelman received no cash
compensation for his
services. During 1995, no executive officer's annual cash
compensation exceeded
$100,000.
Other than the 1986 Stock Option Plan described below, the
Company has no profit
sharing, incentive compensation or retirement plans.
Stock Option Plan
The 1986 Stock Option Plan (the "Plan"), which was approved by
the stockholders on
May 5, 1987 and amended on June 12, 1989, August 8, 1990, March
17, 1994, and
December 14, 1995, provides for the issuance of options to
acquire up to 2,000,000
shares of Common Stock of the Company.
The Plan is administered by a committee appointed by the
Company's Board of
Directors (the "Committee"). The Board of Directors may
administer the Plan itself in
the absence of an appointed Committee, or by vote of a majority
of the members of the
Board of Directors if a Committee is not in existence.
The purpose of the Plan is to promote the long-term success of
the Company by
providing an incentive to directors and employees providing
services to the Company and
by encouraging such individuals to acquire a proprietary interest
in the Company. Any
employee, officer or director of the Company who is determined by
the Committee to be
a "Key Employee" is eligible to receive options under the Plan.
The term of each option
granted under the Plan will be for such period as the Committee
may determine, but in
no event to exceed 10 years from the grant of such option. With
respect to options
granted, the option price may be greater than, less than or equal
to, the fair market
value of the Company's Common Stock at the time the option is
granted, as
determined in the discretion of the Committee. The Company may,
in conjunction with
the grant of options under the Plan, grant bonuses to optionees
to assist them in the
payment of income tax liabilities incurred upon the exercise of
options, and may make or
guarantee loans to optionees to assist them in the exercise of
options. No option can be
granted by the Committee under the Plan on or after January 22,
1997. The Committee
may modify, extend or renew outstanding options granted under the
Plan, or accept the
surrender of outstanding options, to the extent not previously
exercised.
Options are exercisable in annual installments, in such manner
as the Committee may
determine. Options may be exercised by payment in full of the
option price in cash, by
tender of shares of the Company's Common Stock having a total
fair market value on
the date of exercise equal to the option price (subject to
certain limitations) or in such
other consideration as may be approved by the Committee. The
Committee has the
power to condition the exercise of any option granted under the
Plan on the continued
employment by the Company of the Key Employee at the time of
exercise or on the
attainment of specified performance goals by the Key Employee or
by the Company.
In the event of a reclassification, recapitalization, stock
exchange, stock split, stock
dividend or other similar event affecting the Company's Common
Stock, the number and
class of shares under previously granted options and the option
price payable upon
exercise of such options will be appropriately adjusted by the
Committee to reflect the
change in such manner as the Committee may determine. In the
event of a proposed
merger, consolidation, share exchange or similar transaction to
which the Company
would be a party, or in the case of a tender offer for the
Company's stock, the
Committee or the Board of Directors may take such action as may
be appropriate to
protect the holders of options and to effectuate the purpose of
the Plan.
The Board of Directors may terminate, suspend or amend the
Plan at any time,
without the approval of the Company's stockholders.
Stockholders' approval is required
to amend the Plan to (i) increase the aggregate number of shares
subject thereto, (ii)
change the provisions for establishing the option price, (iii)
permit options to be
exercisable after the period ending on the tenth anniversary date
of the grant of the
option, (iv) extend the term of the Plan, (v) materially modify
the requirements as to
eligibility for participation in the Plan or (vi) materially
increase the benefits accruing to
participants under the Plan.
<PAGE>
In 1989 the Company took action to replace outstanding options
for the purchase of
64,000 shares at $5.40 per share with options to purchase 64,000
shares at $1.00 per
share, but otherwise having the same terms as the options
replaced.
Currently, there are a total of 8 persons eligible to
participate in the Plan.
Options to acquire 1,059,750 shares of Common Stock of the
Company have been
issued and 952,750 shares of Common Stock are outstanding under
the Plan. Options
for 107,000 shares of Common Stock were exercised in fiscal 1993.
No options were
exercised in fiscal years 1994, or 1995.
The following table sets forth information as to all incentive
and non-statutory stock
options that have been granted to the executive officers of the
Company. No options
were exercised by any officer during 1995. The following table
provides information
regrading the number of shares covered by both exercisable and
unexercisable stock
options for executive officers as of December 31, 1995 and the
values of "in-the-money"
options as of that date. An option is "in-the-money" if the per
share fair market value of
the underlying stock exceeds the option exercise price per share.
<TABLE>
<CAPTION>
Aggregate Fiscal Year End Option Values
Number of
Dollar Value of
Number Unexercised Options
In-The-Money Options
of Shares Dollar At End of Fiscal Year
At End of Fiscal Year1
Acquired on Value
Name Exercise Realized Exercisable/Unexercisable
Exercisable/Unexercisable
<S> <C> <C> <C> <C>
Stephen F. Hiu ------ ------- 355,000/100,000 0/0
Patrick F. Monahan ------ ------- 262,500/80,000 0/0
</TABLE>
1. The value of unexercised in-the-money options at December 31,
1995 is based on the
difference between $.09 per share and the per share option
exercise price, multiplied by
the number of shares of common stock underlying such option.
Compensation of Directors
During 1995, Directors were not compensated for their Board or
Committee activities.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of March 1, 1996
with respect to
beneficial ownership of shares of the Company's outstanding
Common Stock and
Preferred Stock by (i) each person known to the Company to own
more than five
percent of its Common Stock or Preferred Stock, (ii) each
Director, and (iii) all
Directors and Officers as a group.
<TABLE>
<CAPTION>
Common Stock
Preferred Stock
Number of
Number
Name and Address Shares Percent
Shares Percent
<S> <C> <C> <C> <C>
Joseph C. Abeles 4,658,638<F1> 15.4 ----- -----
c/o Abel Associates
220 E. 42nd Street
New York, NY 10017
John A. Cenerazzo 647,614 <F2> 2.1 ----- -----
Stokesay Castle Lane
Reading, PA 19606
Dexter W. Gaston 472,834<F3> 1.6 ----- -----
18278 Hadden Hall Court
San Diego, CA 92128
Stephen F. Hiu 415,500<F4> 1.4 ----- -----
9110 Red Branch Road
Columbia, MD 21045
Thomas L. Kempner 5,331,069<F5> 17.6 ----- -----
c/o Loeb Partners Corporation
61 Broadway
New York, NY 10006
Michael G. Kimelman 2,025,064<F6> 6.7 ----- -----
c/o Kimelman & Baird, LLC
100 Park Avenue, Suite 1105
New York, NY 10017
Sidney R. Knafel 4,523,732<F7> 15.0 ----- -----
c/o SRK Management
126 East 56th Street
New York, NY 10022
Anthony B. Low-Beer 1,133,580<F8> 3.8 ----- -----
c/o Mitchell Securities
100 Park Avenue, Suite 2150
New York, NY 10017
Patrick F. Monahan 314,500<F9> 1.0 ----- -----
9110 Red Branch Road
Columbia, MD 21045
All Directors and Officers 19,522,531<F10> 64.6 ----- -----
as a Group (9 persons)
Dow Chemical Company 588,336<F11> 1.9 187,500 100.0%
2030 Willard H. Dow Center
Midland, MI 48674
All Shareholders 30,242,873<F12> 100.0 187,500 100.0%
<PAGE>
<FN>
<F1> Includes the following: 2,109,404 shares and warrants for
991,344 shares held by
Mr. Abeles, 769,500 shares and warrants for 769,500 shares
subject to the conversion of
$48,450 of promissory notes held by Mr. Abeles, 4,140 shares
held by Mr. Abeles' wife,
2,250 shares subject to the redemption of 1,125 shares of
redeemable preferred stock
held by Mr. Abeles, and 12,500 shares subject to the redemption
of 6,250 shares of
redeemable preferred stock owned by Mr. Abeles' wife. Mr. Abeles
disclaims beneficial
ownership of the shares held in a trust for which he is the
trustee and the shares held by
his wife.
<F2> Includes 283,458 shares and warrants for 131,192 shares
held by Mr. Cenerazzo,
32,750 shares which are subject to options currently exercisable
or exercisable within 60
days, and includes 414 shares held by Mr. Cenerazzo's wife. Also
includes 99,900 shares
and warrants for an additional 99,900 shares subject to the
conversion of $6,290 of
promissory notes held by Mr. Cenerazzo.
<F3> Includes 472,834 shares which are subject to options
currently exercisable.
<F4> Includes 500 shares held by Dr. Hiu and 415,000 shares
which are subject to
options currently exercisable or exercisable within 60 days.
<F5> Includes 386,972 shares and warrants for 212,960 shares
held by Mr. Kempner;
94,000 shares held by a trust under which Mr. Kempner is one of
two trustees and the
sole beneficiary; 1,482,987 shares and warrants for 931,744
shares held by a trust under
which Mr. Kempner is one of two trustees and a one-third
beneficiary; 182,526 shares
held by his wife; and 257,880 shares held by trusts under which
Mr. Kempner is one of
two trustees with his brothers as beneficiaries. Also includes
891,000 shares and warrants
for an additional 891,000 shares subject to the conversion of
$56,100 of promissory notes
held by a trust under which Mr. Kempner is one of two trustees
and a one-third sole
beneficiary. Mr. Kempner has disclaimed beneficial ownership of
all but 386,972 shares
held in his name; 94,000 shares held by a trust under which he is
the sole beneficiary,
494,329 of the shares held by a trust of which he is a one-third
beneficiary, and 297,000
of the shares and warrants for an additional 297,000 of the
shares subject to the
conversion of promissory notes held by a trust under which Mr.
Kempner is one of two
trustees and a one-third beneficiary.
<F6> Includes 521,104 shares and warrants for 521,104 shares
held by Mr. Kimelman.
Also includes 263,256 shares and warrants for 252,400 shares held
by Kimelman & Baird,
LLC, and 100,000 shares held by his wife, of which Mr. Kimelman
disclaims all but his
partnership interest in Kimelman & Baird, LLC. Also includes
183,600 shares and
warrants for an additional 183,600 shares subject to the
conversion of $11,560 or
promissory notes held by Mr. Kimelman.
<F7> Includes 1,505,945 shares and warrants for 967,016 shares
held by Mr. Knafel,
and 538,771 shares held in trust for the benefit of Mr. Knafel's
sons. Also includes
756,000 shares and warrants for an additional 756,000 shares
subject to the conversion of
$47,600 of promissory notes held by Mr. Knafel.
<F8> Includes 596,540 shares and warrants for an additional
535,040 shares held by
Mr. Low-Beer; and 2,000 shares held by trusts under which Mr.
Low-Beer is the trustee
and his children are beneficiaries.
<F9> Includes 2,000 shares held by Mr. Monahan and 312,500
shares which are
subject to options currently exercisable or exercisable within 60
days.
<PAGE>
<F10> Includes 1,233,084 shares of common stock which are
subject to options
currently exercisable or exercisable within 60 days; unexpired
warrants to purchase
4,542,800 shares of common stock; 14,750 shares of common stock
subject to the
redemption of 7,375 shares of redeemable preferred stock; and
2,700,000 shares of
common stock and warrants to purchase an additional 2,700,000
shares of common stock
subject to the conversion of $170,000 of promissory notes held by
Directors of the
Company. Preferred stock does not include 7,375 shares held or
beneficially owned by a
Director, which are subject to redemption at the rate of two
shares of common stock for
each preferred share, and have therefore been included in shares
of common stock
beneficially owned by Directors at their equivalent value of
14,750 shares of common
stock. The redeemable preferred shares carry voting rights prior
to their redemption at
two votes per share.
<F11> Includes 213,336 shares of common stock which represent
shares issued in lieu
of interest on the $1,500,000 debenture held by Dow, and 375,000
shares of common
stock subject to the conversion of the $1,500,000 debenture. The
debenture carries no
voting rights prior to its conversion. Dow has waived certain
redemption rights as to the
187,500 shares of preferred stock which it holds and which are
not redeemable at the
shareholder's option. These limited redemption preferred shares
carry no voting rights
prior to redemption.
<F12> For the purposes of this table, total outstanding shares
of common stock
includes shares which are subject to rights of acquisition within
sixty days as follows:
1,275,584 shares of common stock which are subject to options
currently exercisable or
exercisable within 60 days; unexpired warrants to purchase
4,542,800 shares of common
stock; 2,700,000 shares and warrants to purchase an additional
2,700,000 shares of
common stock which are subject to the conversion of $170,000 of
promissory notes held
by Directors; 375,000 shares of common stock which are subject to
the conversion of the
$1,500,000 debenture held by Dow; and 76,684 shares of common
stock which are subject
to the redemption of 38,342 shares of redeemable preferred stock
outstanding, and which
shares have not been included in total outstanding preferred
stock for the purposes of
this table.
</FN>
/TABLE
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective February 15, 1991, the Company accepted
subscriptions in a private
placement to purchase 4,596,000 newly issued shares of Common
Stock from accredited
investors, certain of whom were Directors of the Company. The
shares were issued at a
price of $.25 per share for an aggregate consideration of
$1,149,000. The Company
engaged the investment banking firm of Kimelman & Baird, LLC
("Firm") to act as
placement agent for the offering. Michael G. Kimelman, a general
partner, and Anthony
B. Low-Beer, at the time an employee of Kimelman & Baird,
primarily directed
placement efforts. The Company agreed to pay the Firm, an
unrelated employee of the
Firm and Anthony B. Low-Beer an aggregate placement fee in the
form of a
Warrant to purchase 800,000 shares of Common Stock at an exercise
price of $.25 per
share exercisable over a period of four years ending February 14,
1995. Messrs.
Kimelman and Low-Beer also serve as members of the Board of
Directors of the
Company.
The shares were issued by the Company on February 15, 1991 in
order to provide the
Company with working capital funds for fiscal year 1991.
Effective June 26, 1992 the Company accepted subscriptions in
a private placement to
purchase 680,667 newly issued shares of Common Stock from
accredited investors,
certain of whom were Directors of the Company. The shares and
warrants for an
additional 680,667 shares were issued at a price of $.75 per
share for an aggregate
consideration of $510,500. Kimelman & Baird, LLC acted as
placement agent for the
offering and received an aggregate placement fee in the form of a
Warrant to purchase
252,400 shares of Common Stock at $.75 per share exercisable over
a period of four
years until June 26, 1996. The shares issued by the Company in
this offering were to
provide the Company with working capital funds through the first
quarter 1993.
On August 23, 1993 and on or about November 19, 1993, the
Company issued
Promissory Notes to certain directors of the Company (Kimelman,
Kempner, Abeles,
Cenerazzo, Knafel and Low-Beer) for an aggregate consideration of
$108,250 and
$131,050, respectively. The notes specify that interest will be
paid quarterly in arrears at
Prime Rate. In addition, at any time before repayment, the value
of the note may be
converted to common shares of the Company at $.48 per share and
the Company will
provide a warrant to purchase a like number of shares at $.48 per
share.
On February 10, 1994, the Company issued Promissory Notes to
certain directors of
the Company (Kimelman, Kempner, Abeles, Cenerazzo, Knafel and
Low-Beer) for an
aggregate consideration of $22,000. The notes specify that
interest will be paid quarterly
in arrears at Prime Rate. In addition, at any time before
repayment, the value of the
notes may be converted to common shares of the Company at $.375
per share. In
the event of any such conversion, warrants to purchase a like
number of common shares
at a price of $.375 per share shall be issued, which warrant may
be exercised by the
holder at any time subsequent to delivery.
On September 26, 1994, October 24, 1994, and November 28,
1994, the Company
issued Promissory Notes to certain directors of the Company
(Kimelman, Kempner,
Abeles, Cenerazzo, and Knafel) for an aggregate consideration of
$50,000, $50,000, and
$48,250, respectively. The notes specify that interest will be
paid quarterly
in arrears at Prime Rate. In addition, at any time before
repayment, the value of the
notes may be converted to common shares of the Company at $.25
per share and the
Company will provide warrants to purchase a like number of common
shares at a price
of $.25 per share. $1,750 of this amount was not received until
January, 1995.
On January 23, 1995, and March 7, 1995, the Company issued
additional promissory
notes to certain directors of the Company (Kimelman, Kempner,
Abeles, Cenerazzo, and
Knafel) for an aggregate consideration of $125,000. The notes
specify that at any time
prior to repayment the holder has the right to convert the note
to common stock of the
Company at $.1875 per share for the note issued January 23, 1995
and at $.125 per share
for the note issued March 7, 1995 and to receive warrants for an
equivalent number of
common shares at $.1875 per share for the note issued January 23,
1995 and at $.125 per
share for the note issued March 7, 1995.<PAGE>
On November 16, 1995 and December
22, 1995, the Company issued
additional
promissory notes to certain directors of the Company (Kimelman,
Kempner, Abeles,
Cenerazzo, and Knafel) for an aggregate consideration of
$100,000. These notes specify
that at any time prior to repayment the holder has the right to
convert the note to
common stock of the Company at $.05 per share and to receive a
warrant for an
equivalent number of common shares at $.05 per share. The
promissory notes are due
on demand with interest charged at the prime rate. A total of
$55,320 was received
prior to December 31, 1995, the remaining $44,680 was received
during January 1996.
On December 14, 1995 the shareholders of the Company approved
cancellation of
promissory notes and warrants issued to certain directors of the
Company (Kimelman,
Kempner, Abeles, Cenerazzo, Knafel, Low-Beer) between August 25,
1993 and March 7,
1995 and the conversion of these notes to common stock of the
Company at $.125 per
share and warrants to purchase an equal amount of common stock of
the Company at
$.125 per share, which was the fair market value of the common
stock as quoted on
April 3, 1995.
