AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996
REGISTRATION NO. 333-10759
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDMENT NO.2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------
BOSTON BIOMEDICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------
MASSACHUSETTS 2835 04-2652826
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION
NUMBER)
----------
375 WEST STREET, WEST BRIDGEWATER, MASSACHUSETTS 02379 (508) 580-1900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-----------
RICHARD T. SCHUMACHER,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BOSTON BIOMEDICA, INC.
375 WEST STREET
WEST BRIDGEWATER, MASSACHUSETTS 02379
(508) 580-1900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------
COPIES TO:
STEVEN R. LONDON, ESQ. PAUL JACOBS, ESQ.
BROWN, RUDNICK, FREED & GESMER FULBRIGHT & JAWORSKI L.L.P.
ONE FINANCIAL CENTER 666 FIFTH AVENUE
BOSTON, MASSACHUSETTS 02111 NEW YORK, NEW YORK 10103
TEL: (617) 856-8200 TEL: (212) 318-3000
FAX: (617) 856-8201 FAX: (212) 752-5958
-----------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective by the
Securities and Exchange Commission.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
-----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
SUBJECT TO COMPLETION, DATED OCTOBER 25, 1996
PROSPECTUS
- ----------
1,600,000 SHARES
[LOGO]
BOSTON BIOMEDICA, INC.
COMMON STOCK
-----------
All of the 1,600,000 shares of Common Stock (the "Common Stock") offered
hereby are being sold by Boston Biomedica, Inc. (the "Company").
Prior to this Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $8.00 and $10.00 per share. See "Underwriting" for information
relating to the determination of the initial public offering price. The Common
Stock has been approved for quotation on the Nasdaq National Market under the
symbol "BBII."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE
================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
Per Share $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $
================================================================================
(1) Excludes the value of warrants to be issued to the Underwriters and a 1%
non-accountable expense allowance payable to the Underwriters, of which
$40,000 has been paid to date. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $792,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 240,000 additional shares of
Common Stock at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional shares
are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $_____, $ ____ and $_____,
respectively. See "Underwriting."
----------
The shares of Common Stock are offered by the Underwriters named herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the office of
Oscar Gruss & Son Incorporated in New York, New York on or about_________, 1996.
OSCAR GRUSS & SON INCORPORATED KAUFMAN BROS., L.P.
THE DATE OF THIS PROSPECTUS IS , 1996.
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Description of photograph:
Under the caption "Total Quality System," there is a collage of the
Company's products which are a part of its Total Quality System. In the upper
left corner is a photograph of a TQS Qualification Panel, proceeding clockwise
to the upper right corner is a photograph of an Accurun 1(R) vial and pipette
superimposed over a typical Levey-Jennings daily quality control chart. In the
lower right corner is a photograph of a lab technician operating equipment in
one of the Company's laboratories, and finally, in the lower left corner, is a
photograph of Anti-HIV 1 Western Blots for seven different Company Panel
Products.
The BBI logo is a trademark of the Company. Accurun 1(R) is a registered
trademark of the Company. Accurun(tm) is a trademark of the Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
TQS Logo
o TARGETED TO THE EMERGING
END-USER MARKET FOR
TOTAL INFECTIOUS DISEASE TEST
QUALITY KIT QUALITY CONTROL
SYSTEM o USER-FRIENDLY PRODUCTS
FOR MONITORING
LABORATORY PROFICIENCY,
LOT ACCEPTANCE,
TROUBLESHOOTING AND TRAINING
o DESIGNED TO EVALUATE THE
KEY ELEMENTS IN
THE TESTING PROCESS:
TEST KIT, EQUIPMENT AND PERSONNEL
o ESSENTIAL PRODUCTS IN AN
OVERALL QUALITY ASSURANCE PROGRAM
QUALITY CONTROL
PRODUCTS FOR
INFECTIOUS DISEASE TESTS
o SEROCONVERSION
PANELS, PERFORMANCE
PANELS AND SENSITIVITY PANELS
FOR THE EVALUATION OF
INFECTIOUS DISEASE
TEST KITS Photograph of four of the
o USED BY TEST KIT Company's Quality Control Panel Products
MANUFACTURERS AND
REGULATORS THROUGHOUT
THE WORLD
o DEVELOPED FROM AN
EXTENSIVE INVENTORY
OF HUMAN BLOOD SPECIMENS
o CONTRIBUTING TO THE
IMPROVED SENSITIVITY
OF INFECTIOUS DISEASE
TESTS WORLDWIDE
Inside Front Cover
Title at top of page reads: "Serving Our Customer's Needs Throughout the
Entire Product Life Cycle."
Description of Photograph: Photograph is comprised of a pie chart
superimposed over photographs of the Company's products and services. The pie
chart has four sections and eight subsections. The four sections refer to the
four stages in the test kit life-cycle and are captioned: "R&D," "Regulatory,"
"Production" and "Marketing." Each subsection has a corresponding photograph of
a Company product or service. The eight subsections are captioned: "Performance
Panels," "Seroconversion Panels," "Highly Characterized Specimen Bank,"
"Clinical Trials," "Characterized Disease State Sera," "Basematrix," "Run
Controls" and "OEM and Custom Panels."
Underneath the photograph are the words: "Your Partner in Infectious Disease
Quality Control" and the Company's logo is to the immediate left.
PROSPECTUS SUMMARY
The following is qualified in its entirety by the more detailed information
(including the financial statements and notes thereto) appearing elsewhere in
this Prospectus. Unless otherwise indicated, all information in this Prospectus
(i) assumes no exercise of the Underwriters' option to purchase from the Company
up to 240,000 additional shares of Common Stock to cover over-allotments, if
any, (ii) gives effect to a 1-for-2 reverse stock split with respect to the
Common Stock effected in September 1996, (iii) gives effect to certain changes
to the Company's Articles of Organization effected in September 1996, and (iv)
gives effect to the termination of certain redemption provisions relating to
117,647 shares of Common Stock upon completion of this Offering. Unless the
context indicates otherwise, all references to the "Company" are to Boston
Biomedica, Inc. and its two wholly-owned subsidiaries, BTRL Contracts and
Services, Inc. ("BTRL"), and BBI -- North American Clinical Laboratories, Inc.
("BBI -- NACL"). For a discussion of certain matters that should be considered
by purchasers of the Common Stock offered hereby, see "Risk Factors." For the
definition of certain technical and scientific terms, see "Glossary."
THE COMPANY
Boston Biomedica, Inc. is a leading worldwide provider of proprietary
quality control products for use with in vitro diagnostic test kits ("test
kits") for the detection, analysis and monitoring of infectious diseases,
including AIDS, Hepatitis and Lyme Disease. These products are used to develop
test kits, to permit the monitoring of laboratory equipment and personnel, and
to help ensure the accuracy of test results. The Company's products are derived
from human plasma and serum using proprietary manufacturing processes. The
Company believes its Quality Control Panel products are viewed as the current
industry standard for the independent assessment of the performance of HIV and
Hepatitis test kits. The Company also manufactures diagnostic test kit
components and provides specialty laboratory services, including clinical
trials.
To date, the Company has sold its products primarily to test kit
manufacturers and regulatory agencies, but it has recently begun selling Quality
Control Products directly to the emerging end-user market for quality control
products for infectious disease test kits. In late 1994 the Company received
United States Food and Drug Administration ("FDA") clearance for Accurun 1(R),
its first Quality Control Product designed specifically for end-users, and
subsequently has introduced 24 additional Accurun(tm) Quality Control Products.
In July 1996, the Company introduced its Total Quality System ("TQS"), a
marketing platform that combines Accurun(tm) with other Quality Control Products
to provide test kit end-users with the products needed in an overall quality
assurance program. TQS products allow end-users to evaluate each of the key
elements of the testing process: the test kit, laboratory equipment and
laboratory personnel.
The Company's customers include Abbott Diagnostics, Boehringer Mannheim,
Chiron, Fujirebio, Hoffman LaRoche, Ortho Diagnostics (Johnson & Johnson) and
Sanofi Diagnostics; regulatory agencies such as the United States FDA, the
British Public Health Laboratory Service, the French Institut National de la
Transfusion Sanguine and the German Paul Ehrlich Institute; and end-users of
diagnostic test kits, such as blood banks, hospitals and clinical laboratories.
The Company's products are sold to its customers pursuant to purchase orders for
discrete purchases and not pursuant to long-term contracts.
The increased threat of infectious diseases has created a large and growing
market for infectious disease test kits. Venture Planning Group, a medical
products research firm, estimates that the worldwide infectious disease test kit
market was approximately $2.7 billion in 1995 and will grow to $5.0 billion by
2000. The related market for quality control products for in vitro diagnostic
testing for infectious and non-infectious disease totaled approximately $600
million in 1994, according to the Genesis Report Dx, a medical products survey.
The Company believes that quality control products for infectious disease test
kits currently represent less than five percent of the overall quality control
market, primarily as a result of the limited use of such products by end-users.
The Company believes that the market for quality control products for
infectious disease test kits will continue to expand, particularly among
end-users, primarily as a result of several key factors: (i) increased
regulatory scrutiny due to public concern about the dangers of infectious
diseases such as AIDS and Hepatitis; (ii) growing recognition of the value of
using quality control products to ensure the greatest possible safety of the
blood supply, to achieve the earliest possible diagnosis of infection, and to
minimize the occurrence of false negative results; (iii) the discovery of new
infectious diseases and the development of new treatments for diseases requiring
periodic monitoring, such as viral load testing for HIV, Hepatitis B and C and
other diseases; and (iv) the emergence of new testing technologies and
equipment.
3
The Company offers three product groups in infectious disease diagnostics:
Quality Control Panels, Accurun(tm) Run Controls and Diagnostic Components.
These products are used throughout the entire test kit life cycle, from initial
research and development, through the regulatory approval process and test kit
production, to training, troubleshooting and routine use by end-users. The
Company's Quality Control Panels, which combine human blood specimens with
comprehensive quantitative data useful for comparative analysis, help ensure
that test kits detect the correct analyte (specificity), detect it the same way
every time (reproducibility), and detect it at the appropriate levels
(sensitivity). The Company's Accurun(tm) Run Controls enable end-users of test
kits to confirm the validity of results by monitoring test performance, thereby
minimizing false negative test results and improving error detection. In
addition, the Company provides Diagnostic Components, which are custom processed
human plasma and serum products, to test kit manufacturers.
The Company's specialty clinical laboratory services include both routine
and sophisticated infectious disease testing in microbiology, immunology and
molecular biology. The Company seeks to focus its specialty laboratory services
in advanced areas of infectious disease testing, and provides contract research
and clinical trials for domestic and foreign test kit manufacturers.
The Company's strategy is to leverage its scientific capabilities in
microbiology, immunology, virology, and molecular biology to (i) capitalize on
the emerging end-user market, (ii) develop new products and services, (iii)
enhance technical leadership, (iv) capitalize on complementary business
operations, and (v) pursue strategic acquisitions and alliances.
The Company believes that it has several competitive advantages that will
help it implement its strategy:
o an inventory of approximately 50,000 distinct human blood specimens
accumulated since 1986 through its worldwide sources of blood-supply,
which enable the Company to quickly respond to market trends;
o the ability to offer specialty laboratory services and conduct clinical
trials, which helps it to maintain contact and enhance credibility with
test kit manufacturers and regulatory authorities, and allows the Company
to remain at the forefront of market trends and customer needs;
o proprietary manufacturing know-how resulting from ten years of experience
working with leading worldwide manufacturers in the development of their
infectious disease test kits; and
o its reputation as an authority in infectious disease quality control
products among test kit manufacturers and regulatory agencies.
The Company, a Massachusetts corporation, was organized in 1978, but did not
commence significant operations until 1986. The Company's principal offices are
located at 375 West Street, West Bridgewater, MA 02379, and its telephone number
is (508) 580-1900.
THE OFFERING
Common Stock Offered 1,600,000 shares(1)
Common Stock to be Outstanding
after the Offering 4,290,064 shares(1)(2)
Use of Proceeds Repayment of indebtedness, capital
expenditures, and general corporate
purposes, including working capital and
potential acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National
Market Symbol BBII
- -----------
(1) Does not include up to 240,000 shares of Common Stock that may be sold by
the Company pursuant to the Underwriters' over-allotment option.
See "Underwriting."
(2) Does not include 1,161,057 shares of Common Stock issuable upon exercise of
outstanding options and warrants and 14,333 shares of Common Stock issuable
upon conversion of an outstanding subordinated convertible note. See
"Capitalization" and Notes 6, 10 and 11 of Notes to Consolidated Financial
Statements.