On February 9, 1996, and March 11, 1996, the Company issued
additional promissory
notes to certain directors of the Company (Kimelman, Kempner,
Abeles, Cenerazzo, and
Knafel) for an aggregate consideration of $140,000. The notes
specify that at any time
prior to repayment the holder has the right to convert the note
to common stock of the
Company at $.10 per share for the note issued February 9, 1996
and at $.09 per share
for the note issued March 11, 1996 and to receive warrants for an
equivalent number of
common shares at $.10 per share for the note issued February 9,
1996 and at $.09 per
share for the note issued March 11, 1996.
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS
ON FORM 8-K
A.1. The following financial statements relating to 1995 and
1994 are filed as a part of
this Report:
Independent Auditors' Report.
Balance Sheet as of December 31, 1995.
Statements of Operations for the years ended December 31, 1995
and December 31,
1994.
Statements of Stockholders' Deficit for the years ended
December 31, 1995 and
December 31, 1994.
Statements of Cash Flows for the years ended December 31, 1995
and December 31,
1994.
Notes to Financial Statements.
A.1.a. The following financial statement schedules relating to
1995 and 1994 are filed as
a part of this Report:
Schedule V. Property, Plant and Equipment.
Schedule VI. Accumulated Depreciation and Amortization of
Property, Plant and
Equipment.
Schedule X. Supplementary Income Statement Information.
A.2. Exhibits filed herewith or incorporated by reference
herein are set forth in the
following table prepared in accordance with Item 601 of
Regulations S-K.
3.1 Articles of Incorporation of the Registrant, constituting
Exhibit 3.1 to Registration
Statement No. 33-5441 on Form S-1, and Amendment, constituting
Exhibit 3.1 to
Registration Statement No. 33-23266, are hereby incorporated
herein by reference.
3.2 Articles Supplementary of the Registrant filed September
28, 1987 and October
26, 1987 constituting Exhibit 3.2 to Registration Statement No.
33-18179 are hereby
incorporated herein by reference.
3.3 By-Laws, constituting Exhibit 3.2 to the Registrant's
Registration Statement No.
33-5441 on Form S-1, are hereby incorporated herein by reference.
4.1 Form of Underwriter's Warrant, constituting Exhibit 4 to
Registration Statement
No. 33-5441 on Form S-1, is hereby incorporated herein by
reference.
4.2 Form of Preferred Stock Certificate constituting Exhibit
4.2 to Registration
Statement No. 33-18179 is hereby incorporated herein by
reference.
4.3 Form of Warrant Certificate and Warrant Agreement dated
as of May 31, 1988
between the Registrant and Manufacturers Hanover Trust Company,
constituting Exhibit
4.3 to Registration Statement No. 33-5441 on Form S-1, is hereby
incorporated herein by
reference.
4.4 Form of Variable Rate Convertible Subordinated Debenture
Due 2002 (Class A),
constituting Exhibit 4.4 to Registration Statement No. 33-5441 on
Form S-1, is hereby
incorporated herein by reference.
10.1 Agreement, effective as of September 16, 1985, between
IGI Biotechnology, Inc.
and Hercules Incorporated constituting Exhibit 10.9 to the
Registration Statement No.
33-5441 on Form S-1 is hereby incorporated herein by reference.
<PAGE>
10.2 1986 Stock Option Plan of IGENE Biotechnology, Inc.
constituting Exhibit
(10)(15) to the Registrant's Report on Form 10-K for the year
ended December 31, 1986
is hereby incorporated herein by reference.
10.3 Letter Agreement dated October 15, 1987 between Hercules
Specialty Chemicals
Company and the Registrant constituting Exhibit 10.17 to the
Registrant Statement No.
18179 on Form S-1 is hereby incorporated herein by reference.
10.4 Form of Conversion and Exchange Agreement used in May
1988 in connection
with the conversion and exchange by certain holders of shares of
Preferred Stock for
Common Stock and Warrants, constituting Exhibit 10.19 to
Registration Statement No.
33-5441 on Form S-1, is hereby incorporated herein by reference.
10.5. Exchange Agreement made as of July 1, 1988 between
the Registrant and
Essex Industrial Chemicals, Inc. with respect to the exchange of
187,500 shares of
Preferred Stock for a Debenture, constituting Exhibit 10.21 to
Registration Statement
No. 33-5441 on Form S-1, is hereby incorporated herein by
reference.
10.6 Preferred Stockholders' Waiver Agreement dated May 5,
1988, incorporated by
reference to the identically numbered exhibit in Form S-1
Registration Statement No.
33-23266.
10.7 Form of Agreement between the Registrant and Certain
Investors in Preferred
Stock dated September 30, 1987, incorporated by reference to the
identically numbered
exhibit in Amendment No. 1 to Form S-1 Registration Statement No.
33-23266.
10.8 Agreement of Lease effected February 1, 1991 between
Columbia Warehouse
Limited Partnership and IGENE Biotechnology, Inc. constituting
exhibit 10.8 to the
registrant's report on Form 10-K for the year ended December 31,
1991 is hereby
incorporated herein by reference.
10.9 Letter of Intent as of March 26, 1993, between Burns
Philp Food Inc. and
IGENE Biotechnology, Inc. constituting Exhibit 10.9 to the
Registrant's Report on Form
10-KSB for the year ended December 31, 1992 is hereby
incorporated herein by
reference.
10.10 Technology Evaluation Agreement as of March 4, 1994
between the Food
Science Group of Pfizer Inc and IGENE Biotechnology, Inc.
constituting Exhibit 10.10 to
the Registrant's Report on Form 10-KSB for the year ended
December 31, 1993 are
hereby incorporated herein by reference.
10.11 Letter Agreement executed May 11, 1995 between Archer
Daniels Midland
and IGENE Biotechnology, Inc., along with November 11, 1995
Amendment,
constituting Exhibit 10.11 to the Registrant's Report on Form
10-KSB for the year ended
December 31, 1995 is incorporated herein.
10.12 Amendment to 1986 Stock Option Plan of IGENE
Biotechnology, Inc. having
been filed electronically on October 16, 1995 within the
Company's Preliminary Proxy
Statement and voted on at the Company's December 14, 1995 Annual
Meeting of
Shareholders is hereby incorporated herein by reference.
10.13 Agreement of Lease effected December 15, 1995 between
Columbia
Warehouse Limited Partnership and IGENE Biotechnology, Inc.
constituting Exhibit
10.13 to the registrant's report on Form 10-KSB for the year
ended December 31, 1995
is incorporated herein.
(b) No reports on Form 8-K were filed during the
Fourth Quarter of 1995.<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
Board of Directors
IGENE Biotechnology, Inc.
Columbia, MD
We have audited the financial statements of IGENE Biotechnology,
Inc. as listed in
response to A.1. of Item 13. In connection with our audits of
the financial statements,
we also have audited the financial statement schedules as listed
in response to A.1a. of
Item 13. These financial statements and financial statement
schedules are the
responsibility of the Company's management. Our responsibility
is to express an opinion
on these financial statements and financial statement schedules
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards.
Those standards require that we plan and perform the audit to
obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material
respects, the financial position of IGENE Biotechnology, Inc. as
of December 31, 1995
and 1994, and the results of its operations and its cash flows
for the years then ended in
conformity with generally accepted accounting principles. Also
in our opinion, the
related financial statement schedules, when considered in
relation to the basic financial
statements taken as a whole, present fairly, in all material
respects, the information set
forth therein.
The accompanying financial statements and financial statement
schedules have been
prepared assuming that IGENE Biotechnology, Inc. will continue as
a going concern. As
discussed in note 13 to the financial statements, the Company's
recurring losses and
limited capitalization raise substantial doubt about the
Company's ability to continue as a
going concern. Management's plans in regard to these matters are
described in note 13.
The financial statements and financial statement schedules do not
include any
adjustments relating to the recoverability and classification of
reported asset amounts or
the amounts and classification of liabilities that might result
from the outcome of this
uncertainty.
BERENSON & COMPANY LLP
New York, NY
March 14, 1996
</AUDIT-REPORT>
<TABLE>
IGENE Biotechnology, Inc.
Statement of Operations Data
<CAPTION>
Years Ended
December 31,
1995 1994
1993 1992 1991
<S> <C> <C> <C>
<C> <C>
Sales $ 25,563 $ 113,166 $
68,516 $ 165,060 $ 173,383
Total Revenues $ 274,978 $ 363,349 $ 69,089
$ 170,654 200,215
Cost of Sales $ 16,878 $ 36,945 $
32,137 $ 118,652 100,810
Research, Development
and Pilot Plant Expenses $ 348,139 $ 391,912 $
329,030 $ 409,645 460,372
Other Expenses $ 447,335 $ 474,752 $ 416,489
$ 432,380 526,802
Net Loss $ (503,156) $ (540,260) $
(708,567) $ (790,023) (887,769)
Net Loss Per Common Share <F1> ( .04) $ (.04) $
(.06) $ (.07) (.08)
Coverage Deficiency
of Fixed Charges <F2> $ 647,695 $ 684,959 $
853,266 $ 934,722 $1,042,528
</TABLE>
<TABLE>
IGENE Biotechnology, Inc.
Balance Sheet Data
<CAPTION>
As of December 31,
1995 1994
1993 1992 1991
<S> <C> <C> <C> <C>
<C>
Cash and Cash Equivalents $ 8,326 $ 19,529 $ 65,897
$ 128,118 $ 276,663
Working Capital (Deficit) $ (336,992) $ (645,815) $
(286,881) $ (26,918) 83,126
Total Assets $ 104,255 $ 77,556 $
258,417 $ 315,834 535,939
Long-term Debt $ 1,500,000 $ 1,500,000 $ 1,500,000
$ 1,500,000 1,500,000
Total Liabilities $ 1,901,127 $ 2,177,572 $
1,938,173 $ 1,677,272 1,741,600
Redeemable Preferred Stock $ 484,643 $ 463,104 $ 438,405
$ 413,706 518,788
Stockholders' Deficit $(2,281,515)
$(2,563,119)$(2,118,161)$(1,775,144)(1,724,449)
Common Shares Outstanding 18,572,805 13,028,571 12,975,237
12,475,853 11,716,102
Preferred Shares Outstanding 225,842 226,092
226,092 226,092 238,967
<FN>
<F1> Net loss per common share for the year ended December 31,
1991 is based on
11,052,647 shares. Net loss per common share for each of the
years in the four-year
period ended December 31, 1995 is based on 12,084,190,
12,769,011, 13,002,050, and
13,694,343 weighted average shares, respectively. For purposes
of computing net loss per
common share, the amount of net loss has been increased by
dividends declared and
cumulative undeclared dividends in arrears on preferred stock.
<F2> Earnings are not adequate to cover fixed charges. The
"coverage deficiency of
fixed charges" for each year is equal to the net loss for the
year plus dividends on
preferred stock.
</FN>
/TABLE
<PAGE>
<TABLE>
IGENE Biotechnology, Inc.
Balance Sheet
<CAPTION>
December 31
1995
<S>
<C>
ASSETS
Current assets:
Cash and cash
equivalents.................................................. $
8,326
Accounts receivable
................................................. 11,129
Due from stockholders (note
6)............................................. 44,680
Total current assets
........................................... 64,135
Property and equipment, net (note
3).......................................... 29,520
Security deposits
............................................................
10,600
$ 104,255
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
DEFICIT
<S>
<C>
Current liabilities:
Accounts payable and accrued expenses (note
4)............................. $ 271,127
Debenture interest payable (note
5)........................................ 30,000
Promissory notes payable (note
6).......................................... 100,000
Total current
liabilities.......................................
401,127
Long term liabilities:
Variable rate subordinated debenture (note
5).............................. 1,500,000
1,901,127
Commitments and contingency (notes 10 and 11)
Carrying amount of redeemable preferred stock -- 8% cumulative,
convertible,
voting, Series A, $.01 par value per share. Stated value $12.64
per share
Authorized 920,000 shares; issued 38,342 shares (notes 5, 7 and
8)........ 484,643
Redemption amount $484,643.
Stockholders' deficit (notes 7 and 8):
Preferred stock -- $.01 par value per share. 8% cumulative,
convertible.
voting, Series A. Authorized and issued 187,500 shares
(aggregate involuntary liquidation value of
$2,370,000)............... 1,875
Common stock -- $.01 par value per share. Authorized 35,000,000
shares;
issued 18,572,805 shares
.............................................. 185,728
Additional paid-in
capital.................................................
17,843,142
Deficit..........................................................
.......... (20,312,260)
(2,281,515)
$ 104,255
</TBLE>
See accompanying notes to financial statements.<PAGE>
</TABLE>
<TABLE>
IGENE Biotechnology, Inc.
Statements of Operations
<CAPTION>
Years
ended December 31,
1995 1994
*
<S> <C>
<C>
Sales
.................................................................
. $ 25,563 $ 113,166
Cost of sales
..........................................................
16,878 36,945
Gross profit from sales of product
................................ 8,685 76,221
Technology licensing income (note
14)................................... 225,000
250,000
Technology services income (note
14)............................... 24,415
---
Net revenue
.......................................................
258,100 326,221
Selling, general and administrative expenses:
Marketing and selling
................................................
12,813 4,691
Research, development and pilot plant
................................ 348,139
391,912
General and administrative
...........................................
303,998 314,671
Total selling, general and administrative expenses
................. 664,950 711,274
Operating loss
.......................................................
(406,850) (385,053)
Other income (expenses):
Forgiveness of Debt (note
6).........................................
33,395 ---
Investment income
....................................................
527 183
Other income (expense)
...............................................
296 (14,870)
Interest expense
.....................................................
(130,524) (140,520)
Net Loss
.............................................................
(503,156) (540,260)
Deficit at beginning of year
............................................
(19,809,104) (19,268,844)
Deficit at end of year
..................................................
($20,312,260) ($19,809,104)
Net loss per common share (note 9)
..................................... ($.04)
($.04)
</TABLE>
* Certain items have been reclassified to conform to 1995
presentation.
See accompanying notes to financial statements.<PAGE>
<TABLE>
IGENE Biotechnology, Inc.
Statements of Stockholders' Deficit
<CAPTION>
Redeemable
Preferred Stock Preferred
Stock Common Stock
(Shares/Amount)
(Shares/Amount) (Shares/Amount)
<S> <C>
<C> <C>
Balance at December 31, 1993........ 38,592/$438,405
187,500/$1,875 12,975,237/$129,752
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture (note 5)................... ---
- --- 53,334/$533
Cumulative undeclared dividends on redeemable
preferred stock..................................
24,699 --- ---
Net loss for 1994 .................................
--- --- ---
Balance at December 31, 1994 ...........38,592/$463,104
187,500/$1,875 13,028,571/$130,285
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture (note 5)................... ---
- --- 53,334/$533
Cumulative undeclared dividends on redeemable
preferred stock..................................
24,539 --- ---
Issuance of 1,200,000 shares of common stock
pursuant to direct purchase of shares by
certain directors of the Company (note 8)........ ---
- --- 1,200,000/$12,000
Issuance of 4,290,400 shares of common stock
on conversion of promissory notes ............... ---
- --- 4,290,400/$42,905
Conversion of redeemable preferred stock
into common stock ......................................
250/($3,000) --- 500/$5
Net loss for 1995 .................................
--- --- ---
Balance at December 31, 1995 ...........38,342/$484,643
187,500/$1,875 18,572,805/$185,728
</TABLE>
See accompanying notes to financial statements.<PAGE>
<TABLE>
IGENE Biotechnology, Inc.
Statements of Stockholders' Deficit
(Continued)
<CAPTION>
Additional
Total Stockholder's
Paid-In Capital Deficit
Deficit
<S> <C>
<C> <C>
Balance at December 31, 1993.......................
$17,019,056 $(19,268,844) $(2,118,161)
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture (note 5)...................
119,467 --- 120,000
Cumulative undeclared dividends on redeemable
preferred stock..................................
(24,699) --- (24,699)
Net loss for 1994 .................................
--- (540,260) (540,260)
Balance at December 31, 1994 ......................
$17,113,824 $(19,809,104) $(2,563,120)
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture (note 5)...................
119,467 --- 120,000
Cumulative undeclared dividends on redeemable
preferred stock..................................
(24,539) --- (24,539)
Issuance of 1,200,000 shares of common stock
pursuant to direct purchase of shares by
certain directors of the Company (note 8)........ 138,000
--- 150,000
Issuance of 4,290,400 shares of common stock
on conversion of promissory notes ...............
493,395 --- 536,300
Conversion of redeemable preferred stock
into common stock ..................................... 2,995
--- 3,000
Net loss for 1995 .................................
--- (503,156) (503,156)
Balance at December 31, 1995 ..................... $17,843,142
$(20,312,260) $(2,281,515)
</TABLE>
See accompanying notes to financial statements.<PAGE>
<TABLE>
IGENE Biotechnology, Inc.
Statements of Cash Flows
<CAPTION>
Years ended December 31,
1995
1994
<S> <C>
<C>
Cash flows from operating activities
Net
loss.............................................................
. ($503,156)($540,260)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and
amortization..................................... 8,048
22,429
Loss on sale of assets
........................................... ---
14,870
Interest on debenture paid in shares of
common
stock..................................................
120,000 120,000
Changes in assets and liabilities:
Increase (decrease) in accounts payable and
other accrued
expenses..................................... 33,105
99,149
Decrease (increase) in accounts
receivable.................... (339) (2,778)
Decrease (increase) in prepaid expenses and
deposits...................................................
1,438 (605)
Net cash used in operating
activities.................................
(340,904) (287,195)
Cash flows from investing activities:
Capital
expenditures..................................................
(2,369) (20,973)
Sale of
equipment.....................................................
--- 15,000
Net cash used in investing activities
................................ (2,369)
(5,973)
Cash flows from financing activities:
Proceeds from issuance of common
stock................................ 150,000 76,550
Issuance of promissory
notes..........................................
182,070 170,250
Net cash provided by financing
activities............................. 332,070
246,800
Net decrease in cash and cash equivalents
............................... (11,203) (46,368)
Cash and cash equivalents at beginning of
year........................... 19,529 65,897
Cash and cash equivalents at end of
year................................. $ 8,326 $
19,529
Supplementary disclosure - cash paid for
interest........................ $ --- $ 236
Noncash investing and financing activities:
During 1994 the Company sold equipment for $30,000, which was
remitted by the
buyer directly to another company in payment of outstanding
amounts due for services
performed for the Company. (See also note 3)
During 1995 and 1994, the Company issued 53,334 shares of common
stock in each year
in payment of interest on the variable rate subordinated
debenture. If paid in cash, the
interest would have been payable at 8% during 1995 and 1994, or
$120,000 per year.
Shares may be issued in lieu of cash under the debenture
agreement at the higher of
$2.25 per share or market price per share. The stock was issued
and related interest
expense for 1995 and 1994 were recorded at $2.25 per share, or
$120,000 in each year.
(See also note 5)
During 1995 and 1994 the Company recorded dividends in arrears
on 8% redeemable
preferred stock at $.64 per share aggregating $24,539 and
$24,699, respectively in each
year which has been removed from paid-in capital and included in
the carrying value of
the redeemable preferred stock. (See also note 7)
During 1995 the Company issued 4,290,400 shares upon the
conversion of $536,300 of
promissory notes held by certain directors of the Company. (See
also note 8)
During 1995 the Company issued promissory notes to certain
directors of the Company
for an aggregate consideration of $100,000. At December 31, 1995
$55,320 had been
received by the Company. $44,680 remained due from certain
directors of the Company
on December 31, 1995.
/TABLE
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(1) History of the Company
The Company was incorporated under the laws of the State of
Maryland on October
27, 1981 as "Industrial Genetics, Inc." The Company changed its
name to "IGI
Biotechnology, Inc." on August 17, 1983 and to "IGENE
Biotechnology, Inc." on April
14, 1986. The Company is located in Columbia, Maryland and is
engaged in the business
of industrial microbiology and related biotechnologies.
(2) Summary of Significant Accounting Policies
Cash and cash equivalents
For purposes of the financial statements, cash equivalents
have been combined with
cash. The Company considers cash equivalents to be short-term,
highly liquid
investments that have maturities of less than three months.
These include interest
bearing money market accounts and certificates of deposit.
Research and development costs
For financial reporting purposes, research, development and
pilot plant scale-up
costs are charged to expense when incurred.
Depreciation
Depreciation of property and equipment is provided under
the straight-line method
over the lives of the respective assets.
Estimates
The preparation of financial statements in conformity with
generally accepted
accounting principles require 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. Actual results could
differ from those
estimates.
Fair value of financial instruments
The carrying amount of cash and cash equivalents
approximate fair value because of
the short maturity of those instruments. The carrying amount of
long-term debt
approximates fair value because of similar current rates at which
the Company could
borrow funds with consistent remaining maturities.
Sales Returns
The Company records sales returns in the period in which
the product is returned,
rather than estimating future returns of current sales, since
they are expected to be
immaterial in amount.
Interest on Variable Rate Subordinated Debenture
The Company records interest on its variable rate
subordinated debenture (see also
note 6) at a level rate of 8%; rather than at the fair-market
value of shares which have
been issued in lieu of cash payments of interest. This is an
estimated average rate based
on the Company's plan to continue (as it has since October 1,
1989) to pay interest on
the debenture by issuing shares of common stock at the higher of
$2.25 per share or the
current market value of the Company's shares, as allowed under
the terms of the
debenture. If the market value of the Company's stock remains
below $2.25 per share
(during the period from October 1989 through December 1995 its
highest price
was $1.25) the Company can continue to issue stock in lieu of
cash payments at $2.25 per
share.
(3) Property and Equipment
Property and equipment are stated at cost and are
summarized as follows:
Laboratory equipment and fixtures......... $ 85,092
Pilot plant equipment and fixtures........ 56,862
Machinery and equipment................... 101,682
Office furniture and fixtures............. 42,682
286,500
Less accumulated depreciation ............ 256,980
$ 29,520<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
During 1994 certain machinery and equipment was sold for
$30,000 whereby
payment was remitted directly to a company who performed services
for IGENE.
(4) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the
following:
Accounts payable ......................... $ 257,231
Audit fees and insurance expense ......... 13,476
Accrued interest, promissory notes ....... 420
$ 271,127
(5) Variable Rate Subordinated Debenture
In July 1988, the Company and a principal holder of the
Company's redeemable
preferred stock agreed to exchange 187,500 shares of the
Company's 8% cumulative
convertible preferred stock, Series A for a $1,500,000 variable
rate convertible
subordinated debenture due 2002, Class A.
The debenture bears interest at a rate of 8% per annum
through September 30,
1996 and thereafter at a rate of 12% per annum. Interest was
payable in cash through
October 1, 1989. Thereafter, the debenture agreement provides
that at the option and at
the discretion of the Company, interest may be paid in shares of
the Company's
common stock at the greater of $2.25 per share or the average
market value per share.
During 1995 and 1994, the Company issued 106,668 of its common
stock as payment of
interest on the debenture. The debenture is convertible into
common stock of the
Company at any time at the option of the holder at an initial
rate of $4 per share of
common stock. The debenture is redeemable at the option of the
Company at any
interest payment date at par value plus accrued interest. Upon
maturity of the
debenture, the Company, at its option, may repay the remaining
principal in shares of
8% cumulative convertible preferred stock, Series B at a rate of
$8 per preferred share.
(6) Promissory Notes Payable
On August 23, and November 19, 1993, the Company issued
promissory notes to
certain directors of the Company for an aggregate consideration
of $239,300. The notes
specify that at any time prior to repayment the holder has the
right to convert the note
to common stock of the Company at $.48 per share and to receive a
warrant for an
equivalent number of common shares at $.48 per share. The
promissory notes are due
on demand with interest charged at the prime rate.
On February 10, 1994, and September 26, October 24, 1994
and November 28, 1994,
the Company issued additional promissory notes to certain
directors of the Company for
an aggregate consideration of $170,250. The notes specify that
at any time prior to
repayment the holder has the right to convert the note to common
stock of the Company
at $.375 per share for the note issued February 10, 1994 and at
$.25 per share for all
other notes and to receive warrants for an equivalent number of
common shares at
$.375 per share for the note issued February 10, 1994 and at $.25
per share for all other
notes. These promissory notes are also due on demand with
interest charged at the
prime rate.
On January 23, 1995, and March 7, 1995, the Company issued
additional promissory
notes to certain directors of the Company for an aggregate
consideration of $125,000.
The notes specify that at any time prior to repayment the holder
has the right to convert
the note to common stock of the Company at $.1875 per share for
the note issued
January 23, 1995 and at $.125 per share for the note issued March
7, 1995 and to receive
warrants for an equivalent number of common shares at $.1875 per
share for the note
issued January 23, 1995 and at $.125 per share for the note
issued March 7, 1995.<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
On November 16, 1995, and December 22, 1995, the Company
issued additional
promissory notes to certain directors of the Company for an
aggregate consideration of
$100,000. These notes specify that at any time prior to
repayment the holder has the
right to convert the note to common stock of the Company at $.05
per share and to
receive a warrant for an equivalent number of common shares at
$.05 per share. The
promissory notes are due on demand with interest charged at the
prime rate. As of
December 31, 1995 $55,320 was received by the Company. The
remaining $44,680 was
received in January, 1996.
On December 14, 1995 the shareholders of the Company
approved cancellation of
Promissory Notes and Warrants issued to certain Directors of the
Company between
August 25, 1993 and March 7, 1995 and the conversion of these
notes to common stock
of the Company at $.125 per share and warrants to purchase an
equal amount of
common stock of the Company at $.125 per share, which was the
fair market value of the
common stock as quoted on April 3, 1995. Interest accrued of
$33,395 was forgiven by
the shareholders.
(7) Redeemable Preferred Stock
Each share of redeemable preferred stock is entitled to
vote on all matters requiring
shareholder approval as one class with holders of common stock,
except that each share
of redeemable preferred stock is entitled to two votes and each
share of common stock is
entitled to one vote.
Redeemable preferred stock is convertible at the option of
the holder at any time,
unless previously redeemed, into shares of the Company's common
stock at the rate of
two shares of common stock for each share of preferred stock
(equivalent to a
conversion price of $4.00 per common share), subject to
adjustment under certain
conditions.
Shares of redeemable preferred stock are redeemable for
cash in whole or in part at
the option of the Company at any time at the stated value plus
accrued and unpaid
dividends to the redemption date. Dividends are cumulative and
payable quarterly on
January 1, April 1, July 1 and October 1, since January 1, 1988.
See note 5 relating to
exchange of redeemable preferred stock and note 8 relating to
conversion of redeemable
preferred stock and waiver of redemption privileges. Mandatory
redemption is required
by October 2002. As of December 31, 1995, cumulative dividends
in arrears totaled
$177,907 ($4.64 per share) and were included in carrying value of
redeemable preferred
stock.
(8) Stockholders' Equity
Common Stock
In January 1987, the Board of Directors approved the 1986
Stock Option Plan
("Plan"). In August 1990, the shareholders approved an increase
in the number of shares
issuable pursuant to options granted under the Plan. Under the
Plan options to acquire
up to 978,850 shares of the Company's common stock may be issued
to certain
directors, officers and employees. Options granted under the
Plan are exercisable in
installments of twenty percent each year beginning on the first
anniversary of the date
when such options are granted and expire not later than ten years
from the date of grant.
On January 22, 1987, the Board of Directors approved the
granting, under the
Plan, of options to purchase 72,750 shares of the Company's
common stock at $5.40 per
share to 23 full-time employees of the Company. The option price
represented a
discount from the market price at the date of grant. The total
amount of such discount
was accounted for as compensation expense and recognized over the
period in which
employees were providing the related services. In May 1989 the
Compensation
Committee of the Board of Directors approved the reduction of
the exercise price from
$5.40 to $1.00 per share of the aforementioned options. In
addition, the
Compensation Committee approved the granting of options to
purchase an additional
146,350 shares at an exercise price of $1.00 per share pursuant
to the Plan. In May
1990, the Compensation Committee of the Board of Directors
approved the granting of
options to purchase an additional 560,250 shares at an exercise
price of $.10
per share pursuant to the Plan. In January 1991, options to
purchase 250,000 shares of
common stock of the Company at $.25 per share were granted to two
officers and one
key employee of the Company. In January 1992, options to
purchase 350,000 shares of
common stock of the Company at $.625 per share were granted to
one officer and one
key employee of the Company. In April 1993, options to purchase
50,000 shares of
common stock of the Company at $1.00 per share were granted to
one key employee of
the Company. The options granted in May 1989, May 1990, January
1991, January 1992,
and April 1993 were at an exercise price in excess or equal to
the current market price
and, accordingly, no additional compensation expense was
recognized. Prior to 1993, no
options were exercised under the Plan. In 1993 options to
purchase 87,000 shares of
common stock at $.10 per share and 20,000 shares of common stock
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
at $.25 per share were exercised pursuant to the Plan. On March
17, 1994 the Board of
Directors approved an increase from 978,850 to 1,200,000 in the
number of shares
issuable pursuant to options granted under the plan which was
approved by stockholders
at the Company's 1994 Annual Meeting. On December 16, 1995 an
increase from
1,200,000 to 2,000,000 in the number of shares issuable pursuant
to options granted
under the plan which was approved by stockholders at the
Company's 1995 Annual
Meeting.
In May and November 1988, holders of 314,092 shares of
redeemable preferred
stock converted those shares into 628,184 shares of the Company's
common stock and
received warrants to purchase 314,092 shares of common stock at a
rate of $6.00 per
share which expired on July 30, 1993. During 1990, holders of
13,500 shares of
redeemable preferred stock converted those shares to 27,000
shares of the Company's
common stock. During 1991 holders of 5,125 shares of redeemable
preferred stock
converted those shares to 10,250 shares of the Company's common
stock. During
1993 and 1994 no shares of redeemable preferred stock were
converted to shares of the
Company's common stock.
In February 1991, the Company sold 4,596,000 shares of
common stock and received
net proceeds of $1,109,000. Also in February, 1991, the Company
issued warrants to
purchase 800,000 shares of common stock at $.25 per share to a
stockholder controlled
company for acting as placement agent.
In June 1992, the Company sold 680,667 shares of common
stock and received net
proceeds of $503,693. Also in June, 1992, the Company issued
warrants to purchase
252,400 shares of common stock at $.75 per share to a stockholder
controlled Company
for acting as placement agent. In addition, 680,667 warrants to
purchase common
stock at $.75 per share were issued to other qualified investors
as part of the private
placement.
On March 25, 1993 the Company issued 33,334 shares of
common stock at $.75
upon execution of a Letter of Intent with Burns Philp Food Inc.
to enter into a
Technology License Agreement. Upon execution of a Technology
License Option
Agreement on April 16, 1993, Burns Philp purchased 166,666 newly
issued shares of
common stock at $.75 per share, and an additional 62,500 shares
at $.48 per share on
July 13, 1993. On October 13 the Company issued 76,550 shares of
common stock at
$1.00 per share as part of the termination of the Agreement with
Burns Philp.
At December 31, 1994, 86,746 shares of authorized but
unissued common stock
were reserved for exercise at $6.64 per share pursuant to a stock
purchase warrant
granted to the underwriter in connection with the Company's
initial public offering,
978,850 shares of authorized but unissued common stock were
reserved for exercise
pursuant to the 1986 Stock Option Plan, 452,184 shares of
authorized but unissued
common stock were reserved for issuance upon conversion of the
Company's outstanding
preferred stock, 314,092 shares of authorized but unissued common
stock
were reserved for issuance upon exercise at $6.00 per share of
stock purchase warrants
issued to preferred stockholders who converted to common stock in
1988, 800,000 shares
of authorized but unissued common stock were reserved for
issuance upon reinvestment
of interest on the variable rate subordinated debenture and
375,000 shares
of authorized but unissued common stock were reserved for
issuance upon conversion of
the variable rate subordinated debenture.
On August 15, 1995, the Company sold 1,200,000 shares of
common stock to certain
directors of the Company at $.125 per share and received net
proceeds of $150,000.
On December 14, 1995, the Company issued 4,290,400 shares
of common stock in
lieu of retired Promissory Notes and Warrants issued to certain
directors of the
Company from August 25, 1993 through March 7, 1995. Issued along
with the common
stock were warrants to purchase an equal amount of common stock
of the Company at
$.125 per share, which was the fair market value of the common
stock as quoted on
April 3, 1995 by the National Quotation Bureau, which warrants
shall expire on April 3,
1998.
The following table summarizes options and warrants issued,
outstanding and
exercisable:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C>
<C>
Issued 5,642,550
2,792,817
Outstanding 5,537,550
2,685,817
Exercisable 5,237,550
2,291,517
/TABLE
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
Preferred Stock
In May 1988, the Company and a holder of its redeemable
preferred stock entered
into an agreement under which the mandatory redemption rights
referred to in note 5
were waived as to 187,500 shares of the preferred stock. These
shares are subject to
redemption at the option of the Company under provisions
governing the preferred stock
which permit the Company to redeem such stock at any time. Under
these
arrangements, the amounts attributable to shares of the preferred
stock as to which
mandatory redemption rights were waived are recorded and combined
in total
with the stockholders' equity accounts.
On January 19, 1995 a holder of preferred stock converted
250 shares of preferred
stock into 500 shares of common stock of the Company.
At December 31, 1995, cumulative dividends in arrears
totaled $870,000 ($4.64 per
share) and was included in the aggregate involuntary liquidation
value of the preferred
stock.
At December 31, 1995, 187,500 shares of authorized but
unissued preferred stock
were reserved for issuance upon maturity of the variable rate
subordinated debenture.
(9) Net Loss Per Common Share
Net loss per common share for 1995 and 1994 is based on
13,694,343 and 13,002,050
weighted average shares, respectively. For purposes of computing
net loss per common
share, the amount of net loss has been increased by dividends
declared and cumulative
undeclared dividends in arrears on preferred stock.
(10) Commitments
The Company is obligated for office and laboratory
facilities and other rentals under
separate operating lease agreements which expire in 2001. The
basic annual rentals are
expected to be between $57-59,000 under such lease. Annual rent
expense relating to
leases approximated $83,000 in 1995, and $78,000 in 1994.
Exclusive worldwide rights to manufacture and sell one of
the products developed by
the Company were granted to Hercules Incorporated ("Hercules"),
in exchange for an
initial license fee of $500,000 pursuant to a licensing agreement
dated as of September
16, 1985. Hercules did not produce commercially any quantities
of the product and
by an agreement dated October 15, 1987, the Company and Hercules
agreed to
terminate the license agreement. Pursuant to termination
agreements negotiated
between the parties, the Company paid Hercules $25,000 for
termination
of the license and will not refund the $500,000 initial license
fee paid by Hercules. If the
Company commercializes the product, the Company will pay Hercules
up to an
additional $600,000 from revenues from the sale or licensing of
the product.