4
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------- -------------------------
1993(1) 1994 1995 1995 1996
------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product sales $3,942 $ 5,982 $ 6,622 $ 3,024 $ 3,946
Service revenue 5,215 4,741 5,649 2,540 2,982
Total revenue 9,157 10,723 12,271 5,564 6,928
Income from operations 312 405 508 104 307
Net income (loss) 142 97 103 (36) 83
Net income (loss) per share(2)(3) $ 0.06 $ 0.04 $ 0.04 $ (0.01) $ 0.03
Weighted average common and common equivalent shares
outstanding(2)(3) 2,438 2,587 3,151 2,598 3,253
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
PRO FORMA
ACTUAL AS ADJUSTED(4)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital $ 4,497 $ 14,300
Total assets 10,047 19,360
Long term debt, less current maturities 2,798 --
Redeemable common stock 899 --
Total stockholders' equity 3,332 16,831
</TABLE>
- ----------
(1) On June 30, 1993, the Company exercised its option to pre-pay the
acquisition note issued in connection with the 1992 purchase of BTRL at a
discount from the balance due, resulting in an extraordinary gain of
$50,000, net of taxes of $33,000. The 1993 net income per share before such
extraordinary gain was $0.04.
(2) The effect of the common stock equivalents on net income per common share
has been excluded from the calculation for 1993 and 1994 and the six months
ended June 30, 1995 as its inclusion was antidilutive.
(3) Pro forma supplementary earnings per share for the year ended December 31,
1995 and the six months ended June 30, 1996 were $.09 and $.06,
respectively, based upon an assumed weighted average common and common
equivalent shares outstanding of 3,600,007 and 3,701,173, respectively. In
accordance with APB Opinion 15, pro forma supplementary earnings per share
is presented as if the Company sold on January 1, 1995, 448,530 shares of
Common Stock, representing the number of shares of Common Stock required to
be sold at the assumed initial public offering price of $9.00 per share in
order for the Company to repay the average indebtedness outstanding during
1995 as if the Offering had occurred on January 1, 1995. See "Use of
Proceeds" and Note 12 of Notes to Consolidated Financial Statements.
(4) Adjusted to reflect: (i) application of the estimated net proceeds from the
sale of 1,600,000 shares of Common Stock offered by the Company hereby at
an assumed initial public offering price of $9.00 per share, after
deducting estimated underwriting discounts and commissions and offering
expenses, and (ii) the termination of redemption provisions relating to
117,647 shares of Common Stock upon completion of this Offering.
5
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following factors should be considered carefully in evaluating the Company and
its business before purchasing the shares of Common Stock offered hereby.
UNDEVELOPED END-USER MARKET FOR QUALITY CONTROL PRODUCTS FOR INFECTIOUS
DISEASE TEST KITS
The Company intends to focus its product development and sales and marketing
efforts on quality control products for end-users of infectious disease test
kits. Currently, most quality control products for infectious disease test kits
are sold to test kit manufacturers and regulators. End-users of infectious
disease test kits are currently using quality control products only to a very
limited extent. See "Business -- Industry Overview." The Company's strategy is
based primarily upon significant growth in sales of quality control products to
the end-user market. See "Business -- Strategy." There can be no assurance that
end-users of infectious disease test kits will increase their use of quality
control products, or that the Company will be able to increase its sales of
quality control products to such end-users. Clearance or approval by the United
States Food and Drug Administration (the "FDA") will be necessary before quality
control products may be sold for clinical laboratory use rather than for
research purposes only. See "-- Stringent Government Regulation." If the
end-user market for quality control products does not develop, or if the Company
is unable to increase its sales to this market, the Company's future growth
could be materially and adversely affected.
COMPETITION
In sales of both its products and specialty laboratory services, the Company
experiences substantial competition and the threat of competition from
established and potential competitors, most of which have greater financial,
manufacturing and marketing resources than the Company. Competition for
customers is intense and depends principally on the ability to provide products
of the quality and in the quantity required by customers, as well as the ability
to provide sophisticated specialty laboratory services, at competitive prices.
The Company currently competes against independent reference laboratories,
integrated plasma collection and processing centers and manufacturers of quality
controls and other Diagnostic Components. In addition, the Company understands
that a leading manufacturer of quality control products for non-infectious
diseases recently entered the quality control market for infectious disease test
kits. There can be no assurance that other such manufacturers or other companies
will not enter this market. The entrance of any of these companies into the
quality control market for infectious disease test kits could have a material
adverse effect on the Company, particularly its ability to achieve its strategy
to capitalize on the end-user market for quality control products for infectious
disease test kits. In addition, certain of the Company's products are derived
from donors with rare antibody characteristics. Competition for blood specimens
from such donors may increase, which may increase the cost of obtaining such
specimens. There can be no assurance that such increased competition will not
adversely affect the Company. See "-- Difficulty in Obtaining Certain Raw
Materials" and "Business -- Competition."
ABILITY TO MANAGE GROWTH
The Company's future success will depend in part on its ability to manage
growth as it increases its production capacity and broadens distribution of its
products. To compete effectively and manage future growth, if any, the Company
will be required to continue to implement and improve its operational, financial
and management information systems, procedures and controls on a timely basis,
and to expand, train, motivate and manage its workforce. There can be no
assurance that the Company's personnel, systems, procedures and controls will be
adequate to support the Company's future operations. The failure to implement
new and improved existing operational, financial and management systems or to
expand, train, motivate or manage employees could have a material adverse effect
on the Company's business, operating results and financial condition. There can
be no assurance that the Company will continue to grow or, if it does, that the
Company will manage the growth successfully.
6
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The Company's results of operations have been subject to quarterly
fluctuations due to a variety of factors, including customer purchasing patterns
and seasonal demand for laboratory testing services. In particular, the
Company's sales of its Quality Control Products and Diagnostic Components
typically have been highest in the fourth quarter and lowest in the first
quarter of each fiscal year. For example, total revenue for the fourth quarter
ended December 31, 1994 and 1995 were $3.0 million and $3.8 million compared
with total revenue for the first quarter ended March 31, 1995 and 1996 of $2.7
million and $3.1 million. The Company believes that its customers may expend
end-of-year budget surpluses in the fourth quarter, thereby causing the
Company's fourth quarter product sales to be higher at the expense of first
quarter product sales. In addition, demand for laboratory services tends to be
somewhat higher in the third and fourth quarters of the fiscal year due to the
seasonal nature of Lyme Disease testing, the Company's highest volume test.
Moreover, the Company's margins for its different products and services vary,
with Quality Control Products generally having the highest margins and Contract
Research the lowest. Therefore, the Company's results may vary from period to
period as a result of the mix of products and services and the mix among
products. As a result, quarterly results of operations may not be indicative of
future results of operations. Also, variations in the Company's quarterly
results of operations may affect the market price of the Common Stock. See " --
Volatility of Price of Common Stock" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
RISK OF ACQUISITIONS
The Company intends to pursue strategic acquisitions to expand its core
product line, strengthen its base in medical science and technology, and secure
new sources of blood supply. The Company is subject to various risks associated
with an acquisition strategy, including the risk that the Company will be unable
to identify and attract suitable acquisition candidates or to integrate and
manage any acquired business. The Company will compete for acquisition
candidates with companies which have significantly greater financial and
management resources than the Company. Acquisitions could place a significant
burden on the Company's management and operating personnel. Implementing the
Company's expansion strategy may also require significant capital resources.
Capital is needed not only for acquisitions, but also for the effective
integration, operation and expansion of such businesses. The Company may need to
raise capital through the issuance of long-term or short-term indebtedness or
the issuance of its securities in private or public transactions, which could
result in dilution of existing equity positions, increased interest and
amortization expense or decreased income to fund future expansion. There can be
no assurance that acceptable financing for future acquisitions will be available
or that the integration of future acquisitions and expansion of existing
business can be achieved. See "-- Ability to Manage Growth."
DIFFICULTY IN OBTAINING CERTAIN RAW MATERIALS
The Company manufactures its products from human plasma and serum which the
Company obtains from nonprofit and commercial blood centers, primarily in the
United States, but also from similar sources throughout the world. Certain of
the Company's products, including its Seroconversion and Performance Panels, are
comprised of unique and rare plasma specimens obtained from individuals during
the short period of time when the disease markers of particular diseases are
converting from negative to positive. See "Business -- Products." As a result,
the quantity of any such panel is limited, so the Company must replace such
panels as they sell out with another panel comprised of specimens equally unique
and rare. Competition to obtain such specimens may increase, which may increase
the cost of obtaining such products. There can be no assurance that the Company
will continue to be successful in obtaining a steady and adequate supply of the
unique and rare specimens of plasma and serum necessary for certain of its
products. The inability to continue to obtain such specimens, or any significant
delays in obtaining such specimens, would have a material adverse effect on the
Company. See "-- Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends in large part upon its ability to attract and
retain highly qualified scientific and management personnel. The Company
competes for such individuals with other companies, academic institutions,
government entities and other organizations. There can be no
7
assurance that the Company will be successful in hiring or retaining requisite
personnel. The failure of the Company to recruit and retain qualified scientific
and management personnel could have a material adverse effect on the Company.
None of the Company's key management or scientific personnel is subject to an
employment agreement with the Company. The loss of the services of any such key
personnel, including Richard T. Schumacher, President and Chief Executive
Officer of the Company, could have a material adverse effect on the Company. The
Company maintains key person life insurance on certain of its officers,
including Mr. Schumacher, on whose life the Company has $4,750,000 of insurance,
$2,000,000 of which has been pledged to the Company's lender. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources," "Business -- Competition" and "Management --
Directors and Executive Officers."
DEPENDENCE ON KEY CUSTOMERS
The Company's three largest customers accounted for an aggregate of
approximately 20% of the Company's revenues in 1993, 1994 and 1995 and the six
months ended June 30, 1995 and 1996, although the customers were not identical
in each period. In addition, the majority of the Company's revenues are based
upon purchase orders. None of the Company's customers are contractually
committed to make future product purchases from the Company. The loss of any
major customer or a material reduction in a major customer's purchases would
have a material adverse effect upon the Company.
A single U.S. government services contract accounted for approximately 7.5%
and 7.3% of the Company's revenues in 1995 and the six months ended June 30,
1996. This contract is due to expire in February 1997. The Company has responded
to a Request for Proposals by the United States government for a new four year
contract to replace this contract. There can be no assurance that the Company's
response to the Request for Proposals will be accepted by the United States
government. Failure to receive the new contract would have a material adverse
effect on the Company. See "Business -- Services."
STRINGENT GOVERNMENT REGULATION
The manufacture and distribution of medical devices, including products
manufactured by the Company that are intended for in vitro diagnostic use, are
subject to extensive government regulation in the United States and in other
countries. In the United States, the Food, Drug, and Cosmetic Act (the "FDCA")
prohibits the marketing of in vitro diagnostic products until they have been
cleared or approved by the FDA, a process that is time-consuming, expensive and
uncertain. Once clearance or approval is obtained, the FDA requires additional
clearances or approvals for product changes that could affect the safety and
effectiveness of the device, including, for example, new indications for use or
changes in the design or manufacturing process. Additional clearances or
approvals may also be required for changes in claims relating to uses of
products. The Company's Accurun Run Controls, when marketed for diagnostic use,
have been classified by the FDA as medical devices. The Company has received FDA
clearance to market its Accurun 1(R) line for diagnostic purposes. An
application for clearance for diagnostic use for one additional Accurun(tm)
product has been submitted by the Company to the FDA, and the Company
anticipates that applications for approximately 16 additional Accurun(tm)
products will be prepared and submitted to the FDA by the end of 1997. There can
be no assurance that the Company will obtain regulatory clearances or approvals
on a timely basis, if at all, for future products, changes in existing products
or changes in claims relating to uses of products. Delays in obtaining or
failure to obtain requisite FDA clearances or approvals could have a material
adverse effect on the Company.
All of the Company's Quality Control Products with the exception of Accurun
1(R) are marketed "for research use only," which do not require FDA premarket
clearance or approval of the product, and not marketed for diagnostic purposes,
which do require FDA premarket clearance or approval. The Company's labeling for
these products limits their use to research. It is possible, however, that some
purchasers of these products may use them for diagnostic purposes despite the
Company's intended use. In these circumstances, the FDA could allege that these
products should have been cleared or approved by the FDA prior to marketing and
initiate enforcement action against the Company, which could have a material
adverse effect on the Company. Failure to obtain, or delays in obtaining, FDA
clearances or approval would adversely affect the Company's strategy of
capitalizing on the end-user market.
8
The Company believes that its Quality Control Panels are not regulated by
the FDA because they are not intended for diagnostic purposes. The Company
believes that its Diagnostic Components, which are components of in vitro
diagnostic products, may be subject to certain regulatory requirements under the
FDCA and other laws administered by the FDA, but do not require that the Company
obtain a premarket approval or clearance. There can be no assurance, however,
that the FDA would agree or that the FDA will not adopt a different
interpretation of the FDCA or other laws it administers, which could have a
material adverse effect on the Company.
In addition, both before and after clearance or approval, medical devices,
such as Accurun 1(R), are subject to certain export and import requirements
under the FDCA.
The Company is also subject to strict FDA good manufacturing practices
("GMP") regulations governing testing, control and documentation, and to other
postmarketing restrictions with respect to the manufacture of the Company's
medical device products. Ongoing compliance with GMP and other applicable
regulatory requirements is monitored through periodic inspections by the
regulatory authorities. Failure to comply with GMP or other regulatory
requirements can result, among other consequences, in the failure to obtain
premarket clearances or approvals, withdrawal of clearances or approvals, total
or partial suspension of product distribution, injunctions, civil penalties,
recall or seizures of products, and criminal prosecution, each of which would
have a material adverse effect on the Company.
Laws and regulations affecting the Company's products are in effect in many
of the countries, states and other jurisdictions in which the Company markets or
intends to market its products. There can be no assurance that the Company will
be able to obtain any required regulatory clearances or approvals on a timely
basis, or at all. Delays in receipt of or failure to obtain such clearances or
approvals, or the failure to comply with regulatory requirements in these
countries, states or other jurisdictions, could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Government Regulation."
The Company is also subject to other national, state and local laws and
regulations, including those relating to the use and disposal of biohazardous,
radioactive and other hazardous substances and wastes. Failure to comply with
such laws and regulations could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Government Regulation."
FOREIGN RESTRICTIONS ON IMPORTATION OF BLOOD DERIVATIVES
Sales outside the United States in 1993, 1994 and 1995 represented
approximately 15%, 21% and 25%, respectively, of the Company's revenues for
those years, and 27% in each of the six months ended June 30, 1995 and 1996.
Foreign sales are primarily to Western Europe and Japan. Concern over blood
safety has led to movements in a number of European and other countries to
restrict the importation of blood and blood derivatives, including antibodies.
Such restrictions continue to be debated and there can be no assurance that
additional restrictions will not be imposed in the future. If imposed, such
restrictions could have a material adverse effect on the Company's business.
RISK OF TECHNOLOGICAL CHANGE
The infectious disease test kit industry is characterized by rapid and
significant technological change and changes in customer requirements. As a
result, the Company's success will be dependent upon its ability to enhance its
existing products and to develop or acquire and introduce in a timely manner new
products that take advantage of technological advances and respond to customer
requirements. There can be no assurance that the Company will be successful in
developing and marketing such new products or enhancements to the Company's
existing products on a timely basis or that such products will adequately
address the changing needs of the marketplace. Furthermore, rapid technological
development by the Company or others may result in products or services becoming
obsolete or noncompetitive before the Company recovers its investment in
research, development and commercialization.
9
RISK OF BROAD MANAGEMENT DISCRETION IN APPLICATION OF PROCEEDS
A significant portion of the estimated net proceeds from this Offering will
be allocated to working capital and general corporate purposes, including
potential acquisitions. Accordingly, the Company will have broad discretion as
to the application of the net proceeds and may allocate portions of such
proceeds to uses which the Company's stockholders may not deem desirable. In
October 1996, the Company entered into a License Agreement and Preferred Stock
Purchase Agreement ("Purchase Agreement") with BioSeq, Inc. ("BioSeq"), an early
stage biotechnology company that is developing a technology for sequencing,
synthesizing and characterizing nucleic acids and proteins. See "Business --
Strategic Alliances." Under the Purchase Agreement, the Company has agreed to
purchase approximately 19% of the outstanding capital stock of BioSeq for an
aggregate of $1,482,500, to be paid in three installments. The Company has paid
the first installment of $210,000 and will pay the second installment of
$522,500 upon completion of the Offering. The Company intends to use a portion
of the proceeds of this Offering to fund the second installment and $210,000 of
such proceeds to repay amounts drawn on the Company's revolving line of credit
to fund the first installment. The Company must make the remaining $750,000
installment if BioSeq attains certain technical milestones by July 31, 1997.
There can be no assurance as to the commercial viability of BioSeq's technology
or that the Company will not lose its entire investment in BioSeq. Additionally
there can be no assurance that the Company's use of any of the proceeds from the
Offering will yield any return. See "Use of Proceeds."
PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY
None of the Company's Quality Control Products or Diagnostic Components have
been patented and the Company does not intend to seek patent protection for such
products. The Company's ability to compete effectively with other companies will
depend, in part, on its ability to maintain the proprietary nature of its
technologies and products and operate without infringing the rights of third
parties. The Company relies primarily on a combination of trade secrets and
non-disclosure and confidentiality agreements, and in certain limited
circumstances, patents, to establish and protect its proprietary rights in its
technology and products. There can be no assurance that others will not
independently develop or otherwise acquire the same, similar or more advanced
trade secrets and know-how.
The Company has two United States patents and, jointly with the University
of North Carolina at Chapel Hill ("UNC"), has filed three series of United
States and foreign patent applications relating to compounds, pharmaceutical
compositions and therapeutic methods in connection with the Company's drug
discovery program at the University of North Carolina at Chapel Hill. See
"Business -- Services," and " -- Strategic Alliances." There can be no assurance
that patent applications will result in issued patents, that issued patents will
provide any competitive advantage or that patents will not be challenged,
circumvented or invalidated.
Third parties may be issued patents to, or may otherwise acquire the rights
to, technology necessary or potentially useful to the Company. The success of
the Company is dependent in part upon its not infringing patents or other
intellectual property rights of third parties. Litigation relating to the
infringement of the patents or other intellectual property rights of others
could result in substantial costs to the Company. Litigation which could result
in substantial costs to the Company may also be necessary to enforce the
Company's intellectual property rights or to determine the scope and validity of
the proprietary rights of others. Any such substantial costs would have a
material adverse effect on the Company.
UNCERTAINTY RELATED TO HEALTHCARE REFORM; NO ASSURANCE OF ADEQUATE REIMBURSEMENT
Political, economic and regulatory influences are subjecting the healthcare
industry in the United States to fundamental change. Although to date Congress
has failed to pass comprehensive health care reform legislation, the Company
anticipates that Congress and state legislatures will continue to review and
assess alternative healthcare delivery and payment systems and may in the future
propose and adopt legislation effecting fundamental changes in the healthcare
delivery system. Legislative debate is expected to continue in the future. In
addition, the private sector has been changing the healthcare industry as well
through consolidations and alternatives in healthcare delivery systems. The
Company cannot predict what impact the adoption of any federal or state health
care reform measures or future private sector reform may have on its industry or
business.
10
In both domestic and foreign markets, sales by the Company's customers of
products and services that incorporate or affect the demand for the Company's
products may depend in part on the availability of reimbursement from
third-party payors such as government health administration authorities, private
health insurers and other organizations. Third-party payors are increasingly
challenging the price and cost- effectiveness of medical products and services.
There can be no assurance that pricing pressures experienced by the Company's
customers will not adversely affect the Company because of a determination that
its products are not cost effective or because of inadequate third-party
reimbursement levels to such customers. In addition, where the payor for the
Company's specialty laboratory services is the patient rather than third-party
payors, there is a greater risk of non-payment. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."
RISK OF HAZARDOUS WASTE AND PRODUCT LIABILITY; ABSENCE OF INSURANCE
The Company's manufacturing processes involve the controlled use of
biohazardous materials and chemicals. The risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that result,
and any such liability could exceed the resources of the Company. The Company
may incur substantial costs to maintain safety in the use of biohazardous
materials and to comply with environmental regulations as the Company further
develops its manufacturing capacity. See "Business -- Government Regulation."
Further, the Company's business exposes it to liability risks that are
inherent in the testing, manufacturing and marketing of its products. The
Company does not currently have product liability insurance. Product liability
claims could expose the Company to substantial liabilities and expenses, which
could materially and adversely affect the Company.
RISKS ASSOCIATED WITH EXPORT SALES
The Company generated significant sales outside the United States and
anticipates that foreign sales will continue to account for a significant
percentage of the Company's net revenues. The Company's foreign operations
accounted for approximately 15%, 21% and 25% of the Company's total revenues for
the years ended December 31, 1993, 1994 and 1995, respectively, and
approximately 27% in each of the six months ended June 30, 1995 and 1996, and
36%, 38% and 47% of the Company's product sales for the years ended December 31,
1993, 1994 and 1995, respectively, and 50% and 48% for each of the six months
ended June 30, 1995 and 1996. The Company therefore is subject to risks
associated with foreign sales, including United States and foreign regulatory
requirements and policy changes, political and economic instability,
difficulties in accounts receivable collection, difficulties in managing
distributors or representatives and seasonality of sales. Although the Company's
sales have been denominated in United States dollars, the value of the United
States dollar in relation to foreign currencies may also adversely affect the
Company's sales to foreign customers. To the extent that the Company expands its
international operations or changes its pricing practices to denominate prices
in foreign currencies, the Company will be exposed to increased risks of
currency fluctuation. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 5 of Notes to Consolidated
Financial Statements.
POSSIBLE ADVERSE EFFECT OF CONTROL BY EXISTING STOCKHOLDERS
Upon consummation of this Offering, Richard T. Schumacher, President and
Chief Executive Officer, his relatives and the existing officers and directors
of the Company collectively will have voting control over approximately 39% of
the outstanding shares of Common Stock. Accordingly, these stockholders, should
they choose to act in concert, will be in a position to exercise a significant
degree of control over the Company, and to significantly influence stockholder
votes on the election of the Company's directors, increasing the Company's
authorized capital stock, mergers, and sales of the Company's assets. See
"Principal Stockholders."
POSSIBLE ADVERSE EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Articles of
Organization and Restated Bylaws could have the effect of discouraging a third
party from pursuing a non-negotiated takeover of the Company and preventing
certain changes in control. These provisions include a classified Board of
Directors, a fair price provision, advance notice to the Board of Directors of
stockholder proposals and
11
stockholder nominees for the Board of Directors, limitations on the ability of
stockholders to remove directors and call stockholders meetings, the provision
that vacancies on the Board of Directors be filled by a majority of the
remaining directors and the ability of the Board to issue, without further
stockholder approval, preferred stock with rights and privileges which could be
senior to the Common Stock. The Company also is subject to Chapter 110F of the
Massachusetts General Laws which, subject to certain exceptions, prohibits a
Massachusetts corporation from engaging in any of a broad range of business
combinations with any "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder. These
provisions could discourage a third party from pursuing a takeover of the
Company at a price considered attractive by many stockholders, since such
provisions could have the effect of preventing or delaying a potential acquiror
from acquiring control of the Company and its Board of Directors. See
"Description of Capital Stock -- Preferred Stock," "-- Massachusetts
Anti-Takeover and Related Statutes" and " -- Certain Provisions of the Company's
Articles of Organization and By-laws."
NO ASSURANCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF PRICE OF COMMON
STOCK
Prior to this Offering, there has been no public trading market for the
Common Stock. There can be no assurance that a regular trading market for the
Common Stock will develop after this Offering or that, if developed, it will be
sustained. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and Representatives of the
Underwriters and may not be indicative of the price at which the Common Stock
will trade after completion of this Offering. For factors that will be
considered in determining the initial public offering price, see "Underwriting."
After completion of this Offering, the market price of the Common Stock could be
subject to significant fluctuations in response to various factors and events,
including the liquidity of the market for the shares of Common Stock, variations
in the Company's operating results, changes in earnings estimates by securities
analysts, publicity regarding the Company, the infectious disease test kit
industry or the healthcare industry generally, new statutes or regulations or
changes in the interpretation of existing statutes or regulations affecting the
healthcare industry in general or the infectious disease test kit industry in
particular. In addition, the stock market in recent years has experienced broad
price and volume fluctuations that often have been unrelated to the operating
performance of particular companies. These market fluctuations also may
adversely affect the market price of the shares of Common Stock.