(11) Contingency
On September 24, 1982, the Company and McKesson Corporation
formed a joint
venture for the purpose of developing, manufacturing and selling
certain whey-based
products. On June 26, 1984, McKesson Corporation assigned to the
Company all of its
rights, titles and interests in the joint venture in
consideration of a cash payment for
the joint venture's inventory and a commitment to pay an
additional amount of
approximately $500,000, payable without interest in five equal
annual installments,
commencing after the first fiscal year in which the Company
attains pre-tax profits, as
defined, or at least $1 million. Because the payment is
dependent upon the Company's
attaining profitable operations in the future, no liability
therefore has been reflected in
the accompanying balance sheet .
In May 1995, the Company signed a non-exclusive licensing
agreement with Archer
Daniels Midland Company ("ADM") for the manufacture and sale of
AstaXin . On
February 29, 1996 ADM informed the Company that it had decided
not to utilize the
Technology and requested that IGENE return approximately $250,000
in payments under
the License Agreement. IGENE maintains that ADM is not entitled
to the payments
and that additional monies are owed to IGENE. It is management's
contention that it is
not probable that this dispute will not result in a probable
loss to the Company.
Accordingly, no liability has
been reflected in the accompanying balance sheet.
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
(12) Income Taxes
At December 31, 1995 and 1994, the Company has federal and
state net operating
loss carry-forwards of approximately $19,300,000 and $18,800,000,
respectively, that
expire from 1997 to 2010. The recorded deferred tax asset,
representing the expected
benefit from the future realization of the net operating losses,
net of the valuation
allowance, was $-0- for both years.
The sources of the deferred tax asset is approximately as
follows:
1995
Net operating loss carry-forward
benefit $ 7,900,000
Valuation allowance
(7,900,000)
Deferred tax asset $
---
(13) Uncertainty
The Company has incurred net losses in each year of its
existence, aggregating
approximately $20,300,000 from inception to December 31, 1995 and
its liabilities and
redeemable preferred stock exceeded its assets by approximately
$2,300,000 at that date.
These factors indicate that the Company will not be able to
continue in existence unless
it is able to raise additional capital and attain profitable
operations.
Management has instituted a program of significant cost
reductions, deferred all
except immediately necessary capital expenditures and suspended
payment of dividends
on the Company's preferred stock. The implementation of these
measures to conserve
working capital together with the successful marketing and
licensing of the Company's
products, which management hopes to achieve, may permit the
Company to attract
additional capital and enable it to continue.
The Company is actively seeking and is in discussion with a
potential manufacturer
of its AstaXin technology. The Company believes this technology
to be highly
marketable and is hopeful that an income-producing technology
licensing agreement
could be executed during 1996 for this product.
To increase working capital, the Company plans to issue
additional stock to officers
and directors and to encourage holders of outstanding warrants to
exercise these rights.
The Company will also encourage the holders of convertible
promissory notes to convert
them into common stock. To meet short-term cash needs the
Company issued
additional promissory notes to officers and directors. (see also
note 15)
(14) Technology Licensing Income
On March 4, 1994 the Company and the Food Science Group of
Pfizer Inc., New
York, N.Y., signed a Technology Evaluation Agreement for AstaXin
. The Agreement
provided for cash compensation to IGENE of $250,000 over a three
month period
ending May 18, 1994.
On May 11, 1995 the Company and Archer-Daniels-Midland
Company signed a
non-exclusive licensing agreement for AstaXin . The Agreement
provided for an initial
payment of $200,000 and royalties based on sales. In addition,
the Company received
$24,415 in 1995 for technology services pertaining to the
Agreement. The Company also
received payment of $25,000 in December, 1995 under the terms of
the Agreement. (See
Note 15)
(15) Subsequent Events
On February 9, 1996, and March 11, 1996, the Company issued
promissory notes to
certain directors of the Company for an aggregate consideration
of $140,000. These
notes specify that at any time prior to repayment the holder has
the right to convert the
note to common stock of the Company at $.10 per share for the
note issued
February 9, 1996 and at $.09 per share for the note issued March
11, 1996, and to
receive warrants for an equivalent number of common shares at
$.10 per share for the
note issued February 9, 1996 and at $.09 per share for the note
issued March 11, 1996.
The promissory notes are due on demand with interest charged at
the prime rate.
On February 29, 1996 Archer Daniels Midland Company
terminated its licensing
agreement with the Company. (see note 11)<PAGE>
<TABLE>
Schedule V
IGENE Biotechnology, Inc.
Property, Plant and Equipment
<CAPTION>
Balance at
Balance
beginning Additions
at end
Classification of period at cost Retirementsof
period
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Laboratory equipment and fixtures$ 85,092 $ ---
$ --- $ 85,092
Pilot plant equipment and fixtures 56,862 --- ---
56,862
Machinery and equipment 99,313 2,369
--- 101,682
Office furniture and fixtures 42,131 ---
--- 42,864
$ 284,131 $ 2,369
$ --- $ 286,500
</TABLE>
<TABLE>
Schedule VI
Accumulated Depreciation and Amortization of Property, Plant and
Equipment
<CAPTION>
Balance at Depreci- Balance
beginning ation at end
Classification of period Expense
Retirementsof period
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Laboratory equipment and fixtures$ 71,758 $
1,333$ --- $ 73,091
Pilot plant equipment and fixtures 56,430 425
- --- 56,863
Machinery and equipment 79,021 5,213 ---
84,234
Office furniture and fixtures 41,715
1,077 --- 42,792
$ 248,932 $ 8,048 $
- --- $ 256,980
</TABLE>
<TABLE>
Schedule X
Supplementary Income Statement Information
<CAPTION>
1995 1994
<S> <C> <C>
Maintenance and repairs
.............................................$ 35,849 $ 34,251
Taxes, other than payroll and income
taxes........................... 15,267 15,438
Advertising
costs.................................................... ---
4,691
/TABLE
<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, in Columbia, Howard
County, State of Maryland
on April 12, 1996.
IGENE Biotechnology, Inc.
Date: April 12, 1996 By: /S/ Stephen F. Hiu,
President
Pursuant to the requirements of the Securities Act of 1933, this
report is to be signed
below by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Joseph C. Abeles Director
April 12, 1996
(Joseph C. Abeles)
/s/ John A. Cenerazzo Director
April 12, 1996
(John A. Cenerazzo)
/s/ Stephen F. Hiu Director,
President, April 12, 1996
(Stephen F. Hiu) Secretary, and Treasurer
Chief Financial Officer,
Chief Accounting Officer
/s/ Thomas L. Kempner Vice Chairman of
Board April 12, 1996
(Thomas L. Kempner)
/s/ Michael G. Kimelman Chairman of the
Board April 12, 1996
(Michael G. Kimelman) of Directors
/s/ Sidney R. Knafel Director
April 12, 1996
(Sidney R. Knafel)
/s/ Patrick F. Monahan Director
April 12, 1996
(Patrick F. Monahan)
/TABLE
<PAGE>
EXHIBIT 10.11
NON-EXCLUSIVE TECHNOLOGY LICENSE AGREEMENT
W/AMENDMENT
<PAGE>
AGREEMENT
This Agreement is made and entered into as of the 11th day
of May, 1995,
by and between IGENE Biotechnology, Inc. a Maryland corporation
having its
principal offices at 9110 Red Branch Road, Columbia, Maryland the
owner of the
Technology and Patent Rights ("Licensor"), and
Archer-Daniels-Midland Company,
a Delaware corporation having its principal office at 4666 Faries
Parkway,
Decatur, Illinois, U.S.A. 62526 ("LICENSEE").
W I T N E S S E T H
WHEREAS, Licensor owns an organism, Phaffia Rhodozyma and
certain
fermentation and recovery technology relating to a method for
manufacture of
astaxanthin (the "Technology"); and
WHEREAS, Licensee desires to receive and Licensor desires
to grant to
Licensee a non exclusive license to utilize the Technology, and
all other
property rights of any kind or charter as hereinafter provided.
NOW THEREFORE, in consideration of the mutual covenants and
conditions
contained herein, the parties agree as follows:
1.0 DEFINITIONS
1.01 Technology. The term "Technology" shall mean a
reasonable number of
vials of the best producing organisms of Phaffia Rhodozyma,
Phaffiase enzyme and
enzyme production technology for disruption of Phaffia Rhodozyma,
diagrams,
specifications, bills of material, engineering records,
engineering notes,
instructions, manufacturing instructions, testing instructions,
operating
instructions, know-how, data, technology, methodology, feeding
studies, and other
physical and written descriptions and embodiments related to the
fermentation and
recovery of the Phaffia Rhodozyma and downstream processing
technology, in each
case which are possessed by Licensor as of the date hereof.
1.02 Patent Rights. The term "Patent Rights" shall mean
all concepts,
ideas, inventions, trade secrets, know-how (whether patentable or
not) related
to the Technology, all patent applications, patents (including
without limitation
those patents and patent applications listed on Exhibit "A"), and
other
industrial property rights throughout the Territory (including
all substitutions,
divisions, continuations, continuations-in-part, renewals,
reissues, extensions,
and the like), or future use of the Technology, or any related
rights, in each
case as in existence as of the date hereof.
1.03 Territory. The term "Territory" shall mean the
entire world.
-1-
1.04 Products. The term "Products" shall mean any and
all products,
including without limitation, astaxanthin, produced using the
Technology.
2.0 LICENSE AND DEMONSTRATION OF THE TECHNOLOGY
2.01 Grant of License. Licensor hereby grants to
Licensee, and Licensee
hereby accepts, the perpetual non exclusive right and license in
and for the
Territory to practice the Patent Rights; to use the Technology;
and to
manufacture, distribute and sell the Products. This license
shall be rescinded
at the election of Licensee under Section 2.03 or automatically
if Licensor is
unable to make the demonstration required by Section 2.06. In
the event that
Licensee forms a joint venture with a third party in connection
with the
manufacture or sale of the Products, the license granted
hereunder shall be
extended to such joint venture, provided that such third party
shall comply with
all the terms of this Agreement and Licensee shall not be
relieved of any of its
obligations pursuant to this Agreement.
2.02 Delivery of Technology. Licensor shall package the
Technology and
deliver the same to Licensee at Licensee's facility, situated in
Decatur,
Illinois. In the event that the Technology is lost in the course
of development
at Licensee's facilities in Decatur, Illinois, Licensor will
assist and take all
reasonable efforts in the replacement of the Technology at
Licensee's expense,
including, without limitation, provision of personnel to assist
in scale up at
Licensee's laboratories. Licensor will be compensated at the
rate of $500/day
for each person it provide at Licensee's request pursuant to this
Section, in
addition to being reimbursed for all reasonable travel expenses
of those
personnel for travel to Licensee's laboratories.
2.03 Notice to Terminate. Within six months of the
execution of this
Agreement, Licensee may notify Licensor of its intent not to
utilize the
Technology for the manufacture of the products. In the event of
such notice, all
Technology provided to Licensee shall be immediately destroyed
and Licensee and
Licensor shall be relieved of all further obligations contained
in this
Agreement. Licensee's notification under this section shall not
entitle it to
refund of monies already paid.
2.05 Unauthorized Use of Disclosure. If pursuant to
Section 2.03 Licensee
notifies Licensor if its intent not to utilize the Technology and
at any time
thereafter Licensor has reasons to believe that Licensee is
continuing to the use
Technology or at anytime Licensor has reasons to believe that
Licensee disclosed
the Technology to a third party or provided organisms to a third
party, Licensor
may notify Licensee of its suspicions, and Licensee shall either
provide
appropriate clarification or explanation or confirm or deny such
use or
disclosure to a third party. If Licensee denies any such use or
disclosure,
Licensor may request a review of this issue by an arbitrator in
accordance with
Section 9.01. If the arbitrator concludes that Licensee is using
Technology or
that Licensee disclosed same to a third party, the arbitrator
shall award
equitable damages to Licensor. Such damages shall not be less
than the royalty
specified in Section 3.01(c).
-2-
2.06 Demonstration. Licensor shall demonstrate at
Licensee's laboratories
in Decatur, Illinois that the Technology will produce a minimum
of ppm
astaxanthin, related isomers and minor carotenoids (+ 10% DMSO
assay variation)
that is at least 65% astaxanthin in not more than grams per
liter dry solids
of biomass using Licensor's process in up to a 10 liter size
fermenter. All
monies paid by Licensee pursuant to Section 3.01 shall be
immediately returned
to Licensee in the event that Licensor is unable to successfully
demonstrate the
Technology.
3.0 PAYMENT BY LICENSEE
3.01 Purchase Price. The purchase price for granting of
the license shall
be as follows:
(a) Two Hundred Thousand Dollars ($200,000), to be
transferred to
Licensor's accounts upon execution of this Agreement.
(b) Five Hundred Thousand Dollars ($500,000) payable
within 6 months from
execution of this Agreement. This $500,000 shall be
nonrefundable and shall be
credited against future royalties payable under subsection (c) of
this section.
(c) A yearly royalty equal to two percent (2%) of gross
sales of the
Products for a period of ten (10) years from the date commercial
production of
any of the Products commences.
3.02 Payment of Royalties. On or before the last day of
the month
immediately following the end of each calendar quarter, Licensee
shall deliver
to Licensor a written report of the quantities of Product sold by
Licensee during
the preceding calendar quarter, including information necessary
to calculate the
royalty obligation. At the time of submission of said report,
Licensee shall
make a royalty payment pursuant to the calculation in the report.
3.03 Late Payment. Any payments to be made hereunder
that remain due and
unpaid after a period of thirty (30) calendar days after the date
due shall
accrue interest, commencing as of the date payment was first past
due, at the
lower of the prime interest rate of Citibank, N.A., or the
highest rate
permissible under applicable law. No interest shall be accrued
or due on any
past due payments which are subject to a good faith dispute.
3.04 Record Keeping. Licensee shall keep true and
accurate records and
books of account containing all data necessary for the
determination of royalties
payable hereunder. Representatives of Licensor or a mutually
acceptable auditor
shall have the right, upon at least five (5) business days prior
written notice,
to inspect and review during normal business hours the records of
Licensee
relating to the sales of Products. Licensor agrees to cause its
representative
-3-
to maintain confidential all information furnished to them in
connection with any
such inspection of records.
4.0 WARRANTIES
4.01 Warranties by Licensor. Licensor expressly
warrants and represents
to Licensee that: (a) Licensor is a corporation duly organized,
validly
existing, and in good standing under the laws of the state of
Maryland, USA (b)
this Agreement when duly signed by Licensor will be a binding
obligation of
Licensor, enforceable in all respects; (c) Licensor is the owner
of the
Technology, to the extent the law allows such an ownership
interest, and the
Patent Rights, including all common law, statutory and other
rights therein, free
and clear of any exclusive rights or claims or licenses of
others, and has not
entered into any agreements or contracts authorizing others to
exclusively use
the Patent Rights; (d) The existing patents included in the
Patent Rights re
valid and enforceable; (e) the manufacture, use, and sale of the
Technology will
not constitute infringement of another's Patent Rights, or
otherwise constitute
unfair competition or trade secret infringement; (f) there is no
pending or
threatened litigation related in any way to the validity, use or
enforceability
of any of the Patent Rights, and all of the right, title, and
interest in and to
the Technology, acquired by Licensee under this Agreement is free
and clear of
all liens, encumbrances, or other claims of creditors of
Licensor; (g) Licensor
has not and will not enter any agreement or other obligation
which in any way
limits or would limit the rights of Licensee to utilize the
Technology and Patent
Rights; (h) this Agreement and all obligations and undertakings
by Licensor
hereunder are in compliance with all applicable laws; (i) all
test results,
complaints, and other data and communications known to Licensor
as of the date
of this Agreement, evidencing any defect or problem in the
Technology or with
respect to the design, manufacturability, operations, yields,
production
efficiencies, reliability, customer acceptance, governmental
acceptance, or
approvals, or the like, have been disclosed to Licensee in
writing; (j) to the
best of Licensor's knowledge, no independent testing agency,
government, or
governmental unit has disapproved or, if approval has been
sought, failed to
approve the Technology and the device produced thereby.
4.02 Warranties by Licensee. Licensee represents and
warrants to Licensor
as follows: (a) Licensee is a corporation duly organized,
validly existing, and
in good standing under the laws of the State of Delaware, U.S.A.;
(b) all
necessary and corporate actions have been taken to authorize the
execution,
delivery, and performance of this Agreement by Licensee; and (c)
this Agreement
when duly signed by Licensor and Licensee will be a binding
obligation of
Licensee enforceable in accordance with its terms.
5.0 TERM
5.01 Term. This Agreement shall commence on the first
above written and
continue in full force and effect until expiration of all patent
claims which
provide material protection for the Technology as being practiced
at the time or
-4-
as expected by Licensee to be practiced in the future, and until
all obligations
hereunder have been performed by both parties, unless earlier
terminated as
hereinafter provided (the "Term").
5.02 Termination. In the event of a failure by Licensee
to make any
payment in a full and prompt manner as elsewhere provided in this
Agreement, or
in the event of any other material breach of this Agreement by
either party
hereto, if such failure or other material breach is not corrected
within thirty
(30) days after written notice complaining thereof is given to
the party who has
failed to perform, this Agreement may be terminated forthwith by
a written notice
to that effect from the complaining party.