LACK OF UNDERWRITING HISTORY
Kaufman Bros., L.P. became registered as a broker-dealer in July 1995 and
has participated in a limited number of public offerings as an underwriter. As
part of its due diligence function, the Underwriters make such inquiries of
management as they deem appropriate, review the accuracy of the Prospectus and
establish the initial public offering price for the Common Stock. Prospective
purchasers of Common Stock offered hereby should consider the limited experience
of Kaufman Bros., L.P. in evaluating an investment in the Common Stock. See
"Underwriting."
DILUTION
Purchasers of shares in the Offering will suffer immediate dilution of $5.10
in net tangible book value per share. See "Dilution" and "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the prevailing
market price of the Common Stock and the ability of the Company to raise capital
through a public offering of its equity securities. Upon completion of this
Offering, the Company will have 4,290,064 shares of Common Stock outstanding
(4,530,064 shares if the Underwriters' overallotment option is exercised in
full). Of those shares, the 1,600,000 shares sold in this Offering (1,840,000
shares if the Underwriters' overallotment option is exercised in full) will be
freely tradeable without restriction (except as to affiliates of the Company) or
further registration under the Securities Act. All of the Company's directors
and executive officers and certain other stockholders, holding in the
12
aggregate 2,555,244 shares of Common Stock, have agreed not to offer to sell,
sell or otherwise dispose of any shares of Common Stock prior to the expiration
of 180 days from the date of this Prospectus. Oscar Gruss & Son Incorporated
may, in its sole discretion and at any time without prior notice, release all or
any portion of the shares of Common Stock subject to the lockup agreements.
Beginning 91 days after the date of this Prospectus, 6,475 shares of Common
Stock will be eligible for sale in the public market without registration,
subject to certain volume and other limitations, pursuant to Rule 144 or Rule
701 under the Securities Act of 1933, as amended (the "Securities Act") and an
additional 122,571 shares will be eligible for sale without such restrictions.
Following the expiration of the 180-day lockup period, an additional 1,643,197
shares of Common Stock will be eligible for sale in the public market without
registration, subject to certain volume and other limitations, pursuant to Rule
144 or Rule 701 under the Securities Act and an additional 734,425 shares will
be eligible for sale without such restrictions. The remaining shares of Common
Stock held by existing stockholders, including shares issuable upon exercise of
options, will become eligible for sale under Rule 144 or otherwise at various
times thereafter. All shares of Common Stock outstanding on the date of this
Prospectus will be eligible for sale to certain qualified institutional buyers
in accordance with Rule 144A under the Securities Act. The Company intends to
register under the Securities Act, shortly after the consummation of the
Offering, shares of Common Stock issuable upon exercise of employee stock
options, including 934,387 shares issuable upon exercise of such options
outstanding on the date of this Prospectus. Two of the Company's stockholders
and the holder of a warrant to purchase Common Stock have the right to cause the
Company to register their shares under the Securities Act and to include their
shares in certain future registrations of securities effected by the Company
under the Securities Act. An aggregate of 627,650 shares of Common Stock,
including 226,670 shares of Common Stock issuable upon exercise of outstanding
warrants, are covered by such registration rights. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, such sales may have an adverse effect
on the market price of the Common Stock. If the Company is required to include
in a Company-initiated registration shares held by such holders pursuant to the
exercise of their piggyback registration rights, such sales may have an adverse
effect on the Company's ability to raise needed capital. See "Certain
Transactions," "Principal Stockholders" and "Shares Eligible for Future Sale."
13
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,600,000 shares of Common Stock offered hereby are estimated to be $12,600,000
($14,587,200 if the Underwriters over-allotment option is exercised in full), at
an assumed public offering price of $9.00 per share and after deducting
estimated underwriting discounts and commissions and offering expenses payable
by the Company.
The Company expects to use approximately $4.1 million of the net proceeds to
repay outstanding indebtedness, as described below, and approximately $1.0
million for capital expenditures to expand its manufacturing capacity in West
Bridgewater, of which approximately $500,000 will be spent on building expansion
and approximately $500,000 will be spent on equipment. The Company intends to
use $522,500 of the net proceeds of this Offering to fund the second installment
of its investment in BioSeq. The Company anticipates using the remaining net
proceeds for general corporate purposes, including working capital, as well as
for potential acquisitions and alliances. See "Risk Factors -- Risk of Broad
Management Discretion in Application of Proceeds," and "Business -- Strategic
Alliances."
At October 23, 1996, the approximately $4.1 million of indebtedness to be
repaid from the proceeds of this Offering consists of (i) approximately $2.4
million of indebtedness under a secured revolving line of credit due June 30,
1998 that bears interest at a rate equal to the prime rate plus 0.5% per annum;
(ii) a mortgage note in the principal amount of approximately $678,225 on the
West Bridgewater property that bears interest at a fixed rate of 8.3% per annum
until December 2000 and thereafter bears interest at a rate equal to the prime
rate plus 1% per annum, and which is due December 2002; (iii) a term note, in
the principal amount of $424,500, that bears interest at 9.01% per annum and is
due in October 1998; (iv) a term note, in the principal amount of $133,333, that
bears interest at the prime rate plus 1% per annum and is due October 1999; (v)
a term note, in the principal amount of $315,686, that bears interest at a rate
equal to the prime plus 1% per annum and is due August 2000; (vi) a term note,
in the principal amount of $85,000, that bears interest at a rate of 8.22% per
annum and is due December 2000; and (vii) various other notes that aggregate
$77,459 due from June 1997 to August 2000. The proceeds from borrowings incurred
within the past year were used for working capital, to acquire the West
Bridgewater property, to purchase capital equipment and to make the Company's
$210,000 initial investment in BioSeq. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 6 of Notes to the
Consolidated Financial Statements.
With respect to potential acquisitions and alliances, in addition to the
investment in BioSeq, the Company may use a portion of the net proceeds to
acquire blood donor centers and other businesses, products or technologies that
are complementary to the Company's current business, although it currently has
no commitments for such acquisitions or alliances. See "Business -- Strategy."
The specific timing and amount of funds required for specific uses by the
Company cannot be precisely determined at this time. Pending such uses, the
Company intends to invest in short-term, investment grade, interest bearing
obligations.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock
and does not plan to pay any cash dividends in the foreseeable future. The
Company's current policy is to retain all of its earnings to finance future
growth. Any future determination to pay cash dividends will be at the discretion
of the Board of Directors and will be dependent upon the Company's financial
condition, operating results, capital requirements, general business conditions
and such other factors as the Board of Directors deems relevant. The Company is
subject to financial and operating covenants, including a prohibition against
the payment of cash dividends, under its bank financing agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
14
CAPITALIZATION
The following table sets forth as of June 30, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to the termination of certain redemption provisions relating
to 117,647 shares of Common Stock, and (iii) as adjusted to give effect to the
sale of 1,600,000 shares of Common Stock offered by the Company hereby at an
assumed public offering price of $9.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company. This table should be read in conjunction with the Consolidated
Financial Statements and related notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current maturities of long term debt $ 490 $ 490 $ --
====== ====== =======
Long-term debt, less current maturities:
Line of credit 1,398 1,398 --
Bank term debt 719 719 --
Mortgage term debt 620 620 --
Other notes payable 61 61 --
----- ----- -------
2,798 2,798 --
----- ----- -------
Redeemable common stock, $.01 par value; authorized
issued and outstanding 117,647, and none pro forma
and pro forma as adjusted 899 -- --
----- ----- -------
Stockholders' equity:
Common stock, $.01 par value; authorized
15,000,000 shares; issued and outstanding
2,572,417 actual, 2,690,064 pro forma and
4,290,064 pro forma as adjusted(1) 26 27 43
Preferred Stock
Additional paid-in capital 2,717 3,615 16,199
Retained earnings 589 589 589
----- ----- -------
Total stockholders' equity 3,332 4,231 16,831
----- ----- -------
Total capitalization $7,029 $7,029 $16,831
====== ====== =======
</TABLE>
- ----------
(1) Excludes the following at June 30, 1996: (i) 934,387 shares of Common Stock
issuable pursuant to the exercise of stock options outstanding at a
weighted average exercise price of $3.15 per share, of which options to
purchase 653,684 shares were then exercisable, (ii) 226,670 shares of
Common Stock issuable pursuant to the exercise of warrants outstanding at a
weighted average exercise price of $2.50 per share, all of which were then
exercisable, and (iii) 14,333 shares of Common Stock issuable upon
conversion of the subordinated convertible note at $1.50 per share. Since
June 30, 1996, no stock options were exercised, granted or became
exercisable. See "MANAGEMENT -- Stock Plans."
15
DILUTION
At June 30, 1996, the Company had a net tangible book value of $4,137,943 or
$1.54 per share of Common Stock. "Net tangible book value per share" represents
the tangible book value of the Company (total tangible assets less total
liabilities) divided by the number of shares of Common Stock outstanding (on a
pro forma basis to give effect to the termination of certain redemption
provisions relating to 117,647 shares of Common Stock). Without taking into
account any changes in such net tangible book value as of June 30, 1996, other
than to give effect to the sale by the Company of the 1,600,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $9.00 and
after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company, the pro forma net tangible book value
of the Company at June 30, 1996 would have been $16,737,943, or $3.90 per share.
This represents an immediate increase in the net tangible book value per share
of $2.36 to existing stockholders and an immediate dilution of the net tangible
book value per share of $5.10 to persons purchasing the Common Stock offered
hereby (the "New Investors"). The following table illustrates this per share
dilution:
Assumed initial public offering price per share $ 9.00
Net tangible book value per share before the Offering $1.54
Increase per share attributable to New Investors 2.36
----
Pro forma as adjusted net tangible book value
per share after the Offering 3.90
----
Dilution per share to New Investors $5.10
=====
The following table sets forth on a pro forma basis, as of June 30, 1996,
the total number of shares purchased from the Company after giving effect to the
sale of the 1,600,000 shares of Common Stock offered by the Company hereby, the
total consideration paid to the Company and the average price per share paid by
existing stockholders and by New Investors at an assumed initial public offering
price of $9.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------
AVERAGE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders 2,690,064 62.7% $ 3,835,373 21.0% $1.43
New Investors 1,600,000 37.3% 14,400,000 79.0% $9.00
--------- ---- ---------- ----
Total 4,290,064 100.0% $18,235,373 100.0%
========= ===== =========== =====
</TABLE>
The above information assumes (i) no exercise of the Underwriters' warrants
and (ii) no exercise of any other outstanding options and warrants after June
30, 1996. As of June 30, 1996, there were outstanding options, warrants and a
subordinated convertible note to purchase an aggregate of 1,175,390 shares of
Common Stock at exercise prices ranging from $0.25 to $8.50 per share. Since
June 30, 1996, no stock options were exercised, granted or became exercisable.
To the extent these options and warrants are exercised, there will be further
dilution to New Investors. See "Management -- Stock Plans," "Certain
Transactions" and Note 10 of Notes to Consolidated Financial Statements.
16
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains certain selected consolidated financial data of
the Company and is qualified in its entirety by the more detailed Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The statement of operations data for the fiscal years 1993, 1994 and 1995, and
the balance sheet data as of December 31, 1994 and 1995, have been derived from
the Consolidated Financial Statements of the Company which have been audited by
Coopers & Lybrand L.L.P., independent accountants, and which appear elsewhere in
this Prospectus. The balance sheet data as of December 31, 1993 are derived from
consolidated financial statements that have been audited by Coopers & Lybrand
L.L.P. The statement of operations data of the Company for the fiscal years
ending December 31, 1991 and 1992 and the balance sheet data as of December 31,
1991 and 1992 have been derived from consolidated financial statements of the
Company which have been audited by other independent public accountants. The
unaudited consolidated financial data as of June 30, 1996, and for the six
months ended June 30, 1996 and 1995, have been prepared on a basis consistent
with the audited consolidated financial statements and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial condition and results of
operations for the periods presented. The results for the six months ended June
30, 1996, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. This data should be read in conjunction with
the Consolidated Financial Statements and related Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
YEAR ENDED DECEMBER 31, JUNE 30, JUNE 30,
----------------------- -------- --------
1991 1992(1) 1993(2)(3) 1994 1995 1995 1996
---- ------- ---------- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
REVENUE:
Product sales $2,146 $2,955 $3,942 $ 5,982 $ 6,622 $3,024 $ 3,946
Services 264 1,680 5,215 4,741 5,649 2,540 2,982
--- ----- ----- ----- ----- ----- -----
Total revenue 2,410 4,635 9,157 10,723 12,271 5,564 6,928
----- ----- ----- ------ ------ ----- -----
COSTS AND EXPENSES:
Cost of product sales 1,172 1,638 2,088 3,194 3,564 1,646 2,007
Cost of services 191 1,443 3,965 3,416 4,168 1,960 2,250
Research and development 104 222 279 469 375 159 362
Selling and marketing 372 353 894 1,192 1,340 638 915
General and administrative 436 745 1,619 2,047 2,316 1,057 1,088
--- --- ----- ----- ----- ----- -----
Total operating costs and expenses 2,275 4,401 8,845 10,318 11,763 5,460 6,622
----- ----- ----- ------ ------ ----- -----
Income from operations 135 234 312 405 508 104 306
Interest expense, net 101 113 179 244 336 164 168
--- --- --- --- --- --- ---
Income (loss) before income taxes and
extraordinary item 34 121 133 161 172 (60) 138
Provision for income taxes (5) (45) (41) (64) (69) 24 (55)
----- ----- ------ ------- ------ ------ ------
Income (loss) before extraordinary item 29 76 92 97 103 (36) 83
Extraordinary item-gain on elimination of debt,
net of income taxes -- -- 50 -- -- -- --
----- ----- ------ ------ ------ ------ ------
Net income (loss) $ 29 $ 76 $ 142 $ 97 $ 103 $ (36) $ 83
====== ====== ====== ======= ======= ====== =======
Net income (loss) per share(4)(5) $ 0.01 $ 0.04 $ 0.06 $ 0.04 $ 0.04 $(0.01) $ 0.03
Weighted average common and common equivalent
shares outstanding(4)(5) 1,948 2,160 2,438 2,587 3,151 2,598 3,253
</TABLE>
17
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
------------ -------------
1991 1992 1993 1994 1995 ACTUAL PRO FORMA(7)
---- ---- ---- ---- ---- ------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital(6) $1,698 $2,457 $3,612 $4,686 $4,829 $ 4,497 $ 4,497
Total assets 2,624 4,828 6,870 8,076 9,928 10,047 10,047
Long term debt, less current maturities(6) 993 1,760 2,381 3,180 4,216 2,798 2,798
Redeemable common stock -- -- -- -- -- 899 --
Total stockholders' equity 993 1,837 2,762 3,041 3,187 3,332 4,231
Dividends -- None
</TABLE>
- -----------
(1) Effective July 1, 1992, the Company acquired through its BTRL subsidiary the
net assets of a division of Cambridge Biotech Corporation for $762,000 which
increased 1992 revenues by $1,450,000.
(2) On June 30, 1993, the Company exercised its option to pre-pay the
acquisition note in connection with the 1992 purchase of BTRL at a
substantial discount from the balance due, resulting in an extraordinary
gain of $50,000 net taxes of $33,000. The 1993 net income per share before
such extraordinary gain was $0.04.
(3) Effective January 1, 1993, the Company acquired the net assets of North
American Laboratory Group Ltd., Inc. for $425,000, which increased 1993
revenues by $2,019,000.
(4) The effect of the common stock equivalents on net income per share has been
excluded from the calculation for years ended December 31, 1991 through 1994
and the six months ended June 30, 1995 as its inclusion was antidilutive.
(5) Pro forma supplementary earnings per share for the year ended December 31,
1995 and the six months ended June 30, 1996 were $.09 and $.06,
respectively, based upon an assumed weighted average common and common
equivalent shares outstanding of 3,600,007 and 3,701,173, respectively. In
accordance with APB Opinion 15, pro forma supplementary earnings per share
is presented as if the Company sold on January 1, 1995, 448,530 shares of
Common Stock, representing the number of shares of Common Stock required to
be sold at the assumed initial public offering price of $9.00 per share in
order for the Company to repay the average indebtedness outstanding during
1995 as if the Offering had occurred on January 1, 1995. See "Use of
Proceeds" and Note 12 of Notes to Consolidated Financial Statements.
(6) The Company's demand line of credit with outstanding amounts of $880,000,
$1,091,000 and $1,895,000 as of December 31, 1991, 1992 and 1993,
respectively, has been presented as part of long-term debt (and excluded
from current liabilities in calculating working capital) for 1991 through
1993 to be consistent with its reclassification to long-term debt in 1994,
1995 and 1996 due to a modification of its maturity date.
(7) Adjusted to reflect the reclassification of Redeemable Common Stock into
117,647 shares of Common Stock upon completion of this Offering, thereby
terminating the redemption provisions.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto appearing
elsewhere in this Prospectus.
OVERVIEW
The Company generates revenue from products and services provided to the in
vitro diagnostic infectious disease industry. Products consist of three groups:
Quality Control Panels, Accurun(tm) Run Controls and Diagnostic Components.
Services consist of Specialty Clinical Laboratory Testing, Contract Research,
Clinical Trials and Drug Screening. In the three full years since the Company's
acquisition of BTRL and BBI-NACL, the Company has experienced a shift in revenue
mix towards increased product sales, as product revenue as a percentage of total
revenue increased from 43.1% in 1993 to 54.0% in 1995, with a corresponding
decrease in the percentage of total revenue provided by services.
The Company's gross profit margin increased from 33.9% in 1993 to 37.0% in
1995 principally as a result of the increased percentage of higher margin
product revenues. Within products, the Company's Quality Control Products
(Accurun(tm) Run Controls and Quality Control Panels) have higher margins than
the Company's Diagnostic Components. Within services, Contract Research gross
margins are lower than other services. However, such contracts enable the
Company to maintain certain scientific staff and capability that it might
otherwise not be able to afford. The Company intends to continue to concentrate
on the growth in sales of its Quality Control Products.
Historically, the Company's results of operations have been subject to
quarterly fluctuations due to a variety of factors, including customer
purchasing patterns, primarily driven by end-of-year expenditures, and seasonal
demand during the summer months for certain laboratory testing services. In
particular, the Company's sales of its Quality Control Products and Diagnostic
Components typically have been highest in the fourth quarter and lowest in the
first quarter of each fiscal year, whereas Specialty Clinical Laboratory Testing
has generally reached a seasonal peak during the third quarter, coinciding with
the peak incidence of Lyme Disease. Research Contracts are generally for large
dollar amounts spread over a one or two year period, and upon completion,
frequently do not have renewal phases. As a result they can cause large
fluctuations in revenue and net income. In addition to staff dedicated to
internal research and development, certain of the Company's technical staff work
on both Contract Research for customers and Company sponsored research and
development. The allocation of certain technical staff to such projects depends
on the volume of Contract Research. As a result, research and development
expenditures fluctuate due to increases or decreases in Contract Research. See
"Risk Factors -- Fluctuations in Quarterly Results of Operations."
To develop new Quality Control Products and support increased sales, the
Company hired additional research and development staff in the second half of
1995 and sales and marketing staff in 1996. The Company intends to continue to
add staff to these departments. This should cause both research and development
and selling and marketing expenses to increase as a percentage of revenue in
1996 and 1997, compared to 1995. General and administrative expenses are not
expected to increase at the same rate, as the Company has already incurred
significant infrastructure expenses.
The Company does not have any foreign operations. However, the Company does
have significant export sales to agents under distribution agreements, as well
as directly to test kit manufacturers. All sales are denominated in U.S.
dollars. Export sales for the years ended December 31, 1993, 1994, and 1995 were
$1.4 million, $2.3 million, and $3.1 million, respectively, and for the six
months ended June 30, 1995 and 1996 were $1.5 million and $1.9 million,
respectively. The Company expects that export sales will continue to be a
significant source of revenue and operating income. See "Risk Factors -- Risks
Associated with Export Sales."
19
The Company's cash flow from operations over the last three years has been
negative as it funded investment in research and development, increased sales
and marketing expenditures, and supported growth-driven working capital needs.
The Company funded the shortfall through a combination of sales of common stock
and bank financing. The Company anticipates using a portion of the net proceeds
of this Offering for working capital requirements until such time as its cash
flow from operations becomes sufficient.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenue represented by certain items reflected in the Company's
consolidated statements of operations:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------ --------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue:
Products 43.1% 55.8% 54.0% 54.4% 57.0%
Services 56.9 44.2 46.0 45.6 43.0
Total revenue 100.0 100.0 100.0 100.0 100.0
Gross profit 33.9 38.4 37.0 35.2 38.6
Operating expenses:
Research and development 3.0 4.4 3.1 2.9 5.2
Selling and marketing 9.8 11.1 10.9 11.4 13.2
General and administrative 17.7 19.1 18.9 19.0 15.7
Total operating expenses 30.5 34.6 32.9 33.3 34.1
Income from operations 3.4 3.8 4.1 1.9 4.4
Interest expense 2.0 2.3 2.7 3.0 2.4
Income (loss) before income taxes 1.5 1.5 1.4 (1.1) 2.0
Net income (loss) 1.6 0.9 0.8 (0.6) 1.2
Product gross profit 47.0% 46.6% 46.2% 45.6% 49.1%
Services gross profit 24.0% 28.0% 26.2% 22.8% 24.6%
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Total revenue increased 24.5%, or $1,364,000, to $6,928,000 for the six
months ended June 30, 1996 from $5,564,000 in the prior year period. This
increase was the result of an increase in product sales of 30.4%, or $921,000,
to $3,946,000 from $3,025,000 and an increase in specialty laboratory services
of 17.4%, or $443,000, to $2,983,000 from $2,540,000. Product revenue increased
primarily as a result of an overall increase of 34.5% in Quality Control
Products, due to sales of new products and increased volume of existing
products, including an increase of 132.5% in the sales of Accurun(tm). The
increase in service revenue was primarily attributable to a 19.0% increase in
Specialty Clinical Laboratory Testing revenue, particularly molecular (PCR)
testing, and the addition of two new research contracts with the National
Institutes of Health in the fourth quarter of 1995.
Gross profit increased 36.5%, or $714,000, to $2,672,000 for the six months
ended June 30, 1996 from $1,958,000 in the prior year period. The gross profit
margin increased to 38.6% in the six months ended June 30, 1996 versus 35.2% in
the prior year period. Gross margins improved in both products, (45.6% to
49.1%), and services (22.8% to 24.6%), as the Company benefited from an improved
revenue mix at the higher volume level.
Research and development expenses increased 127.4%, or $203,000, to $362,000
for the six months ended June 30, 1996 from $159,000 in the prior year period.
Research and development costs as a percentage of revenues increased to 5.2% for
the six months ended June 30, 1996 from 2.9% in the comparable 1995 period. This
increase was primarily the result of increased costs of personnel hired in the
second half of 1995 which enabled the Company to introduce over 30 new products
in the first half of 1996 compared with 15 new introductions in the prior year
period.
20
Selling and marketing expenses increased 43.6%, or $278,000, to $915,000 for
the six months ended June 30, 1996 from $638,000 in the prior year period. This
increase was primarily attributable to increased personnel costs associated with
the addition of tele-sales staff for Quality Control Products, particularly
Accurun(tm), and increased advertising costs due to the commencement of the
Company's "Total Quality System" (TQS) marketing campaign.
General and administrative expenses increased 3.0%, or $31,000, to
$1,088,000 for the six months ended June 30, 1996 from $1,057,000 in the prior
year period. As a result, general and administrative expenses decreased as a
percentage of revenues to 15.7% for 1996 from 19.0% in the prior year period as
management maintained close control of expense levels.
Interest expense was essentially unchanged in the six months ended June 30,
1996 versus the prior year period as the prime rate increases in late 1995 were
offset by reduced borrowing due to both additional equity raised and prepayments
from certain customers for contract research services.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Total revenue increased 14.4%, or $1,548,000, to $12,271,000 in 1995 from
$10,723,000 in 1994. The increase in revenues was the result of a 10.7% increase
in product revenues of $640,000 to $6,622,000 from $5,981,000, and a 19.1%
increase in service revenues of $908,000 to $5,649,000 from $4,741,000 in 1995
compared to 1994. The increase in product revenue was attributable to an
increase in prices at the beginning of 1995 and an increase in the volume of
sales of Quality Control Products and Basematrix (part of the Diagnostic
Components group), which increase was partially offset by the absence of
revenues in 1995 from two OEM Quality Control Panel contracts which were
completed in 1994. The Company also reduced emphasis on certain lower margin
Diagnostic Components as it focused more effort on sales of its proprietary
Basematrix product, which carries a higher margin. During 1995, the Company
reorganized its sales and marketing department and believes that this had an
adverse effect on sales growth for the period. The increase in service revenue
was primarily the result of increased specialty clinical laboratory testing, two
new research contracts and increased clinical trial services, particularly in
the area of HIV.