6.0 GENERAL LIMITATIONS
6.01 No Agency, Partnership, or Joint Venture. This
Agreement does not
render, and nothing herein contained shall be construed to
render, Licensee or
Licensor as an agent for the other or liable for any debts,
obligations, or
liabilities of the other now existing or to be incurred in the
performance of
this Agreement. Nothing in this Agreement shall be deemed or
construed to
constitute or create between the parties hereto a partnership or
joint venture.
7.0 NOTICES
7.01 Notices. Except as provided elsewhere in this
Agreement, all
statements, payments, and documents required or permitted by this
Agreement to
be provided or given to either party shall be deemed to have been
so provided or
given upon the mailing thereof postage paid by first class mail,
and all notices
required hereunder shall be deemed to have been given upon the
mailing thereof
by postage paid certified mail, return receipt requested,
addressed to such party
at its following address or at such other addresses and to the
attention of such
other officers or individuals as it may from time to time
designate in writing
to the other party:
If to Licensor: Michael Kimelman
IGENE Biotechnology, Inc.
9110 Red Branch Road
Columbia, Maryland 21045-2020
If to Licensee: Archer-Daniels-Midland Company
P.O. Box 1470
Decatur, Illinois 62525
Attn: President, Bioproducts Division
with a copy to: Archer-Daniels-Midland Company
P. O. Box 1470
Decatur, Illinois 62525
Attn: General Counsel
-5-
8.0 ENTIRE AGREEMENT
8.01 Entire Agreement. This Agreement shall represent
the entire agreement
by and between Licensee and Licensor and all previous agreements
between Licensee
and Licensor are hereby terminated and superseded. This
Agreement shall not be
modified except by an Agreement in writing signed by both parties
hereto.
9.0 MISCELLANEOUS
9.01 Arbitration. In the event that a disagreement
between the parties
arises with respect to the provisions of this Agreement, the
matter shall be
finally settled by arbitration pursuant to the Commercial Rules
of the American
Arbitration Association. The arbitration shall take place in
Chicago, Illinois.
9.02 Secrecy. Licensee agrees for itself and its
officers, directors,
employees, representatives and consultant, with respect to the
Technology, (a)
to keep the same secret and confidential and not disclose the
same to any third
party, other than as expressly authorized in writing by Licensor
and to take
whatever reasonable steps are necessary to insure said
confidentiality and
secrecy and; (b) to use the same only as licensed or authorized
herein, provided,
however, that the obligations specified above shall not apply to
any item of
Technology which (i) is published or otherwise available to the
public at the
time of receipt thereof by Licensee, (ii) becomes published or
otherwise
available to the public after receipt thereof by Licensee,
through no act or
failure to act on the part of Licensee or (iii) can be clearly
demonstrated by
Licensee to have been known to it at the time of receipt thereof
from Licensor
and not obtained or derived from Licensor. The obligations of
Licensee with
respect to the nondisclosure and use of Technology shall expire
on the date five
(5) years immediately after the end of the Term of this
Agreement.
9.03 Indemnification by Licensor. If any action is
taken against Licensee
for infringement of a patent protected as of the date of this
Agreement, arising
by reason of the use of the Technology, Licensor shall indemnify
and hold
harmless Licensee for any liabilities, losses, costs, fees,
including attorney's
fees, and other damages (collectively, the "Losses") incurred by
Licensee as a
result of such an action. Upon receipt of any allegation of
infringement or
notification of an action for infringement, either party shall
notify the other
in writing of such allegation or notification. Licensor and
Licensee shall
cooperate in the defense and any settlement negotiations with
respect to claims
of infringement, but Licensee shall have the ultimate authority
with respect to
decisions concerning the defense and settlement of any such
litigation. If it
is finally determined that infringement has occurred, or if, in
the opinion of
Licensor, it is likely that infringement has occurred, Licensor
is entitled and
-6-
obliged to take one or more of the following steps, at Licensor's
cost:
(a) attempt to reach an agreement which gives Licensee
the rights in the
Technology; or
(b) attempt to modify the Technology so that
infringement no longer
exists; or
(b) grant to Licensee a reasonable sum for the
reduction in value of the
Technology which has occurred as a result of the
infringement.
Licensor is not liable to Licensee for claims due to infringement
based on the
use of the Technology in combination with equipment not supplied
by Licensor, or
based on the use of the Technology in a manner for which it was
not intended or
in any other way which was not agreed. Notwithstanding anything
herein to the
contrary, Licensor's indemnity obligation shall be limited in
accordance with the
following table:
<TABLE>
<CAPTION>
LICENSOR'S INDEMNITY OBLIGATION
LOSSES AS A PERCENTAGE OF LOSSES
<S> <C>
$ 0 - 250,000 100 %
In excess of $250,000 50 %
</TABLE>
In no event shall Licensor's indemnity obligation exceed the
total amount paid
by Licensee under this Agreement, inclusive of royalties.
9.04 Indemnification by Licensee. Licensee hereby
agrees to defend,
indemnify and hold harmless Licensor from and against any and all
claims, causes
of action, losses, damages costs (including, without limitation,
the cost of
investigation and attorney's fees and costs), judgements or
liabilities incurred
with respect to (i) any breach or failure by Licensee to comply
with the
representations, warranties, agreements, and covenants made by
Licensee herein,
(ii) any claim, demand or cause of action which is made or
brought against
Licensor by any third party with respect to Products manufactured
by Licensee
based upon or arising out of the negligent manufacture, handling
or storage by
Licensee of Products, (iii) any claim, demand or cause of action
which is made
or brought against Licensor by any third party based upon or
arising out of
Licensee's representations about the Products, their uses and
capabilities, or
(iv) the cots and expenses incurred by Licensor in connection
with total or
partial product recalls caused by the actions or inactions of
Licensee.
9.05 Filing of Patent Applications. Licensor, at its
option, may file
patent applications covering Technology in any country. The
license granted
under Section 2.01 shall include a non-exclusive license to
practice under any
patent that may issue to Licensor on any said application. If
Licensor does not
-7-
elect to file said patent applications, then Licensee may file
such patent
applications at its own expense, provided that such applications
name as inventor
the individuals that Licensor believes have invented the
Technology and that such
patent applications shall be assigned to Licensor.
9.06 Severability. If any provision of this Agreement
is held invalid or
unenforceable for any reason, such provision is fully separable,
and shall
thereupon be separated from, the remaining provisions of this
Agreement, and the
remaining provisions are nevertheless validated and enforceable
as if such of the
provisions held invalid or unenforceable were not a part of this
Agreement.
9.07 Headings. Headings and captions of this Agreement
are included for
purposes of convenient reference only and shall not be construed
as limiting,
expanding, or modifying in any way the text of any paragraph or
section.
9.08 Waiver. The failure of either party at any time to
require
performance by the other party of any provision of this Agreement
shall not
affect in any way or derogate the full right to require such
performance at any
time thereafter; nor shall the waiver by either party of a breach
of any
provision thereof be held to be a waiver of the provision itself.
9.09 Governing Law. This Agreement shall be governed by
and construed in
accordance with the laws of the State of Illinois.
9.10 Counterparts. This Agreement may be executed in
counterparts at the
option of either party.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement on the
date first written above.
ARCHER-DANIELS-MIDLAND COMPANY
By: /s/ J. E. W.
Its: Corporate Vice President
IGENE BIOTECHNOLOGY, INC.
By: /s/ Michael G. Kimelman
Its: Chairman of the Board
-8-<PAGE>
November 22, 1995
Mr. Michael G. Kimelman
Chairman
IGENE Biotechnology, Inc.
9110 Red Branch Road
Columbia, Maryland 21045
Dear Mike:
This letter reflects the agreement of IGENE Biotechnology, Inc.
("IGENE") and
Archer-Daniels-Midland Company ("ADM") to amend their May 11,
1995 Agreement
concerning the Astaxanthin Technology License (the "Agreement").
IGENE and ADM agree to extend the 6-month $500,000 payment
deadline discussed in
Section 3.01(b) and the termination deadline discussed in Section
2.03 to May 11,
1996. On or before that date ADM will take one of the following
actions:
(1) Make the $500,000 payment discussed in Section
3.01(b) of the
Agreement, less credited monthly payments discussed
below; such
payment to be non-refundable and credited against
future royalties;
or
(2) Terminate the Agreement.
ADM will pay 50% of the reasonable travel and living expenses for
IGENE personnel
or agents to travel to and stay in Decatur, Illinois in
connection with travel
approved by and for the benefit of ADM.
If on or before December 1, 1995, ADM does not exercise its
election to pay
pursuant to Section 3.01(b) of the Agreement or to terminate the
Agreement, ADM
shall pay IGENE $25,000. If on or before January 1, 1996, ADM
does not exercise
its election to pay pursuant to Section 3.01(b) of the Agreement
or to terminate
the Agreement, ADM shall pay IGENE $25,000. If on or before
February 1, 1996,
ADM does not exercise its election to pay pursuant to Section
3.01(b) of the
-1-
Agreement or to terminate the Agreement, ADM shall pay IGENE
$75,000. These
payments shall be incorporated into Section 3.01 of the
Agreement. One Hundred
Percent (100%) of the December 1, 1995 and January 1, 1996
payments and 50% of
the February 1, 1996 payment shall be credited against the
$500,000 payment due
under Section 3.01(b) of the Agreement.
All other clauses of the May 11, 1995, contract shall remain the
same.
Notwithstanding any other language in this letter, nothing herein
shall be
construed as an admission or agreement by either IGENE or ADM
that the technology
has or has not been successfully demonstrated as of this date.
IGENE expressly
reserves all arguments that such demonstration has occurred and
does not waive
any such argument or position.
If this letter reflects your understanding of our agreement,
please sign this
letter in the space provided below. I will then have our Law
Department draft
a formal Amendment of the Agreement and will forward it to you as
soon as
possible.
Sincerely,
/s/ Brian F. Peterson
President
ADM BioProducts Division
BP/vb
ACCEPTED
s/s Michael Kimelman
(Please return one signed copy to Paul J. Caswell, P.O. Box 1470,
Decatur,
Illinois 62525)
-2-
<PAGE>
EXHIBIT 10.13
AGREEMENT OF LEASE BY AND BETWEEN
COLUMBIA WAREHOUSE LIMITED PARTNERSHIP AND
IGENE BIOTECHNOLOGY, INC.
<PAGE>
AGREEMENT OF LEASE
BY AND BETWEEN COLUMBIA WAREHOUSE LIMITED PARTNERSHIP
(Landlord)
AND
IGENE BIOTECHNOLOGY, INC. (Tenant)
1. Leased Premises
.................................... 1
2. Term ...............................................
1
3. Security Deposit....................................
1
4. Use
................................................
1
5. Basic Annual Rent...................................
2
5.1. Definitions.................................. 2
5.2. Rent Adjustment.............................. 3
5.3. Intentionally Deleted ....................... 4
5.4. Summary of Payments.......................... 4
5.5. Utilities.................................... 4
5.6. Payments
..................................... 5
6. Requirements of Law.................................
5
7. Tenant's Improvements.............................. 5
8. Condition of Premises.............................. 5
9. Conduct on Premises............................... 6
10. Insurance ..........................................
6
11. Mechanics' and Materialmen's Liens and Other Liens..
7
12. Tenant's Failure to Perform........................ 7
13. Loss, Damage, Injury............................... 7
14. Destruction--Fire or Other Casualty................ 7
15. Eminent Domain
...................................... 8
16. Environmental Assurances........................... 8
17. Assignment/Subletting.............................. 9
18. Defaults ...........................................
10
19. Acceptance of Leased Premises...................... 12
20. Access to Premises and Change in Services...........
12
21. Estoppel Certificates.............................. 12
22. Subordination
...................................... 13
23. Attornment .........................................
13
24. Notices ............................................
13
25. Landlord's Liability................................
13
26. Severability .......................................
13
27. Captions ...........................................
14
28. Recordation ........................................
14
29. Successors and Assigns............................. 14
30. Holding Over .......................................
14
31. Commissions ........................................
14
32. Waiver of Jury Trial............................... 14
33. Miscellaneous
...................................... 15
34. Authority ..........................................
16
EXHIBIT A - Site Plan and Leased Premises
Rider No. 1 - Right of First Refusal
Rider No. 2 - Renewal<PAGE>
LEASE AGREEMENT
THIS AGREEMENT OF LEASE is made this 15th day of December,
1995, by and
between COLUMBIA WAREHOUSE LIMITED PARTNERSHIP, a limited
partnership formed
under the laws of the State of Maryland (hereinafter referred to
as "Landlord"),
and IGENE BIOTECHNOLOGY, INC. (hereinafter referred to as
"Tenant").
WITNESSETH, that the parties hereby covenant, promise and
agree as
follows:
1. Leased Premises. Landlord is the developer of a
building
(hereinafter referred to as the "Building"), located at 9110 Red
Branch Road, Bay
O, Columbia, Maryland 21045. Landlord does hereby lease unto
Tenant and Tenant
does hereby rent from Landlord, that portion of the Building
containing eight
thousand four hundred eighty (8,480) square feet, known as Bays
G, H, I and J
(hereinafter referred to as the "Leased Premises") as more
particularly described
on "Exhibit A" attached hereto, incorporated by reference herein
and initialed
by the parties. Tenant hereby accepts the Leased Premises in
"AS-IS" condition
having occupied the same since 1981 pursuant to prior leases,
most recently being
the lease agreement dated October 28, 1991 (the "Existing
Lease").
Notwithstanding the foregoing, on or before the Commencement Date
(defined below)
Landlord shall, at its expense, provide for separate metering of
the gas and
electric service to the entirety of the Leased Premises, such
metering only being
currently separated as to Bays G and H. Such separation shall
provide Tenant
with a dedicated HVAC mechanical system which shall provide
service to the Leased
Premises, and to no other premises. See Rider No. 1 - Right of
First Refusal.
2. Term. This Lease shall be for a term of five (5) years
(the "Lease
Term") commencing on February 1, 1996 (the "Commencement Date")
and terminating
at 11:59 p.m. on the last day of the fifth full lease year,
unless otherwise
terminated or extended in accordance with the provisions hereof.
Each respective
period of twelve (12) successive calendar months during the Lease
Term or any
renewals thereof commencing with the first full calendar month
during the Lease
Term shall be hereinafter referred to as the "lease year" or
"Lease Year." See
Rider No. 2 - Renewal.
3. Security Deposit. Tenant, contemporaneously with the
execution of
the existing Lease, deposited with Landlord the sum of Ten
Thousand Six Hundred
Dollars ($10,600.00), as a security deposit (the "Deposit"),
which, to the extend
the same has not been applied or exhausted pursuant to the
further terms hereof
or of the Existing Lease, shall be returned by Landlord to Tenant
following the
expiration of the Lease Term. Landlord shall have the right to
apply the Deposit
to cure any breach by Tenant of any of Tenant's obligations or
duties pursuant
to this Lease, and upon any such application by Landlord, Tenant
shall
immediately restore the Deposit to the dollar amount set forth in
this Section.
Landlord shall be entitled to the full use of the Deposit, shall
not be required
to escrow or otherwise segregate the Deposit, and no interest
shall accrue
thereon or be paid or payable by Landlord with respect to the
Deposit.
Notwithstanding the aforesaid, Landlord shall return to Tenant
the sum of Five
Thousand Seven Hundred Twenty-four Dollars ($5,724.00) of the
Deposit nine (9)
months after the Commencement Date, provided, however, that
Tenant has timely
made, and is not in default in, the payment of any sums due
hereunder or any
other material obligation imposed upon Tenant by this Lease.
4. Use. Landlord and Tenant expressly agree that the
Leased Premises
shall be used or occupied by Tenant as an office, warehouse, and
laboratory
production facility and for no other purpose whatsoever.
The purposes) for which the Leased Premises may be used or
occupied is
further limited by certain restrictive covenants, a
"Restrictions"). Tenant is
cognizant of the terms and provisions of the Restrictions and
agrees to be bound
by them.
-1-
5. Basic Annual Rent. Tenant shall pay to Landlord during
the Lease
Term "Basic Annual Rent" in the amounts and for the periods set
forth below:
February 1, 1996 - January 31, 1998 $57,240.00
$4,770.00
February 1, 1998 - January 31, 2001 $59,360.00
$4,946.67
without any deductions, setoffs, recoupments or any other charges
whatsoever and
without demand, in advance on the first (1st) day of each and
every calendar
month for which payment is due (.e.g., April's rent is due on or
before April 1).
5.1 Definitions. For purposes of this Lease, the
following
meanings or definitions shall apply:
(a) "Rentable Area of the Building" shall, for all purposes
of this
Lease, be deemed to be thirty-eight thousand eight hundred
(38,800) square feet.
(b) "Rentable Area of the Leased Premise" shall, for all
purposes of
this Lease, be deemed to be eight thousand four hundred eighty
(8,480) square
feet. Therefore, Tenant's pro-rata portion of those expenses
payable in
accordance with Sections 5.2 through 5.4 shall be twenty-one and
eighty-six
hundredths percent (21.86%) (8,480/38,000) ("Tenant's Portion").