Gross profit increased 10.4%, or $426,000, to $4,539,000 for 1995 from
$4,113,000 in 1994. Products gross profit increased 9.7%, or $270,000, to
$3,057,000 in 1995 from $2,787,000 in 1994 as the products sales increase was
offset by a small decrease in products gross profit margin (to 46.2% in 1995
from 46.6%). The products gross margin decrease was a result of a small increase
in material handling personnel costs. Services gross profit increased 11.8%, or
$156,000, to $1,481,000 in 1995 from $1,326,000 in 1994 as the sales increase
was offset by a decrease in services gross profit margin to 26.2% in 1995 from
28.0% in 1994. Services gross margin declined primarily as a result of increased
personnel costs in the specialty clinical laboratory and an increase in contract
research activities, which carry a lower margin.
Research and development expenditures decreased 20.0%, or $94,000, to
$376,000 in 1995 from $469,000 in 1994. The decrease resulted from certain
technical staff being utilized for Company sponsored research and development in
1994 and Contract Research in 1995. See "-- Years Ended December 31, 1994 and
1993." Development projects included Accurun(tm), molecular and immunological
Run Controls, specialized molecular assays, and the development of a second
generation Lyme Disease western blot test kit for internal use by the Company's
specialty testing laboratory.
Selling and marketing expenses increased 12.4%, or $148,000, to $1,340,000
in 1995 from $1,192,000 in 1994. The increase was primarily attributable to
additional sales and marketing staff and overhead, partially offset by lower
trade show and travel expenses as the Company realized greater benefits from its
distributor network.
General and administrative costs increased 13.1%, or $269,000, to $2,316,000
in 1995 from $2,047,000 in 1994. This increase was primarily attributable to
additional staffing in support of revenue growth and higher reserve provisions
for doubtful accounts associated with the increased volume of revenue related to
testing in situations where payment to the Company depends on collecting from
the
21
patient rather than a healthcare institution. These increases were partially
offset by lower professional fees. Also included in general and administrative
expense was approximately $60,000 of nonrecurring costs associated with the move
of the specialty testing laboratory into a larger, custom-designed facility.
Interest expense increased 37.8%, or $92,000, to $336,000 in 1995 from
$244,000 in 1994, as the Company funded its working capital needs primarily
through increased borrowings.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Total revenue increased 17.1%, or $1,566,000, to $10,723,000 in 1994 from
$9,157,000 in 1993. This increase was a result of a 51.7%, or $2,039,000,
increase in product sales, partially offset by a 9.1%, or $473,000, decrease in
service revenue. The product sales increase was primarily attributable to unit
volume growth of both existing and new Quality Control Panels for HIV and HCV,
and, to a lesser extent, to sales of the Company's first molecular-based Quality
Control Panel targeted for end-user PCR training. The service revenue decline
was primarily attributable to the completion in February 1994 of a government
contract with the United States Army for retrovirology research that reduced
contract research revenue by approximately $1,100,000 in 1994 compared with
1993. This decrease was partially offset by a $676,000, or 36.5%, increase in
specialty laboratory testing services.
Gross profit increased 32.5%, or $1,009,000, to $4,113,000 for 1994 from
$3,104,000 in 1993. Products gross profit increased 50.3%, or $933,000, to
$2,787,000 in 1994 from $1,855,000 in 1993 as the products sales increase was
partially offset by a small decrease in products gross margin (to 46.6% in 1994
from 47.0%). The products gross margin decrease was a result of higher costs
associated with pilot manufacturing of Accurun(tm). Services gross profit
increased 6.1%, or $76,000, to $1,326,000 in 1994 from $1,250,000 in 1993 as the
sales decrease was more than offset by an increase in services gross margin (to
28.0% in 1994 from 24.0%). Services gross margin increased primarily as a result
of improved economies of scale at its specialty clinical laboratory afforded by
higher test volume, and redeployment of staff into Company sponsored research
and development projects.
Research and development expenditures increased by 68.3%, or $190,000, to
$469,000 in 1994 from $279,000 in 1993 as the Company commenced several research
and development projects, including development of Quality Control Panels for
molecular diagnostics, increased expenditures related to the development of a
PCR test for Lyme Disease, and a second generation Lyme Disease western blot
test kit for internal use by the Company's specialty clinical laboratory.
Selling and marketing expenses increased 33.3%, or $297,000, to $1,192,000
in 1994 from $894,000 in 1993. This increase was primarily attributable to staff
additions in sales and customer service support for the products business and
also higher travel costs.
General and administrative expenses increased 26.4%, or $428,000, to
$2,047,000 in 1994 from $1,619,000 in 1993. This increase was primarily
attributable to a full year impact of staff additions in information systems,
regulatory affairs and accounting in support of the Company's sales growth and
growth expectations in both the Quality Control Products and the Specialty
Clinical Laboratory Services business.
Interest expense increased 36.4%, or $65,000, to $244,000 in 1994 from
$179,000 in 1993 as the Company funded its increased equipment and working
capital needs primarily from borrowings.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date through cash flow from
operations, borrowings from banks and sales of equity.
At June 30, 1996 the Company had $1,398,000 outstanding and $2,028,000 of
availability under its $3.5 million Revolving Line of Credit Agreement due June
30, 1998 (the "Revolver"). The Revolver bears interest at a rate equal to the
prime rate plus 0.5% per annum, currently 8.75%. Prior to June 30, 1996, the
Revolver bore interest at a rate equal to the prime rate plus 1% per annum.
Under the terms of the Revolver, the Company operates under a zero balance
account arrangement whereby cash
22
receipts are received into a lockbox at the bank and reduce the Revolver, while
disbursements for payroll and accounts payable items increase the outstanding
balance of the Revolver. Borrowings under the Revolver are limited to 80% of
eligible accounts receivable plus the lesser of 40% of inventory or $1.5
million. The Revolver contains various covenants and restrictions and the
amounts outstanding are secured by all of the Company's assets and a $2 million
life insurance policy on an officer/stockholder. See Note 6 to Notes to the
Consolidated Financial Statements. The Company expects to use a portion of the
proceeds of the Offering to repay the outstanding amount under the Revolver,
which at October 4, 1996 was approximately $2,300,000. See "Use of Proceeds."
Amounts repaid on the Revolver will be available for reborrowing.
Net cash provided by operations for the six months ended June 30, 1996 was
$685,000 as compared to $105,000 in the prior year period. This increase in cash
flow was primarily attributable to an increase in net income and an increase in
deferred revenue from a payment of $308,000 under a research contract for future
clinical trial services. Cash flow used in operations in 1995, 1994 and 1993
amounted to $29,000, $554,000 and $427,000, respectively. The decrease in cash
used in operations in 1995 from 1994 was primarily attributable to an increase
in deferred revenue.
Cash used in investing activities for the six months ended June 30, 1996 was
$283,000 as compared to $216,000 in the prior year period. This increase in
investing activities was the result of increased capital expenditures for
production equipment associated with Accurun(tm) and other Quality Control
Products. Cash used in investing activities for 1995, 1994 and 1993 amounted to
$1,320,000, $405,000 and $850,000, respectively. The increased use of cash in
1995 versus 1994 was the result of the purchase of the Company's West
Bridgewater facility and in 1993 related to the acquisition of the net assets of
North American Laboratory Group Limited, Inc.
Cash used in financing activities for the six months ended June 30, 1996 was
$403,000 as compared to $151,000 provided by financing activities in the prior
comparable year period. Net cash was used in financing activities primarily as a
result of the repayment of $1,591,000 of the Revolver offset by $899,000 raised
through the sale of 117,647 shares of Common Stock to Kyowa Medex, Co., Ltd. in
April 1996. Cash provided by borrowings for 1995, 1994 and 1993 amounted to
$1,240,000, $846,000 and $494,000, respectively, and net proceeds from the sale
of Common Stock for the same periods amounted to $176,000, $170,000, and
$765,000, respectively. The proceeds of such debt were used for working capital,
to acquire the West Bridgewater property and to purchase capital equipment. The
Company expects to use a portion of the proceeds of the Offering to repay the
outstanding balances on these notes payable, which aggregated approximately
$1,714,203 at October 23, 1996. See "Use of Proceeds."
Capital expenditures relate primarily to the Company's facilities and
related equipment. For the six months ended June 30, 1996 and 1995, capital
expenditures totaled $283,000 and $216,000 respectively. This represents an
increase of $67,000 in the six months ended June 30, 1996, as the Company
continues to invest in manufacturing equipment and information systems related
to both operations and finance. In 1995, 1994 and 1993 capital expenditures
amounted to $1,316,000, $405,000 and $461,000, respectively. In 1995, $806,000
of the Company's capital expenditures related to the purchase of the West
Bridgewater facility. As of October 4, 1996, the Company has available to it a
$250,000 five year term facility to finance equipment purchases, bearing
interest at prime plus 1%.
The Company anticipates capital expenditures to increase over the near term
as it expects to use approximately $1.0 million from the proceeds of this
Offering to expand its manufacturing capacity in West Bridgewater over the next
12 months, of which approximately $500,000 will be spent on building expansion
and approximately $500,000 will be spent on equipment. The Company also expects
to use $522,500 to fund the Company's purchase of its second installment of
capital stock of BioSeq following the completion of this Offering. See "Use of
Proceeds." The Company must make the remaining $750,000 installment if BioSeq
attains certain technical milestones by July 31, 1997. If the milestones are not
achieved, the Company will have the option to purchase the additional $750,000
of BioSeq capital stock until December 31, 1997. The Company believes that
existing cash balances, the borrowing capacity available under the Revolver,
cash generated from operations and the proceeds of this Offering are sufficient
to fund operations and anticipated capital expenditures for the foreseeable
future. There were no material financial commitments for capital expenditures as
of June 30, 1996, and currently there are no material commitments for capital or
investment expenditures other than the BioSeq investment.
23
On April 26, 1996 the Company entered into a new five year distribution
agreement with Kyowa Medex, Co., Ltd., a foreign distributor, extending a six
year old relationship. Simultaneously, Kyowa Medex, Co., Ltd. purchased 117,647
shares of the Company's Common Stock at a price of $8.50 per share. The Purchase
Agreement includes a redemption right that may require the Company to repurchase
the stock at $8.50 per share in the event the Company terminates the
distribution agreement or it expires prior to the Company completing an initial
public offering of its Common Stock. These shares have been presented in the
Company's balance sheet separately as redeemable Common Stock. Completion of
this initial public offering will terminate the redemption provisions and cause
the reclassification of these shares into stockholders' equity.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121").
SFAS 121 requires that an impairment loss be recognized for long-lived assets
and certain identified intangibles when the carrying amount of these assets may
not be recoverable. The Company has adopted SFAS 121 effective in 1996 and the
adoption did not have a material impact on the financial statements.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation," which becomes
effective for fiscal years beginning after December 15, 1995. SFAS 123
establishes new financial accounting and reporting standards for stock-based
compensation plans. However, entities are allowed to elect whether to measure
compensation expense for stock-based compensation under SFAS 123 or APB No. 25,
"Accounting for Stock Issued to Employees." The Company has elected to continue
to account under APB No. 25 and will make the required pro forma disclosures of
net income and earnings per share as if the provisions of SFAS 123 had been
applied in its December 31, 1996 financial statements. The potential impact of
adopting this standard on the Company's pro forma disclosures of net income and
earnings per share has not been quantified at this time.
24
BUSINESS
GENERAL
The Company is a leading worldwide provider of proprietary quality control
products for use with in vitro diagnostic test kits ("test kits") for the
detection, analysis and monitoring of infectious diseases, including AIDS,
Hepatitis and Lyme Disease. These products are used to develop test kits, to
permit the monitoring of laboratory equipment and personnel, and to help ensure
the accuracy of test results. The Company's products are derived from human
plasma and serum using proprietary manufacturing processes. The Company believes
its Quality Control Panel products are viewed as the current industry standard
for the independent assessment of the performance of HIV and Hepatitis test
kits. The Company also manufactures diagnostic test kit components and provides
specialty laboratory services, including clinical trials. The Company's
customers include test kit manufacturers, regulatory agencies and end-users of
test kits such as blood banks, hospital laboratories and clinical reference
laboratories. Currently the Company's products are used in connection with the
detection of more than 15 infectious diseases, and its specialty laboratory
services are used in connection with the detection of over 100 such diseases.
INDUSTRY OVERVIEW
According to the World Health Organization ("WHO"), infectious diseases are
now the leading cause of premature death around the world and the third most
common cause of premature death in the United States. In 1995, more than 17
million people died from exposure to infectious diseases, constituting nearly
one-third of the approximately 52 million people worldwide who died from all
causes. Currently, the Company focuses on two infectious diseases, Viral
Hepatitis and AIDS, which are among the largest killers and are also a primary
focus of blood testing efforts worldwide.
WHO estimates that approximately 20 million people worldwide are infected
with HIV, and that approximately one million people died from AIDS-related
illnesses during 1995. WHO also estimates that up to 350 million people
worldwide are infected with Hepatitis Type B, one of several types of Viral
Hepatitis, and that over one million people died of Viral Hepatitis during 1995.
In developed countries, blood products are routinely screened for HIV and Viral
Hepatitis by use of infectious disease test kits.
The increased threat from infectious diseases has created a large and
growing market for test kits. Venture Planning Group, a medical products
research firm, estimates that the worldwide infectious disease test kit market
was approximately $2.7 billion in 1995, and will grow to $5.0 billion by 2000
and $8.0 billion by 2005.
Infectious Disease Test Kits and Testing Methods. Test kits contain in one
compact package all of the materials necessary to run a test for an infectious
disease. These include the disposable diagnostic components, instructions, and
reaction mixing vessels (generally 96-well plates or test tubes) which are
coated with the relevant infectious disease antigens, antibodies or other
materials. To perform the test, either a technician or a specially designed
instrument typically mixes the solutions from the test kit with human blood
specimens in a specific sequence according to the test kit instructions. The
mixture must then "incubate" for up to 18 hours, during which time a series of
biochemical reactions trigger signals (including color, light and radioactive
count) which indicate the presence or absence and amount of specific markers of
the particular disease in the specimen.
Test kits generally employ one of three methods for infectious disease
testing: microbiology, immunology or molecular biology. Traditional microbiology
tests use a growth medium that enables an organism, if present, to replicate and
be detected visually. Immunology tests detect the antigen or antibody, which is
an indicator (marker) of the pathogen (e.g., virus, bacterium, fungus or
parasite). Molecular diagnostic methods, such as the polymerase chain reaction
("PCR"), test for the presence of nucleic acids (DNA or RNA) which are specific
to a particular pathogen.
25
Most infectious disease tests currently use microbiological or immunological
methods. However, molecular diagnostic methods are increasingly being used in
research laboratories worldwide and the Company believes that soon they will be
accepted for routine use in the clinical laboratory setting. The Company
believes that the advent of molecular diagnostic methods will complement rather
than diminish the need to test by microbiological and immunological procedures,
because different test methods reveal different information about a disease
state. The Company anticipates that as new test methods become more widespread,
they will account for a larger portion of the Company's business.
Quality Control for In Vitro Diagnostic Test Kits. Customers employ quality
control products in order to develop and use test kits (both infectious and
non-infectious). Quality control products help ensure that test kits detect the
correct analyte (specificity), detect it the same way every time
(reproducibility or precision), and detect it at the appropriate levels
(sensitivity). The major element of this quality control process is the
continuous evaluation of test kits by the testing of carefully characterized
samples that resemble the donor or patient samples routinely used with the test.
Quality control is used in both the infectious and non-infectious disease
markets, although currently it is not as prevalent among end-users of infectious
disease test kits.
The market for quality control products consists of three main customer
segments: (i) manufacturers of test kits, (ii) regulatory agencies that oversee
the manufacture and use of test kits and (iii) end-users of test kits, such as
hospitals, clinical reference laboratories and blood banks.
According to the Genesis Report Dx (May 1994), a medical products survey,
the quality control market for in vitro diagnostic testing for infectious and
non-infectious disease in 1994 totaled approximately $600 million. The Company
believes that the market for quality control products for infectious disease
testing currently represents less than five percent of the overall quality
control market. At the present time, most quality control products for
non-infectious disease test kits are sold to end-users, who have used quality
control products as part of standard laboratory practice for several decades.
Conversely, most quality control products for the infectious disease test kit
segment of the market are sold to test kit manufacturers and regulators, and not
to end-users, who have historically used quality control products only on a
limited basis. The Company believes that this lower level of usage among
end-users of infectious disease test kits is primarily due to laboratory
practices that have evolved from earlier testing methods that did not require
routine and extensive use of external quality controls as part of standard
laboratory practice. However, the Company also believes that this lower level of
usage among end-users of test kits represents a major market opportunity since
current testing methods have been improving test kit performance to increasingly
higher levels of sensitivity, specificity and reproducibility. The Company
believes that these three key criteria of test kit performance can be best
monitored through the use of quality control products, such as those sold by the
Company.
MARKET TRENDS
The Company believes that end-users of test kits will become the most
significant users of quality control products in the infectious disease market
and that the market for infectious disease test kits and related quality control
products will continue to expand, primarily as a result of the following four
trends.
Increased Regulatory Scrutiny. Due to the high level of public concern with
the dangers of infectious diseases, particularly AIDS, Viral Hepatitis, and Lyme
Disease, governmental regulatory agencies are requiring additional tests to
improve the safety of the blood supply, and are requiring manufacturers and
end-users of test kits to adopt quality assurance programs applicable to the
entire test kit product life-cycle, from initial product design and development
through manufacture and end-use. The passage of the Clinical Laboratory
Improvement Amendments of 1988 ("CLIA") and its regulatory implementation
beginning in 1992 have resulted in a set of recommended laboratory practices,
including more stringent quality control programs, as well as regular government
inspections aimed at improving the overall standard of proficiency in clinical
laboratories. As a result, the Company believes that blood bank, hospital and
clinical laboratory personnel are adopting more comprehensive quality assurance
programs, especially in infectious disease testing, to minimize the risk of
errors and to comply with CLIA and other regulations.
26
Growing Recognition of the Value of Using Quality Control Products. To
ensure the greatest possible safety of the blood supply, to achieve the earliest
possible diagnosis of infection, and to minimize the occurrence of false
negative results, sensitivity of tests (i.e., their ability to accurately detect
very small amounts of the disease marker) is a critical element. The Company
believes there is increasing recognition of the benefit of continuously
monitoring test sensitivity using quality control products to help ensure the
accuracy of each test run.
New Diseases and the Development of New Therapies. In recent years, HIV,
Hepatitis C Virus ("HCV"), Borrelia burgdorferi ("Lyme Disease") and Ehrlichia,
among others, have emerged as significant human pathogens. New and drug
resistant strains of known pathogens, such as those causing tuberculosis, escape
mutants of Hepatitis B Virus ("HBV"), and Group O and other variants of HIV,
have also emerged. In response, new and improved tests are being developed. In
addition, as new drug therapies are introduced to treat infectious diseases, new
tests are needed to monitor the effectiveness of these therapies. For example,
the recent advances in AIDS drug therapy, which use a combination of several
drugs to treat infected patients, have prompted the creation of a new viral load
test used to periodically measure the precise amount of virus in the patient's
blood to evaluate the effectiveness of the drug therapy. The Company believes
that viral load testing will be applied to additional areas of infectious
disease, including Hepatitis B and C and Lyme Disease.
Advanced Test Technologies and Equipment. Test kit manufacturers are
continuing to enhance the sensitivity, specificity and reproducibility of their
tests. Molecular diagnostics now permit the direct detection of the nucleic
acids (DNA and RNA) specific to viruses and other pathogens and are being used
to complement traditional microbiological and immunological tests for infectious
disease. New tests for urine and saliva have been developed that offer
advantages in some settings over blood tests and may be more widely used in the
future. Test kit manufacturers are also developing assays on silicon chips,
laser-read microspot arrays, and are using electrochemi- luminescence detection,
among other technologies. The different types of information obtained through
the complementary use of various diagnostic methods can provide the physician
with a broader perspective on the diagnosis and prognosis of the disease, as
well as on the effectiveness of drug therapy.
THE BOSTON BIOMEDICA ADVANTAGE
The Company offers a broad, integrated range of products for quality
assurance throughout the entire infectious disease test kit life-cycle, from
initial research and development, through the regulatory approval process and
test kit production, to training, troubleshooting and routine use by end-users.
To directly address the emerging end-user market opportunity, the Company
introduced its TQS marketing platform based around its Accurun(tm) Run Control
products. The Company believes that TQS is the first comprehensive package of
quality control products designed specifically for infectious disease test kit
end-users, providing them with a customized approach to evaluate all of the key
elements of the testing process.
The Company believes that it has several competitive advantages which have
enabled it to achieve its current leadership position in quality control
products for infectious diseases:
Valuable Inventory. The Company has an inventory of approximately 50,000
distinct human blood specimens accumulated since 1986 through its worldwide
sources of blood-supply. This inventory cannot be easily or rapidly acquired on
the open market, and enables the Company to respond quickly to market trends and
customer needs.
Specialty Laboratory Services and Clinical Trials. The knowledge gained
through the Company's specialty laboratory services allows the Company to remain
at the forefront of emerging market trends and customer needs. By conducting
clinical trials of new test kits under development, the Company is able to
maintain close contact with manufacturers and to release Quality Control
Products for test kits soon after the test kits are introduced to the market. In
addition, by operating a specialty clinical laboratory, the Company is able to
better understand the requirements of the end-user.
27
Proprietary Manufacturing Know-How. As a result of ten years of experience
working with leading worldwide manufacturers in the development of their test
kits and with regulators to help in the evaluation of test kits, the Company has
developed proprietary know-how in manufacturing its Quality Control Products.
Reputation. The Company believes that it has developed a reputation as an
authority in quality control products for infectious disease among manufacturers
and regulators of infectious disease test kits. The Company believes that its
reputation, established over the past ten years, will assist it in penetrating
the emerging end-user market.
STRATEGY
The Company's strategy is to enhance its leadership position in the
infectious diseases quality control market and to take advantage of the emerging
opportunities in the end-user market for quality control products. There are
five key elements to this strategy:
Capitalize on Emerging End-User Market. In 1996 the Company introduced an
expanded line of Quality Control Products that are specifically designed for the
end-users of test kits, such as blood banks, hospitals and clinical
laboratories. The Company plans to continue to expand its line of Quality
Control Products, particularly its Accurun(tm) line of Run Controls, to cover a
wider range of immunological and molecular markers. The Company also recently
introduced its Total Quality System ("TQS") marketing platform, which combines
Accurun(tm) with other Quality Control Products to provide test kit end-users
with the products needed in an overall quality assurance program. The Company
intends to continue to expand its sales, marketing and distribution activities
to support its product development program for the emerging end-user quality
control market.
Develop New Products and Services. The Company intends to capitalize on its
reputation with manufacturers and regulators by developing Quality Control
Products and Diagnostic Components for use with test kits for both new test
methodologies and new diseases. For example, in response to a 1996 FDA mandate
that all blood collected for transfusion must be tested for the presence of the
HIV antigen, the Company recently introduced on an OEM basis the first quality
control training panels for use with the two FDA-licensed HIV antigen test kits
available in the United States. In addition, the Company has also provided a
training panel for end-users of the only FDA-licensed molecular amplification
test for HIV RNA, and has introduced a new line of HIV RNA controls to meet the
demand of the newly emerging viral load test market. In the future, the Company
expects to provide Quality Control Panels for use with tests that distinguish
among the subtypes of HIV, the serotypes of HCV, and the various strains of
Mycobacteria causing tuberculosis.
Enhance Technical Leadership. The Company seeks to expand its technical
capabilities by continually enhancing its strong scientific staff and
collaborating with other scientists worldwide, thus strengthening its reputation
in the area of quality control for infectious disease testing. The Company
maintains and enhances its technical leadership by participating in scientific
studies relevant to its products and services, and by making presentations at
scientific meetings on blood banking and infectious diseases. The Company's
scientists also publish articles in peer reviewed journals.
Capitalize on Complementary Business Operations. The Company intends to
capitalize on operational and marketing opportunities that arise out of its
activities in both infectious disease products and laboratory services. For
example, the Company conducts clinical trials for manufacturers of in vitro
diagnostic products, which allows the Company to maintain close contact with
test kit manufacturers and regulators, and enables the Company to evaluate new
technologies in various stages of development. The Company believes that the
reputation and experience of its laboratory and scientific staff, its large
number of unique Quality Control Panels, and its inventory of characterized
serum and plasma specimens assist the Company in marketing its clinical trial
services to its customers. Finally, the Company's specialty clinical laboratory
also affords the Company access to materials needed in the production of its
Quality Control Products and Diagnostic Components.