(c) "Common Area Expenses" shall mean all expenses paid or
incurred by
Landlord in connection with landlord's management of the Real
Property and the
management, maintenance, operation and repair of the common areas
of the Real
Property, including, but not limited to, (i) keeping the
driveways, parking
areas, sidewalks and steps free and clear of ice, snow and
debris; (ii)
maintaining all grass and landscaping on the Real Property; (iii)
maintaining the
common ares of the buildings of the Real Property (including the
Building),
including the utility rooms and security systems, if any, and
repair of normal
wear and tear of the roof and caulking; (iv) trash removal from
dumpsters on the
Real Property, if any; and (v) monitoring, repairing and payment
of all common
utilities, including water, sewerage, unmetered or metered
sprinkler and exterior
electrical utilities on the Real Property. "Common Area
Expenses" doe snot
include the costs of work Landlord performs for, and/or at the
expense of, any
particular tenant (including Tenant), which costs will be billed
directly to
Tenant or such other tenant, as the case may be. Notwithstanding
the foregoing,
Landlord will be allowed reasonably to allocate the costs of
trash removal based
on actual use of such service.
(d) "Taxes" shall mean any present or future federal,
state, municipal,
local and/or any other taxes, assessments, levies, benefit
charges, and/or other
governmental and/or private impositions (including business park
charges and
dues), levied, assessed and/or agreed to be imposed upon the Real
Property of
which the Leased Premises are a part or any part or parts of said
Real Property,
or upon the rent due and payable hereunder, whether or not now
customary or
within the contemplation of the parties hereto and regardless of
whether the same
shall be extraordinary or ordinary, general or special, foreseen
or unforeseen,
or similar or dissimilar to any of the foregoing but shall not
include any
inheritance, estate, succession, income, profits or franchise
tax, provided,
however, if at any time during the lease Term or any extension
thereof the method
of taxation prevailing at the commencement of the term shall be
altered or
eliminated so as to cause the whole or any part of the items
listed in the first
-2-
part of this subsection (d) to be replaced by a levy, assessment
or imposition,
wholly or partly as a capital levy, or otherwise, on the rents or
income
(provided the tax on such income is not a tax levied on taxable
income generally)
received from the Building, wholly or partly in place of an
imposition on or as
a substitute for, or an increase of, taxes in the nature of real
estate taxes
issued against the Real Property, then the charge to Landlord
resulting from such
altered or replacement method of taxation shall be deemed to be
within the
definition of "Taxes". All reasonable expenses incurred by
Landlord (including
attorneys fees and costs) in contesting any increase in Taxes or
any increase in
the assessment of the Real Property shall be included as an item
of Taxes for the
purpose of computing additional rent due hereunder.
(e) "Real Property" shall mean the Building, the lot upon
which the
Building is situated and all fixtures, equipment and other
improvements in or
upon said land and/or Building, and shall include the sidewalks,
areaways,
parking areas, loading areas, gardens and lawns.
(f) "Insurance" shall mean all insurance of whatsoever
nature kept or
caused to be kept by Landlord out of or in connection with its
ownership of the
Building and/or on the Real Property the Building, equipment,
fixtures and other
improvements installed and/or owned by Landlord and used in
connection with the
Building and/or the Real Property and/or all alterations,
rebuildings,
replacements and additions thereto, including, but not limited
to, insurance
insuring the same against loss or damage by, or abatement of
rental income
resulting from fire, and other such hazards, casualties and
contingencies
(including, but not limited to, war risk insurance, if
available), liability and
indemnity insurance.
(g) "Ground Rent" shall mean that rent payable by Landlord
to the
holder of the fee simple title to the land upon which the
Building is situated.
(h) "Operating Year" shall mean: (i) when used in content
with Common
Area Expenses, Insurance, Ground Rent, and HVAC Expense, such
applicable fiscal
year as Landlord may adopt from time to time during the Lease
Term, and (ii) when
used in context with Taxes, each respective tax year (i.e., the
fiscal year
beginning July 1) during the Lease Term, or such other fiscal
year as the
applicable authorities may select.
5.2 Rent Adjustment. Tenant agrees to pay to
Landlord, as
additional rent, with and at the same time as the payments of
Basic Annual Rent,
the following amounts:
(a) Four Hundred Seventy-Three Dollars and Forty-Seven
Cents ($473.47)
per month as one-twelfth of Tenant's estimated Portion of Common
Area Expenses
(calculated on the basis of $.67 per square foot);
(b) Four Hundred Ninety-Four Dollars and Sixty-Seven Cents
($494.67)
per month as one-twelfth of Tenant's estimated Portion of Taxes
(calculated on
the basis of $.70 per square foot);
(c) Thirty-Five Dollars and Thirty-Three Cents ($35.33) per
month as
one-twelfth of Tenant's estimated Portion of Insurance premiums
(calculated on
the basis of $.05 per square foot); and
(d) Ninety-Eight Dollars and Ninety-Three Cents ($98.93)
per month as
one-twelfth of Tenant's estimated Portion of Ground Rent
(calculated on the basis
of $.14 per square foot).
At any time during a Lease Year, Landlord may
revise its
estimate of Tenant's Land Portion of Common Area Expenses, Taxes,
Insurance, and
Ground Rent, (collectively, the "Expenses") as set forth above
and adjust
Tenant's monthly installments to reflect the revised estimates.
Landlord will
-3-
give Tenant prior written notice of the revised estimates and the
amount by which
the Tenant's monthly installments will be adjusted, and Tenant
will pay the
adjusted installments with each payment of the rent, beginning
with the first
payment of the Basic Annual Rent to come due after Tenant's
receipt of such
notice. Notwithstanding the foregoing, to the extent any item
included within
such Expenses is subject to Landlord's reasonable control, Tenant
shall not be
obligated to pay increases of more than five percent (5%) of the
previous year's
amount of such controllable item.
Landlord will deliver to Tenant, within one
hundred
twenty (120) days (or such longer time as is reasonable under the
circumstances)
after the end of each applicable Operating Year for the Expenses,
a statement for
such Operating Year (the "Statement"), showing Tenant's
applicable portion of
such Expenses. Tenant will pay Landlord within thirty (30) days
of the receipt
of the Statement, such amounts as may be necessary to adjust
Tenant's estimated
payments for such preceding Operating Year so that such payments
will equal
Tenant's applicable portion of the actual Expenses for such
Operating Year. If
the actual amount of Tenant's applicable portion of such Expenses
is less than
the amounts paid by Tenant as installments of its applicable
portion of such
Expenses, then Landlord will credit Tenant's account by the
amount of the excess
or, if at the end of the Lease Term, refund to Tenant the amount
of the excess.
Failure of Landlord to provide any Statement
within the
time prescribed will not relieve Tenant of its obligations under
this Section
5.2.
5.3. Intentionally deleted
5.4. Summary of Payments. The following is a list
of the
various payments and installments of Basic Annual Rent and
additional rent under
this Lease pursuant to this Section 5 as of the Commencement
Date. Some of these
amounts will change during the Lease Term.
<TABLE>
<CAPTION>
Monthly Annual s.f.
Installments Amounts
<S> <C> <C>
Basic Annual Rent
Months 1 - 24 $ 4,770.00 $ 6.75
Months 25 - 60 $ 4,946.67 $ 7.00
Taxes (estimate) $ 494.67 $ 0.70
Insurance (estimate) $ 35.33 $ 0.05
Common Area Expenses (estimate) $ 473.47 $ 0.67
Ground Rent (estimate) $ 98.93 $ 0.14
TOTAL
Months 1 - 24 $ 5,872.40 $ 8.31
Months 25 - 60 $ 6,049.07 $ 8.56
</TABLE>
5.5. Utilities.
(a) Notwithstanding that certain utilities are commonly
metered on the
Real Property and the costs of such utilities are included within
the Common Area
Expenses set forth above, Landlord or Tenant shall have the
right, at Tenant's
-4-
sole cost and expense, which shall not exceed Two Hundred Fifty
Dollars
($250.00), to have a water meter installed upon the Leased
Premises and
thereafter to pay to Landlord all water charges respecting the
Leased Premises
based upon readings of said water meter.
(b) Tenant shall pay on a timely basis to the appropriate
utility or
other supplier, all charges for gas, steam, electricity, light,
heat, power,
telephone and all other utility and communication services, used,
rendered and/or
supplied upon or in connection with the Leased Premises.
5.6. Payments. All payments or installments of any
rent
hereunder, other than Basic Annual Rent, and all sums whatsoever
due under this
Lease (including attorneys' fees) shall be deemed to be
additional rent and shall
be paid to Landlord at the address designated for notice to
Landlord herein, or
as otherwise designated by Landlord. If any rent or additional
rent is not paid
within ten (10) days of when due, such arrearage shall bear a
late charge equal
to Thirty Dollars ($30.00) for each day such sum is in arrears in
consideration
of Landlord's additional expense caused by such failure to pay.
Such late
charges shall be payable simultaneously with the arrearage
payment, without
demand. Time is of the essence with respect to Tenant's monetary
obligations in
this Lease. Unless otherwise stated, any such additional rent
shall be due
within thirty (30) days after the Tenant has received from
Landlord a written
statement to Tenant showing the amount due, and Tenant's
obligation to pay such
additional rent shall survive the termination of this Lease.
6. Requirements of Law. Tenant shall, at the sole cost
and expense
of Tenant, observe and comply with all laws, requirements, rules,
orders,
ordinances and regulations applicable to the Leased Premises, and
Real Property
or the Building.
7. Tenant's Improvements. Tenant shall not make any
alterations,
installations, additions and/or improvements to the Leased
Premises, including
but not limited to, the installation of any fixtures, equipment,
appliances or
other apparatus (collectively, the "Work"), without Landlord's
prior written
consent, and then only by contractors or mechanics approved by
Landlord, which
consent or approval shall not be unreasonably withheld. All such
Work shall be
done at Tenant's sole cost and expense and at such times and in
such manner as
Landlord may from time to time designate. All such Work shall be
done under the
general supervision of Landlord to assure standard quality
improvements on the
Real Property for which Landlord shall be paid a reasonable
supervisory fee. All
such Work done by either of the parties hereto upon the Leased
Premises, except
movable furniture and trade fixtures put in at the expense of
Tenant, shall be
the property of Landlord and shall remain upon and be surrendered
with the Leased
Premises at the termination of this Lease without molestation or
injury;
provided, however, that Landlord may elect, at the time it
approves any such
work, to require Tenant to remove all or any part of said Work at
the expiration
of this Lease, in which event such removal shall be done at
Tenant's sole cost
and expense. Tenant shall, at its sole cost and expense, repair
any damage to
the Leased Premises and/or the Building caused by such removal or
by the removal
of its personalty.
8. Condition of Premises.
(a) Tenant shall at all times during the Lease Term
take good
care of and keep the Leased Premises and the improvements,
fixtures, equipment
and appurtenances therein and thereto (including, but not limited
to, interior
and exterior windows, interior and exterior doors, including
locks and hardware,
pipes, plumbing, water and sewer connections, and light fixtures)
in good order
and condition and, at Tenant's sole cost and expense, shall make
all necessary
repairs thereto, which repairs shall be in quality and class at
least equal to
the original work. Tenant shall not commit or suffer any waste
of the leased
Premises. At the expiration of the Lease Term, or at the sooner
termination of
this lease s herein provided, Tenant shall deliver up the Leased
Premises in the
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same good order and condition, reasonable wear and tear excepted,
as at the
beginning of the tenancy, broom clean and (subject to the
provisions of the
preceding Section hereof) Tenant shall remove all of its property
and/or property
maintained and/or stored for or on the account of others
therefrom prior to such
termination. Any items of Tenant's personalty remaining in the
Leased Premises
after the termination of this Lease shall be deemed abandoned by
Tenant and shall
become the sole property of Landlord. Notwithstanding the
foregoing, any costs
incurred by Landlord in storing and/or disposing of such
abandoned property shall
remain the sole obligation of Tenant, which obligation shall
survive the
termination of this Lease. Landlord shall maintain exterior
walls (excluding
windows), downspouts and the roof, so long as such maintenance is
not required
as a result of any acts of Tenant, or Tenant's agents, employees
or visitors.
(b) Tenant further will secure and maintain a full
service
contract on the heating, ventilation and air conditioning systems
serving the
Leased Premises (the "HVAC System"). Tenant will make all
necessary repairs or
replacements to the HVAC System which are not covered under the
full service
contract (a copy of which was previously delivered to Tenant).
All costs
incurred which are not covered by the full service contract shall
be paid for by
Tenant except for the cost of replacing or making any repairs of
a capital nature
to the compressor or heat exchanger (the "Shared Expenses"), the
cost of which
shall be shared between Tenant and Landlord s described below.
Tenant will pay
that percentage of the cost of any Shared Expenses which is equal
to the ratio
by which the length of the remaining years of Tenant's Lease Term
(without taking
into consideration any renewal or cancellation options not yet
exercised by
Tenant) bears to the useful life of such repair or replacement,
as determined in
accordance with generally accepted accounting principles;
provided, however, in
no event may such percentage be greater than 100%.
Notwithstanding the
foregoing, any maintenance or repair to the HVAC system which is
required as a
result of any acts or omissions of Tenant, or Tenant's agents,
employees or
visitors, or as a result of Tenant's use of such HVAC System in
excess of the
customary use of 12 hours per day, six days per week, will be
made by Landlord
at Tenant's sole cost and expense.
9. Conduct on Premises. Tenant shall not do, or permit
anything to
be done in the Leased Premises, or bring or keep anything therein
which will, in
any way invalidate or conflict with the fire insurance policies
on the Real
Property; obstruct or interfere with the rights of Landlord or
other tenants; or
interfere with the good order of the Building. Tenant agrees
that any increase
in fire or other insurance premiums on the Real Property and/or
the contents
thereof caused by the use or occupancy of Tenant shall, as they
occur or accrue,
be added to the rent heretofore reserved and be paid as a part
thereof; and
Landlord shall have all the rights and remedies for the
collection of same as are
conferred upon Landlord for the collection of rent provided to be
paid pursuant
to the terms of this Lease.
10. Insurance. At all times during the Lease Term, Tenant,
at its sole
cost and expense, shall provide and keep in full force and effect
a policy of
public liability insurance, naming Landlord and Manekin
Corporation as insureds,
as their interests may appear, with respect to the Leased
Premises and the
business of Tenant in, on, within, from or connected with the
Leased Premises,
pursuant to which the limits of liability shall be $1,000,000.00
in respect to
any one occurrence, and at least $2,000,000.00 with respect to
the combined limit
of liability. Said insurance policy shall be carried with an
insurance company
approved by Landlord, and a certificate of insurance shall be
delivered to
Landlord at the inception of each policy and renewal thereof.
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11. Mechanics' and Materialmen's Liens and Other Liens.
Tenant shall
not do or suffer to be done any act, matter or thing whereby the
Leased Premises
(or Tenant's interest therein), or any part thereof, may be
encumbered by any
mechanics or materialmen's lien and/or any other lien or
encumbrance. Tenant
shall discharge, within ten (10) days after the date of filing,
any mechanics'
or materialmen's liens filed against the Leased Premises (or
Tenant's interest
therein), or any part thereof, purporting to be for work or
material furnished
or to be furnished to Tenant.
12. Tenant's Failure to Perform. In the event that Tenant
shall fail,
after fifteen (15) days after receipt of written notice from
Landlord, to keep
the Leased Premises in the state of condition and repair required
by this Lease;
to do any act; make any payment; and/or perform any term or
covenant on Tenant's
part required under this lease, Landlord may (at its option, but
without being
required to do so) immediately, or at any time thereafter and
without notice,
perform the same for the account of Tenant (including, but not
limited to,
entering upon the Leased Premises at any time, to make repairs).
Any costs
incurred by Landlord in so performing Tenant's obligations,
together with a
reasonable rate of interest, which interest rate shall not exceed
twelve percent
(12%), on such sums, shall be deemed additional rent and shall be
due within ten
(10) days of receipt of a statement therefor from Landlord. All
rights given to
Landlord in this Section shall be in addition to any other right
or remedy of
Landlord herein contained.
13. Loss, Damage, Injury.
(a) Tenant hereby expressly agrees that Landlord
shall not be
liable or responsible in any manner for any damage or destruction
to the property
of Tenant or of any other person or entity and/or for injury or
death to the
Person of Tenant or of any other person or entity directly or
indirectly due to
any cause whatsoever other than the willful misconduct of
negligence of Landlord,
or Landlord's contractors, servants, employees, agents, licensees
and/or
invitees.
(b) Tenant shall indemnify and hold harmless
Landlord for all
losses, costs and expenses (including reasonable attorneys'
fees), settlement
payments and, whether or not reduced to final judgment, all
liabilities, damages
and/or fines paid, incurred or suffered by Landlord: (i) by
reason of any breach,
violation and/or nonperformance by Tenant and/or Tenant's
servants, employees,
agents, licensees or invites, of any covenant or provision of
this Lease; (ii)
by reason of or arising out of the occupancy or use by Tenant of
the Leased
Premises, the Building and/or the Real Property, or any part
thereof; (iii) by
reason of or arising out of any claim, action, suit or
proceeding, threatened,
instituted and/or made against Landlord arising out of or in
connection with
Tenant's use and/or occupancy of the Leased Premises; and/or (iv)
from any other
cause whatsoever due to the carelessness, negligence,
intentional, wanton and/or
improper conduct of Tenant and/or Tenant's contractors, servants,
employees,
agents, licensees and/or invitees. This indemnification by
Tenant shall survive
the termination or expiration of this Lease.
14. Destruction -- Fire or Other Casualty. In the event of
partial or
total damage or destruction insured against by Landlord to the
Leased Premises
by fire, other casualty, or any other cause whatsoever (except
condemnation),
Tenant shall give immediate notice thereof to Landlord and: (a)
this Lease shall
continue in full force and effect, and (b) Landlord, to the
extent that insurance
proceeds respecting such damage or destruction are subject to
being utilized for
and, in fact, may be utilized by Landlord therefor, shall
thereupon cause such
damage or destruction to property owned by Landlord to be
repaired with
reasonable speed at the expense of Landlord, due allowance being
made for
reasonable delay which may arise by reason of adjustment of loss
under insurance
Policies on the part of Landlord and/or Tenant, and for
reasonable delay on
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account of "labor troubles" or any other cause beyond Landlord's
control, and to
the extent that the Leased Premises are rendered untenantable,
the rent shall
proportionately abate. In the event the damage or destruction
shall be so
extensive to the Building s to render it uneconomical, in
Landlord's opinion, to
restore the Leased Premises for the use of Tenant as specified
herein or Landlord
shall decide not to repair or rebuild the Building, this Lease,
at the option of
the Landlord, shall be terminated upon written notice to Tenant
and the rent
shall, in such event, be paid to or adjusted as of the date of
such damage, and
the terms of this Lease shall expire by lapse of time upon the
third day after
such notice is mailed. Tenant shall thereupon vacate the Leased
Premises and
surrender the same to Landlord, but no such termination shall
release Tenant from
any liability to Landlord arising from such damage or from any of
the obligations
or duties imposed on Tenant hereunder prior to such termination.
Notwithstanding the provisions of Section 14, within
sixty (60)
days after the date of material destruction of the Leased
Premises, Landlord
shall obtain from Landlord's architect or contractor an estimate
of the time
which will be required to repair the Leased Premises. Landlord
shall promptly
communicate said estimate to Tenant. In the event that said
estimate of time
exceeds one hundred eighty (180) days from the date of such
destruction, then
Tenant shall have the right, within ten (10) days after receipt
of said estimate,
to terminate this Lease without any further liability or
obligation on the part
of the parties hereto for obligations thereafter accruing,
provided that Tenant
shall give written notice to Landlord within said ten (10) days
and shall not be
in breach or default of any covenant or condition by which Tenant
is obligated
under this Lease.
15. Eminent Domain. If the entire Leased Premises shall be
substantially taken (either temporarily or permanently) for
public purposes, or
in the event Landlord shall convey or lease the Real Property to
any public
authority in settlement of a threat of condemnation or taking,
the rent shall be
adjusted to the date of such taking or leasing or conveyance, and
this Lease
shall there upon terminate. If only a portion of the Leased
Premises shall be
so taken, leased or condemned, and as a result of such partial
taking, Tenant is
reasonably able to use the remainder of the Leased Premises for
the purposes
intended hereunder, then this Lease shall not terminate but,
effective as of the
date of such taking, leasing or condemnation, the rent hereunder
shall be abated
in an amount thereof proportionate to the area of the Leased
Premises so taken,
leased or condemned. If, following such partial taking Tenant
shall not be
reasonably able to use the remainder of the Leased Premises for
the purposes
intended hereunder, then this Lease shall terminate as if the
entire Leased
Premises had been taken, leased or condemned. In the event of a
taking, leasing
or condemnation as described in this Section, whether or not
there is a
termination hereunder, Tenant shall have no claim against
Landlord, other than
an adjustment of rent, to the date of taking, leasing or
condemnation, and Tenant
shall not be entitled to any portion of any amount that may be
awarded as damages
or paid as a result or in settlement of such proceedings or
threat.
16. Environmental Assurances.
(a) Covenants. Tenant covenants with Landlord:
(1) that it has not and shall not Generate
Hazardous
Substances at, to or from the Leased Premises unless the same is
specifically
approved in advance by Landlord in writing;
(2) to comply with all obligations imposed by
applicable law,
and regulations promulgated thereunder, and all other
restrictions and
regulations upon the Generation of Hazardous Substances (whether
or not at, to
or from the Leased Premises);
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(3) to deliver promptly to Landlord true and
complete copies
of all notices received by Tenant from any governmental authority
with respect
to the Generation by Tenant of Hazardous Substances (whether or
not at, to or
from the Leased Premises);
(4) to complete fully, truthfully and promptly any
questionnaires sent by Landlord with respect to Tenant's use of
the Leased
Premises and Generation of Hazardous Substances;
(5) to permit entry onto the Leased Premises by
Landlord or
Landlord's representatives at any reasonable time to verify and
monitor Tenant's
compliance with its representations, warranties and covenants set
forth in this
Section;
(6) to pay to Landlord, as additional rent, the
cots incurred
by Landlord hereunder, including the costs of such monitoring and
verification;
and
(7) to furnish to Landlord, at the expiration of
the Lease
Term, or at the sooner termination of the Lease Term as herein
provided, a
certification in form and content acceptable to Landlord, from an
environmental
audit company acceptable to Landlord, to the effect that the
Leased Premises re
free from Hazardous Substances based upon an inspection conducted
by such
environmental audit company not more than thirty (30) days prior
to the
expiration or termination of the Lease Term.
(b) Indemnification. Tenant agrees to indemnify and defend
Landlord
(with legal counsel reasonably acceptable to Landlord) from and
against any
costs, fees or expenses (including, without limitation,
environmental assessment,
investigation and environmental remediation expenses, third party
claims and
environmental impairment expenses and reasonable attorneys' fees
and expenses)
incurred by landlord in connection with Tenant's Generation of
Hazardous
Substances at, to or from the Leased Premises or in connection
with Tenant's
failure to comply with its representations, warranties and
covenants set forth
in this Section. This indemnification by Tenant shall survive
the termination
or expiration of this Lease.
(c) Definitions. The term "Hazardous Substance" means (i)
any
"hazardous waste" as defined by the Resource Conservation and
Recovery Act of
1976 (42 U.S.C. para. 6901 et seq.), as amended from time to
time, and
regulations promulgated thereunder; (ii) any "hazardous
substance" as defined by
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980
(42 U.S.C. para. 9601 et seq.), as amended from time to time, and
regulations
promulgated thereunder; (iii) any "oil, petroleum products, and
their by-
products" as defined by the Maryland Environment Cost Ann. para.
4-411(3)(i), as
amended from time to time, and regulations promulgated
thereunder; (iv) any
"controlled hazardous substance" or "hazardous substance" as
defined by the
Maryland Environment Code Ann., Title 7, subtitle 2, as amended
from time to
time, and regulations promulgated thereunder; (v) any "infectious
waste" as
defined by the Maryland Environment Code Ann. paragraph 9-227, as
amended from
time to time, and regulations promulgated thereunder; (vi) any
substance the
presence of which on the Real Property is prohibited, regulated
or restricted by
any law or regulation similar to those set forth in this
definition; and (vii)
any other substance which by law or regulation requires special
handling in its
Generation. The term "To Generate" means to use, collect,
generate, store,
transport, treat or dispose of.
17. Assignment/Subletting. Tenant is the only party that
may use or
occupy the Leased Premises. No assignment of this lease or
subletting of all or
any part of the Leased Premises is permitted without the prior
written consent
of Landlord, which consent shall not be unreasonably withheld or
denied with
respect to the type of assignment described in clauses (1), (2)
and (6) in the
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following subparagraph, so long as the proposed assignee is as
creditworthy as
is Tenant and is as experienced in operating a similar business
as is Tenant as
of the date hereof.
The foregoing restriction will include, but not be
limited to, the
following (all of which will be deemed to be an "Assignment"):
(1) any
assignment of this Lease or a subletting of the Leased Premises;
(2) any
permission to a third party to use all or part of the Leased
Premises; (3) any
mortgage or other encumbrance of this Lease or of the Leased
Premises; (4) the
appointment of a receiver or trustee of any of the Tenant's
property; (5) any
assignment or sale in bankruptcy or insolvency; and (6) the
transfer of majority
control of Tenant by any means, including operation of law, to
parties other than
those maintaining majority control on the date on which the last
party executes
this Lease.
Even if Landlord consents to an Assignment, Tenant will
remain
primarily liable under this Lease. Also, Tenant will bear all
reasonable legal
costs incurred by Landlord in connection with Landlord's review
of documents
concerning an Assignment, whether or not Landlord consents to it.
Landlord's
consent to a specific Assignment does not waive Landlord's right
to withhold
consent to any future or additional Assignment. Tenant will give
Landlord notice
of its intention to make an Assignment at least forty-five (45)
days prior to
such Assignment, which notice will contain such details as
Landlord may
reasonably request. If Tenant intends to Assign this Lease,
Landlord may
terminate this Lease by giving thirty (30) days prior written
notice to Tenant
after Landlord has received written notice from Tenant of an
intended Assignment.
If the amount of rent and other sums received by Tenant
under any
Assignment is more than the Rent due from Tenant under this
Lease, then Tenant
will pay the full amount of the excess to Landlord on a monthly
basis and
promptly upon Tenant's receipt of such excess amounts.
If, without Landlord's consent, this Lease is Assigned,
or if the
Leased Premises re occupied or used by any party other than
Tenant, then all
resulting expenses (including reasonable attorneys' and brokerage
fees) incurred
by Landlord will be immediately due and payable by Tenant upon
receipt of an
invoice. If Tenant defaults, Landlord may collect rent from the
assignee,
subtenant, occupant or user (the "Assignee") of the Leased
Premises and apply it
towards the Rent due under this Lease. Such collection will not
be deemed an
acceptance of the Assignee as tenant, will not waive or prejudice
Landlord's
right to initiate legal action against Tenant to enforce Tenant's
fulfillment of
its obligations under this Lease and will not release Tenant from
such
obligations.
18. Defaults.
(a) Each of the following shall be deemed a material
default by Tenant
under this Lease and a substantial breach of this Lease:
(1) The filing of a petition by or against Tenant
for debtor
relief as defined under the Federal Bankruptcy Code, as now or
hereafter amended
or supplemented, or for reorganization, arrangement or other
rehabilitation
within the meaning of the Bankruptcy Code, or the commencement of
any action or
proceeding for the dissolution or liquidation of Tenant, whether
instituted by
or against Tenant, or for the appointment of a receiver or
trustee of the
property of Tenant, in each case filed by a party other than
Tenant, if not
bonded or discharged within thirty (30) days of the date of
filing; for purposes
of this subsection, the word "Tenant" shall include any guarantor
of Tenant's
obligations under this Lease;
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(2) The making by Tenant of an assignment for the
benefit of
creditors;
(3) The suspension of business by Tenant or any act
by Tenant
amounting to a business failure;
(4) The filing of a tax lien against any property
of Tenant;
(5) Tenant's abandonment of the Leased Premises by
Tenant
and/or the cessation by Tenant of active use of the Leased
Premises for the
purpose specified herein;
(6) Failure of Tenant to make payment of the rent
herein
reserved, or any part thereof, or any other sum required by the
terms of this
Lease (including late charges on the foregoing as provided
herein) when due;
(7) A breach by Tenant in the performance of any
other term,
covenant, agreement or condition of this Lease, on the part of
Tenant to be
performed, for a period of five (5) business days after service
of notice by the
Landlord upon the Tenant.
(b) All rights and remedies of Landlord in this Lease
enumerated shall
be cumulative, and none shall exclude any other right or remedy,
now or hereafter
allowed by or available under any statute, ordinance, rule of
court, or the
common law, either at law or in equity or both. For the purposes
of any suit
brought or based hereon, this lease shall be construed to be a
divisible
contract, to the end that successive actions may be maintained on
this Lease as
successive periodic sums shall mature hereunder. The failure of
Landlord to
insist, in any one or more instances, upon a strict performance
of any of the
covenants, terms and conditions of this Lease, or to exercise any
right or option
herein contained, shall not be construed as a waiver, or a
relinquishment for the
future, of such covenant, term, condition, right or option, but
the same shall
continue and remain in full force and effect unless the contrary
is expressed by
Landlord in writing. The receipt by Landlord of rent, with
knowledge of the
breach of any covenant hereof, shall not be deemed a waiver of
such breach, and
no waiver by Landlord of any provision hereof shall be deemed to
have been made
unless expressed in writing and signed by Landlord.
(c) In the event of an uncured default of the nature set
forth above,
Landlord may, at any time thereafter, at its election, without
further notice to
Tenant, terminate this Lease and Tenant's right to possession of
the Leased
Premises, and with or without legal process, take possession of
the Leased
Premises, and remove Tenant, any occupant, and any property
therefrom, without
relinquishing any rights of Landlord against Tenant.
(d) Tenant shall be obligated to, and shall pay to Landlord
as damages,
upon demand, and Landlord shall be entitled to recover of and
from Tenant at the
election of Landlord shall be entitled to recover of and from
Tenant at the
election of Landlord all expenses which shall have been incurred
in connection
with such breach including the expenses of rerenting the Leased
Premises
(including, but not limited to, any commissions paid to any real
estate agent in
connection therewith), and attorneys' fees at such attorneys'
customary hourly
rates and expenses; plus, in the event this lease is terminated
as set forth
above, either:
(1) liquidated damages, in an amount which, at the
time of
such termination is equal to the installments of Basic Annual
Rent and the
aggregate of all sums payable hereunder as additional rental (the
"Additional
Rental") (for such purpose considering the annual amount of such
Additional
Rental to be equal to the amount thereof due during the twelve
months preceding
such default, or if less than twelve months have elapses at such
time, such
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amounts as would have been due on an annual basis) reserved
hereunder, for the
period which would otherwise have constituted the unexpired
portion of the ten
current term of this lease, said amount to be discounted at the
discount rate
then in effect at the Federal Reserve Bank in Baltimore; or
(2) damages payable in monthly installments, in
advance, on
the first day of each calendar month following such termination
and continuing
until the date originally fixed herein for the expiration of the
then current
term of this Lease) in an amount or amounts equal to the excess,
if any, of the
sum of (i) the aggregate expenses (other than Additional Rental)
paid by Landlord
during the month immediately preceding such calendar month for
all such items as,
by the terms of this Lease, are required to be paid by Tenant,
plus (ii) an
amount equal to the amount of the installment of Basic Annual
Rent which would
have been payable by Tenant hereunder in respect of such calendar
month had this
Lease and the Lease Term not been so terminated, and (iii) the
monthly average
of the Additional Rental paid in the Lease Year or annualized
portion thereof
immediately preceding such default, over the rents, if any, in
fact, collected
by Landlord in respect of such calendar month pursuant to either
rerenting, or
from any existing permitted subleases. Any suit, action or
proceeding brought
to collect the amount of the deficiency for any calendar month
shall not
prejudice in any way the rights of Landlord to collect the
deficiency for any
subsequent month by a similar proceeding.
(e) No act or thing done by Landlord shall be deemed to be
an
acceptance of a surrender of the Leased Premises, unless Landlord
shall execute
a written release of Tenant. Tenant's liability hereunder shall
not be
terminated by the execution of the new lease of the Leased
Premises by Landlord,
regardless of the term of such new lease. Separate actions may
be maintained
each month by Landlord against Tenant to recover the damages then
due, without
waiting until the end of the Term of this lease to determine the
aggregate amount
of such damages.
19. Acceptance of Leased Premises. Tenant's occupancy of
the Leased
Premises shall constitute acceptance thereof as complying with
all requirements
of Tenant and Landlord with respect to the condition, order and
repair thereof.
20. Access to Premises and Change in Services. Landlord
and/or the
authorized representative of Landlord or any mortgagee or deed of
trust holder
shall have the right, without abatement of rent, to enter the
Leased Premises at
any reasonable hour (or at any time in the event of an emergency)
to examine the
same and/or to make such repairs, improvements and alterations as
Landlord and/or
such authorized representatives shall deem necessary (but
Landlord shall not be
obligated to do so) for the safety and preservation of the
Building, or for any
other reasonable purpose whatsoever.
21. Estoppel Certificates. Tenant agrees at any time and
from time to
time upon not less than five (5) days prior notice by Landlord to
execute,
acknowledge and deliver to Landlord a statement in writing
certifying, among
other matters, that this Lease is unmodified and in full force
and effect (or if
there have been modifications, that the same is in full force and
effect as
modified and stating the modifications) and the dates to which
the rent and other
charges have been paid in advance, if any, and stating whether or
not, to the
best knowledge of the signer of such certificate, Landlord is in
breach and/or
default in performance of any covenant, agreement or condition
contained in this
Lease and, if so, specifying each such breach and/or default of
which the signer
may have knowledge, it being intended that any such statement
delivered hereunder
may be relied upon by any party not a party to this Lease.
-12-
22. Subordination. Tenant accepts this Lease, and the
tenancy created
hereunder, subject and subordinate to any leases, security
interests, mortgages,
deeds of trust or other financing arrangements now or hereafter a
first lien upon
or affecting the Building or any part or parts thereof and to any
extensions,
modifications or amendments thereof. Tenant shall, at any time
hereafter, on
request, execute any instruments which may be required to
subordinate Tenant's
interest hereunder to such lien and the failure of Tenant to
execute any such
instruments shall constitute a default hereunder.
23. Attornment. Tenant agrees that upon any termination of
Landlord's
interest in the Leased Premises, Tenant shall, upon request,
attorn to the person
or entity then holding title to the reversion of the Leased
Premises (the
"Successor") and to all subsequent Successors, and shall pay to
the Successor all
rents and other monies required to be paid by the Tenant,
hereunder and perform
all of the other covenants, agreements, provisions, conditions,
obligations
and/or duties of Tenant in this Lease contained. It is
understood, that if such
attornment takes place, and Tenant is not in default under this
Lease, then the
Lease shall remain in full force and effect.
24. Notices. Except as otherwise provided in this Lease,
any
requirement for a notice, demand or request under this Lease will
be satisfied
by a writing (a) hand delivered with receipt; (b) mailed by
United States
registered or certified mail or Express Mail, return receipt
requested, postage
prepaid; or (c) sent by Federal Express or any other nationally
recognized
overnight courier services, and addressed: (i) if to Landlord,
c/o Manekin
Corporation, 7165 Columbia Gateway Drive, Columbia, Maryland
21046, Attention:
General Counsel with a copy to Ann Clary Gordon, Esquire c/o
Shapiro and Olander,
36 South Charles Street, Baltimore, Maryland 21201; and (ii) if
to Tenant, at
the Leased Premises. All notices that are sent in accordance
with this Section
24 will be deemed received by the other party on the earliest of
the following
applicable time periods: (a) three business days after being
mailed in the
aforesaid manner; (b) the date the return receipt is executed;
or (c) the date
delivered as documented by the overnight courier service or the
hand delivery
receipt. All rental payments and other charges payable by Tenant
under this
Lease will be delivered to Landlord at Landlord's address set
forth above:
Attention: Accounting Department. Either party may designate a
change of
address by written notice to the other party.
25. Landlord's Liability. The term "Landlord" as used in
this Lease
means only the owner, the mortgagee, or the trustee or the
beneficiary under a
deed of trust, as the case may be, for the time being, of the
Building (or the
owner of a lease of the Building), so that in the event of any
transfer of title
to the Building (or an assignment or sublease of a lease of the
Building), the
Landlord shall be and hereby is entirely freed and relieved of
all covenants and
obligations of Landlord hereunder thereafter accruing. It is
understood that
Landlord is a Maryland limited partnership, and that no partner,
general or
limited, of said limited partnership, as it may now or hereafter
be constituted,
shall have any personal liability to Tenant and/or any person or
entity claiming
under, by or through Tenant upon any action, claim, suit or
demand brought under
or pursuant to the terms and conditions of this Lease and/or
arising out of the
use or occupancy by Tenant of the Leased Premises and as to
Landlord, liability
shall be limited to Landlord's interest in the Building.
26. Severability. If any term or provision of this Lease
or the
application thereof to any person or circumstances shall, to any
extent, be
invalid or unenforceable, the remainder of this Lease or the
application of such
term or provision to persons or circumstances other than those as
to which it is
held invalid or unenforceable, shall not be affected thereby, and
each term and
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provision of this Lease shall be valid and enforceable to the
fullest extent
permitted by law.
27. Captions. All headings anywhere contained in this
Lease are
intended for convenience of reference only and are not to be
deemed or taken as
a summary of the provisions to which they pertain or as a
construction thereof.
28. Recordation. Tenant covenants that if at any time any
mortgagee
of Landlord's interest in the Leased Premises, any trustee or
beneficiary under
a deed of trust constituting a lien upon the Building of which
deed of trust
Landlord is grantor, or a landlord of Landlord in respect of the
real property
upon which the Building is situate, shall require the recordation
of this Lease,
or if the recordation of this Lease shall be required by any
valid governmental
order, or if any governmental authority having jurisdiction in
the matter shall
assess and be entitled to collect transfer taxes or documentary
stamp taxes, or
both such taxes on this Lease, Tenant shall execute such
acknowledgements as may
be necessary to effect such recordations and whichever party
requires such
recordation shall pay all recording fees, transfer taxes and/or
documentary stamp
taxes payable on, and/or in connection with this Lease and/or
such recordation.
29. Successors and Assigns. The covenants, conditions and
agreements
contained in this Lease shall bind and inure to the benefit of
Landlord and
Tenant, and their respective heirs, distributees, executors,
administrators,
successors, personal and legal representatives and their
permitted assigns.
30. Holding Over. If Tenant holds possession of the Leased
Premises
after the termination of this Lease without Landlord's written
consent, Tenant
shall become a tenant from month to month at one hundred fifty
percent (150%) of
the rent payable during the final Lease Year and upon all other
terms herein
specified and shall continue to be such tenant from month to
month until such
tenancy shall be terminated by either party giving the other a
written notice of
at least thirty (30) days of its intention to terminate such
tenancy. Nothing
contained in this Lease shall be construed as a consent by
Landlord to the
occupancy or possession of the Leased Premises by Tenant after
termination of
this Lease. Upon the termination of this Lease, Landlord shall
be entitled to
the benefit of all public general or public local laws relating
to the speedy
recovery of the possession of lands and tenements held over by
tenants, that may
now or hereafter be in force.
31. Commissions. Tenant represents that Tenant has dealt
directly
with, and only with, MANEKIN CORPORATION and NOEL-LANE COMMERCIAL
REAL ESTATE
ADVISORS as brokers in connection with this Lease, and that
insofar as Tenant
knows, no other broker negotiated this Lease or is entitled to
any commissions
in connection with it. Tenant shall hold Landlord h ;armless
from and indemnify
Landlord for any costs incurred by Landlord arising out of any
other broker's
claim that such other broker has assisted Tenant with respect to
this Lease.
32. Waiver of Jury Trial. Landlord and Tenant desire a
prompt
resolution of any litigation between them with respect to this
Lease. To that
end, Landlord and Tenant waive trial by jury in any action, suit,
proceeding
and/or counterclaim brought by either against the other on any
matters whatsoever
arising out of or in any way connected with this Lease, the
relationship of
Landlord and Tenant, Tenant's use or occupancy of the Leased
Premises, any claim
of injury or damage and/or any statutory remedy. This waiver is
knowingly,
intentionally and voluntarily made by Tenant. Tenant
acknowledges that neither
Landlord nor any person acting on behalf of Landlord has made any
representations
of fact to induce this waiver of trial by jury or in any way to
modify or nullify
its effect. Tenant further acknowledges that it has been
represented (or has had
-14-
the opportunity to be represented) in the signing of this Lease
and the making
of this waiver by independent legal counsel, selected of its own
free will, and
that it has had the opportunity to discuss this waiver with
counsel. Tenant
further acknowledges that it has read and understands the meaning
and
ramifications of this waiver of jury trial.
33. Miscellaneous.
(a) As used in this Lease, and where the context requires:
(1) the
masculine shall be deemed to include the feminine and neuter and
vice versa; and
(2) the singular shall be deemed to include the plural and vice
versa.
(b) This Lease was made in the State of Maryland and shall
be governed
by and construed in all respects in accordance with the laws of
the State of
Maryland.
(c) Tenant covenants and agrees that it shall not inscribe,
affix, or
otherwise display signs, advertisements or notices in, on, upon
or behind any
windows or on any door, partition or other part of the interior
or exterior of
the Building without the prior written consent of Landlord. If
such consent be
given by Landlord, any such sign, advertisement, or notice shall
be inscribed,
painted or affixed by Landlord, or a company approved by
Landlord, but the cost
of the same shall be charged to and be paid by Tenant, and Tenant
agrees to pay
the same promptly, on demand.
(d) Tenant covenants and agrees that it shall not attach or
place
awnings, antennas or other projections to the outside walls or
any exterior
portion of the Building and that no curtains, blinds, shades or
screens shall be
attached to or hung in, or used in connection with, any window or
door of the
Leased Premises, without the prior written consent of Landlord.
(e) Tenant further covenants and agrees that it shall not
pile or place
or permit to be placed any goods on the sidewalks or parking lots
in the front,
rear or sides of the Building or in a place in any manner so as
to block said
sidewalks, parking lots and loading areas and/or not to do
anything that directly
or indirectly will take away any of the rights of ingress or
egress or of light
from any other tenant of Landlord in the Building.
(f) Tenant, Tenant's servants, agents, invitees, employees
and/or
licensees shall not park on, store on, or otherwise utilize any
parking or
loading areas on the Real Property, except as shown on Exhibit A
and then only
in the parking places designated by Landlord for such parking and
in accordance
with such rules and regulations as Landlord may from time to time
promulgate with
respect thereto.
(g) Except as otherwise specifically provided in this
Lease, no
abatement, refund, offset, counter-claim, recoupment, diminution
or any reduction
of rent, charges or other compensation shall be claimed by or
allowed to Tenant,
or any person claiming under it, under any circumstances, whether
for
inconvenience, discomfort, interruption of business, or
otherwise, arising from
the making of alterations, changes, additions, improvements or
repairs to the
Building or the Leased Premises, by virtue or because of any
present or future
governmental laws, ordinances, or for any other cause or reason.
(h) Landlord reserves the right at its option and at
Landlord's sole
cost and expense (including the expense of moving and finishing
the relocated
Leased Premises) to relocate the Leased Premises in a relocation
comparable in
size to the Leased Premises as described in Section 1. and within
five (5) miles
of the Leased Premises. Landlord, at Landlord's sole cost and
expense, shall
also be responsible for relocating Tenant's phone system and
phone wiring,
-15-
Tenant's computer system and cabling, entire laboratory and
laboratory equipment,
and printing new stationery.
(i) Tenant covenants that this Lease shall not contain any
provision
for the payment of rental based in whole or in part on the
income, net revenues,
net income, or profits derived by Tenant from the Leased Premises
(but may
contain provisions for rental based in part on a fixed percentage
of gross
receipt or sales or otherwise included in the term "rents from
real property",
as such term is defined in Section 856(d) of the Internal Revenue
Code of 1986,
as amended).
(j) All plates, exhibits, riders or other attachments to
this Lease
shall be deemed a part hereof and incorporated by reference
herein.
(k) This Lease contains the entire agreement among the
parties
regarding the subject matter of this Lease. There are no
promises, agreements,
conditions, undertakings, warranties or representations, oral or
written, express
or implied, among them, relating to this subject matter, other
than as herein set
forth. This Lease is intended by the parties to be an
integration of all prior
or contemporaneous promises, agreements, conditions, negotiations
and
undertakings between them. This Lease may not be modified orally
or in any other
manner than by an agreement in writing signed by all the parties
or their
respective successors in interest. This Lease may be executed in
several
counterparts, each of which shall be an original, but all of
which shall
constitute one and the same instrument.
(l) Landlord and Tenant hereby mutually waive all claims
for recovery
from the other for any loss or damage to any of Landlord's
property or Tenant's
property insured under valid and collectible insurance policies
to the extent of
any recovery for loss insured thereunder and, to that end, the
parties agree to
a mutual subrogation clause to be inserted or endorsed on each
policy setting
forth that the insurance shall not be invalidated in the event
that the insured
should waive in writing prior to any loss, any or all right of
recovery against
the other party for any insured loss.
34. Authority. Tenant warrants to Landlord that Tenant is
a
corporation organized and validly existing in good standing under
the laws of the
State of Maryland. In addition, Tenant warrants to Landlord that
this Lease has
been properly authorized and executed by Tenant and is binding
upon Tenant in
accordance with its terms. Tenant's resident agent's name and
address in the
State of Maryland are Stephen F. Hiu, 9110 Red Branch Road,
Columbia, Maryland
21045. Tenant agrees to notify Landlord in writing of any change
with respect
to its resident agent.
IN WITNESS WHEREOF, Landlord and Tenant have respectively
signed and
sealed this lease as of the day and year first above written.
ATTEST: COLUMBIA WAREHOUSE LIMITED
PARTNERSHIP
By: RA & DM, INC., general partner
/s/ Margoal B. Laurence By: /s/ R. Colfax
Schnorf, Jr.
Vice President
Landlord
(signatures continued on next page)
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WITNESS/ATTEST: IGENE BIOTECHNOLOGY, INC.
/s/ Patrick F. Monahan By: /s/ Stephen F. Hiu
President
STATE OF MARYLAND, CITY/COUNTY OF HOWARD, TO WIT:
I HEREBY CERTIFY that on this 15 day of December, 1995,
before me, the
subscriber, a Notary Public of the State of Maryland and
City/County of Harford,
personally appeared R. Colfax Schnorf of RA & DM, Inc., general
partner of
COLUMBIA WAREHOUSE LIMITED PARTNERSHIP, Landlord, and he
acknowledged the
foregoing Lease Agreement to be the act and deed of said limited
partnership.
WITNESS my hand and Notarial Seal.
My Commission Expires: 7/1/97
/s/ Ann S. Znamurowski
Notary Public
STATE OF MARYLAND, COUNTY OF HOWARD, TO WIT:
I HEREBY CERTIFY that on this 2nd day of November, 1995,
before me, the
subscriber, a Notary Public of the State of Maryland and
City/County of Anne
Arundel, personally appeared Stephen F. Hiu, President of IGENE
BIOTECHNOLOGY,
INC., Tenant, and he acknowledged the foregoing Lease Agreement
to be the act and
deed of said body corporate.
WITNESS my hand and Notarial Seal.
My Commission Expires: 10/1/98
/s/ Christine L. Keggins
Notary Public
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<PAGE>
EXHIBIT A
Site Plan and Leased Premises
(Filed with hard copy on paper with SEC)
<PAGE>
Rider No. 1
RIGHT OF FIRST REFUSAL
Tenant shall have the right of first refusal (the "First
Refusal Right")
to lease space (the "Expansion Space") contiguous to the Leased
Premises at a
Basic Annual Rent equal to the price per square foot which
Landlord would offer
to a bona fide prospective tenant of the Expansion Space.
Said rent shall be payable in equal monthly installments
(and fractions
thereof), at the times and subject to the terms and conditions as
provided with
respect to, and in addition to, the monthly installments of the
Basic Annual Rent
as set forth in Section 5 of this Lease.
Tenant's exercise of its First Refusal Right shall be
effective only upon
written notification by Tenant to Landlord thereof. Such
notification must be
given to Landlord before the close of business fifteen (15)
business days after
Tenant's receipt of Landlord's written notification to Tenant of
the availability
of the Expansion Space and the terms on which Landlord intends to
offer the
Expansion Space for rental. Promptly after Landlord has
knowledge that such
contiguous space will be available, Landlord shall give notice
thereof to Tenant.
In the event Tenant fails to so notify Landlord within said
15 day period,
Landlord shall be free to offer said Expansion Space to third
parties and shall
have no further obligation to Tenant with respect to such space.
This First Refusal Right is personal to Tenant and shall not
be separated
from the Lease or transferred by Tenant independently of the
leasehold interest
without the prior written consent of Landlord.
Notwithstanding any other provision hereof, the following
provisions shall
apply to the First Refusal Right and to Tenant's lease, if any,
of the Expansion
Space:
(i) Tenant shall not be entitled to exercise the rights
according to
Tenant in the first paragraph, unless at the date of such
exercise or at the date
on which Tenant's lease, if any, of the Expansion Space becomes
effective, Tenant
is in possession of the Leased Premises and Tenant is not in
default in the
payment of any sums due hereunder or any other material
obligation imposed upon
Tenant by the Lease;
(ii) Tenant shall have the right to lease and occupy the
Expansion Space
commencing on the date specified in Landlord's notice to Tenant,
and terminating
on the termination of this Lease, on the same terms, conditions,
and provisions
as are set forth in this Lease except to the extent modified by
this Rider, with
the same force and effect as though this Lease had originally
provided for the
rental of the Leased Premises and the Expansion Space;
(iii) The Expansion Space shall be delivered to
Tenant in "as is"
condition; provided that Landlord will assign to Tenant any
surviving rights
under a lease with a vacating tenant to compel removal of
property and
restoration of the premises;
(iv) The Lease shall be amended to recalculate Tenant's
Portion of
amounts payable under Sections 5.2 - 5.5 of the Lease; and
(v) Except as otherwise expressly provided in this Rider,
all of the
covenants, terms, conditions and agreements set forth in this
Lease shall apply
to the Expansion Space.
(vi) This option is subject to rights previously granted to
other
tenants in the Building, including, without limitation, expansion
rights, rights
of offer, and rights of refusal.<PAGE>
RIDER NO. 2
Renewal Option
Rider To Section 2 (Term)
Provided (i) this Lease is then in full force and effect,
(ii) Tenant is
not in default respecting any provision or condition of this
Lease either on the
date Tenant elects to renew or on the date the renewal term
commences, and, (iii)
Tenant has not failed more than two times during the original
term of this Lease
to pay any payments called for by this Lease on the date such
payment is due,
then Tenant shall have the right to renew this Lease for one (1)
renewal term of
three (3) years immediately following the expiration of the
original term on the
same terms, conditions, and provisions as are set forth in this
lease with the
same force and effect as though this Lease had originally
provided for an eight
(8) year term, save that:
(i) there shall be no further right of renewal, after the
renewal term,
and
(ii) the Basic Annual Rent payable with respect to the
Leased Premises
shall be adjusted to reflect ninety-five percent (95%) of the
prevailing rental
rate for comparable space within a five (5) mile radius of the
Building as of the
commencement of the renewal term (as determined below).
Tenant shall be deemed to have waived the right to exercise
this renewal
option unless not less than one hundred eighty (180) days prior
to the date of
termination of the original term, Tenant shall have notified
Landlord in writing
of Tenant's election to renew (the "Renewal Notice"). Landlord
shall give Tenant
written notice of its good faith determination of the prevailing
rental rate
within thirty (30) days after Landlord's receipt of the Renewal
Notice (the "Rent
Notice"). Tenant may withdraw its Renewal Notice by giving
Landlord written
notice within ten (10) days after Tenant's receipt of the Rent
Notice (the
"Withdrawal Notice"). Time is of the essence with respect to
Tenant's exercise
of its rights under this Rider and Tenant acknowledges that
Landlord requires
strict adherence to the requirement that the Renewal Notice and
the Withdrawal
Notice be timely made and in writing.
This option is subject to rights previously granted to other
tenants in
the Building, including, without limitation, expansion rights,
rights of offer,
and rights of refusal.