28
Pursue Strategic Acquisitions and Alliances. The Company intends to pursue
strategic acquisitions and alliances to expand its core product lines, to
strengthen its base in medical science and technology, and to secure sources of
blood supply. To date, the Company has acquired BTRL, a research and development
laboratory with a strong capability in molecular and cellular biology, and
BBI-NACL, formerly North American Laboratory Group Ltd., Inc., a microbiology
and immunology clinical laboratory specializing in the diagnosis of infectious
diseases, including tick-borne diseases. These acquisitions led to the
introduction in 1994 of the Company's first Quality Control Products for
molecular diagnostics. In October 1996, the Company entered into a strategic
alliance with BioSeq. Under the License Agreement, upon the earlier of payment
of the final installment of the Company's aggregate $1,482,500 investment and
December 31, 1997, the Company will be granted the worldwide right to use
technology which is being developed for DNA sequencing and analysis, a process
which may allow for more precise identification of infectious disease agents.
The Company believes that there may be additional acquisition and alliance
opportunities, such as blood donor centers in strategic locations and companies
with complementary technology or synergistic product lines, that would
strengthen its existing business.
PRODUCTS
The Company designs, develops and markets diagnostic products used for the
quality control, quality assurance and technical evaluation of test kits for the
laboratory diagnosis of infectious disease. The Company offers three product
groups: Quality Control Panels, Run Controls and Diagnostic Components.
The Company manufactures its products from human plasma and serum which are
obtained from nonprofit and commercial blood centers, primarily in the United
States. The Company has acquired and developed an inventory of approximately
50,000 individual blood units and specimens (with volumes ranging from 1 ml to
800 ml) which provides most of the raw material for its products.
QUALITY CONTROL PANELS
Quality Control Panels consist of blood products characterized by the
presence or absence of specific disease markers and a Data Sheet containing
comprehensive quantitative data useful for comparative analysis. These Quality
Control Products are designed for measuring overall test kit performance and
laboratory proficiency, as well as for training laboratory professionals. The
Company's Data Sheets are an integral part of its Quality Control Products.
These Data Sheets are created as the result of extensive testing of proposed
panel components in both the Company's laboratories and at major testing
laboratories on behalf of the Company in the United States and Europe, including
national public health laboratories, research and clinical laboratories and
regulatory agencies. These laboratories are selected based on their expertise in
performing the appropriate tests on a large scale in an actual clinical setting;
this testing process provides the Company's customers with the benefit that the
Quality Control Panels they purchase from the Company have undergone rigorous
testing in actual clinical settings. In addition, the Company provides
information on its Data Sheets on the reactivity of panel components in all FDA
licensed test kits and all leading European test kits for the target pathogen,
as well as for all other appropriate markers of this pathogen. For example, the
Company's HIV panel Data Sheets include anti-HIV by IFA, ELISA and western blot;
HIV antigen by ELISA; and HIV RNA by several molecular diagnostic procedures.
The Company's Data Sheets require significant time and scientific expertise to
prepare.
The Company first introduced Quality Control Panels in 1987. The Company
currently offers a broad range of Quality Control Panels that address a variety
of needs of manufacturers and regulators of test kits as well as blood banks,
hospitals, clinical laboratories and other end-users. Prices for the Company's
quality control seroconversion, performance and sensitivity panels range from
$450 to $2,000 each, and its qualification and OEM panels range from $100 to
$200 per panel. The following table describes the types of Quality Control Panel
products currently offered by the Company.
29
QUALITY CONTROL PANEL PRODUCTS
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION USE CUSTOMERS
------------ ----------- --- ---------
<S> <C> <C> <C>
Seroconversion Plasma samples Compare the Test kit
Panels collected from a clinical manufacturers and
single individual sensitivity of regulators
over a specific competing
time period showing manufacturers' test
conversion from kits, enabling the
negative to user to assess the
positive for sensitivity of a
markers of an test in detecting a
infectious disease developing
antigen/antibody
Performance A set of 10 to 50 Determine test kit Test kit
Panels serum and plasma performance against manufacturers and
samples collected all expected levels regulators
from many different of reactivities in
individuals and the evaluation of
characterized for new, modified and
the presence or improved test
absence of a methods
particular disease
marker
Sensitivity Panels Precise dilutions Evaluate the Test kit
of human plasma or low-end analytical manufacturers
serum containing a sensitivity of a
known amount of an test kit
infectious disease
marker as
calibrated against
international
standards
Qualification Dilutions of human Demonstrate the Clinical reference
Panels plasma or serum consistent laboratories, blood
manifesting a full lot-to-lot banks, and hospital
range of performance of test laboratories
reactivities in kits, troubleshoot
test kits for a problems, evaluate
specific marker proficiency, and
train laboratory
technicians
OEM Panels Custom-designed Train laboratory Custom designed
Qualification personnel on new with test kit
Panels for test kits or manufacturers and
regulators and test equipment regulators as an
kit manufacturers end-user product or
for distribution to for internal use
customers or for
internal use
</TABLE>
Seroconversion and Performance Panels are comprised of unique and rare
plasma specimens obtained from individuals during the short period of time when
the markers for a particular disease are converting from negative to positive.
As a result, the quantity of any such panel is limited, so that the Company must
replace these panels as they sell out with another panel comprised of different
specimens equally unique and rare. The Company believes that its inventory and
relationships with blood centers affords it a competitive advantage in acquiring
such plasma for replacement panels and developing new products to meet market
demand. There can be no assurance that the Company will be able to continue to
obtain such specimens. See "Risk Factors -- Difficulty in Obtaining Raw
Materials."
The Company believes that it offers its customers a broad range of Quality
Control Panel products to address the requirements of the complete life-cycle of
a test kit, from initial research and development, through the regulatory
approval process, test kit production, training, troubleshooting and routine use
by end-users. The Company further believes that its Data Sheets, an integral
part of all panel products, offer its customers in-depth information on a
particular test kit of interest. Quality
30
Control Panels currently span the immunologic markers for AIDS (i.e., HIV),
Hepatitis B and C, Lyme Disease and ToRCH (Toxoplasma, rubella, cytomegalovirus
and herpes simplex virus). New introductions this year include molecular
Performance Panels for HBV and HCV, qualification panels for HIV, HBV and HCV,
and additional Seroconversion Panels for HIV, HBV, and HCV.
ACCURUN(TM) RUN CONTROLS
End-users of test kits utilize Run Controls to confirm the validity of
results by monitoring test performance, thereby minimizing false negative test
results and improving error detection. Run controls consist of one or more
specimens of known reactivity that are tested together with donor or patient
samples in an assay to determine whether the assay is performing within the
manufacturer's specifications. Clinical laboratories generally process their
patient specimens in a batch processing mode, and typically include 25 to 100
specimens to be tested in each batch (a "run"). Large laboratories may perform
several runs per day, while smaller laboratories may perform only a single run
each day, or sometimes only several runs per week. A clinical laboratory using a
Run Control will place the Run Control product in a testing well or test-tube,
normally used for a specimen, and will test it in the same manner that it tests
the donor or patient specimens. It will then compare the results generated to an
acceptable range, determined by the user, to measure whether the other specimens
are being accurately tested. The Run Control result must be within the
acceptable range to be considered valid. This is often tracked visually using a
Levey-Jennings chart. Depending upon a particular laboratory's quality control
practices, it may use several Run Controls on each run or it may simply use a
Run Control in a single run at the beginning and end of the day.
The Company believes its Accurun(tm) product line provides the following
benefits to end-users:
* Helps to satisfy the requirements of Good Laboratory Practice.
* Tracks the accuracy and precision of test runs.
* Detects laboratory errors and identifies trends before they become a
problem.
* Monitors test kit performance, equipment and personnel.
* Helps to meet National Committee For Clinical Laboratory Standards
("NCCLS") for molecular and immunological diagnostic methods for
infectious disease quality control.
* Documents the validity of test results, day to day, week to week.
The Company introduced its first four Accurun(tm) Run Control products in
the fourth quarter of 1993 and has since developed and released for sale an
additional 24 Accurun(tm) products. A limited number of these products are
available for diagnostic purposes; the others currently are limited to research
use. See " -- Government Regulation." Current Accurun(tm) Run Control products
range in price from $15 to $45 per milliliter and are described in the following
table.
ACCURUN(TM) RUN CONTROLS
<TABLE>
<CAPTION>
CURRENT
NUMBER OF PRIMARY
PRODUCT LINE DESCRIPTION PRODUCTS CUSTOMER(S)
------------ ----------- -------- -----------
<S> <C> <C> <C>
Accurun(tm) 1-99 Multi-marker Run Control for 4 Blood Banks
immunological tests
Accurun(tm) 100-199 Single-marker Run Control 17 Hospitals and clinical
for immunological tests reference laboratories
Accurun(tm) 200-299 Multi-marker Run Control for 1 Research and specialty
molecular tests laboratories
Accurun(tm) 300-399 Single-marker Run Control 3 Research and specialty
for molecular tests laboratories
Accurun(tm) 800-899 Negative Run Control for 3 All laboratories
immunological and molecular
tests
</TABLE>
31
The Company's Accurun(tm) family of products is targeted at the emerging
market of end-users of infectious disease test kits. The Company believes that
it offers the most comprehensive line of Run Controls in the industry, and that
its Accurun(tm) products, in combination with its Quality Control Panel
products, provide an extensive line of products for quality assurance in
infectious disease testing. See "-- Sales and Marketing." The Company intends to
continue to expand its line of Accurun(tm) products, thereby providing its
customers with the convenience and cost effectiveness of a single supplier for
independent run controls. See "Risk Factors -- Undeveloped End-User Market For
Quality Control Products for Infectious Disease Test Kits."
The Company has received 510(k) clearance from the FDA to market its Accurun
1(R) line, for diagnostic purposes, and intends to apply for such clearance for
the remainder of its Accurun(tm) products. All of the Company's Accurun Run
Controls will require FDA premarket clearance or approval prior to being
marketed for diagnostic use. An application for clearance for diagnostic use for
one additional Accurun(tm) product has been submitted by the Company to the FDA,
and the Company anticipates that applications for approximately 16 additional
Accurun(tm) products will be prepared and submitted to the FDA by the end of
1997. Failure to obtain, or delays in obtaining, such clearance or approval
would adversely affect the Company's strategy of capitalizing on the end-user
market. See "Risk Factors -- Stringent Government Regulation" and "-- Government
Regulation."
DIAGNOSTIC COMPONENTS
Diagnostic Components are the individual materials supplied to infectious
disease test kit manufacturers and combined (often after further processing by
the manufacturer) with other materials to become the various fluid components of
the manufacturer's test kit. The Company supplies Diagnostic Components in four
product lines: Normal Human Plasma, Normal Human Serum, Basematrix, and
Characterized Disease State Serum and Plasma. Normal Human Plasma and Serum are
both the clear liquid portion of blood which contains proteins, antibodies,
hormones and other substances, except that the Serum product has had the
clotting factors removed. Basematrix, the Company's proprietary processed serum
product that has been chemically converted from plasma, is designed to be a
highly-stable, lower cost substitute for most Normal Human Serum and Plasma
applications. Characterized Disease State Serum and Plasma are collected from
specific blood donors pre-selected because of the presence or absence of a
particular disease marker. The Company often customizes its Diagnostic
Components by further processing the raw material to meet the specifications of
the test kit manufacturer. The Company's Diagnostic Components range in price
from $0.25 to $60 per milliliter, with the majority selling between $0.50 and $5
per milliliter.
The Company believes that it has several competitive advantages in
Diagnostic Components. Through its trained and experienced laboratory staff, the
Company is able to perform comprehensive in-house testing for a number of
markers in a particular material, and consequently is able to address the
demands of its customers. The Company's large inventory of approximately 50,000
specimens provides it with the flexibility to produce Diagnostic Components
efficiently and rapidly in response to customer requests. The Company believes
that its proprietary manufacturing knowledge enables it to manufacture stable,
high quality products to meet the demands of its worldwide customer base.
SERVICES
The Company seeks to focus its specialty laboratory services in both the
clinical reference laboratory testing and advanced research areas. The Company
concentrates its services in those areas of infectious disease testing which are
complementary to its quality control and diagnostic products businesses.
Specialty Clinical Laboratory Testing. The Company operates an independent
specialty clinical laboratory which performs both routine and sophisticated
infectious disease testing in microbiology, immunology and molecular biology,
with special emphasis in AIDS, Viral Hepatitis and Lyme Disease. The Company's
specialty clinical laboratory combines traditional microbiology, advanced
immunology, and current molecular diagnostic techniques, such as PCR, to detect
and identify microorganisms, their antigens and related antibodies, and their
nucleic acids (i.e., DNA and RNA). Customers include physicians, clinics,
hospitals and other clinical/research laboratories.
32
Contract Research. The Company offers a variety of contract research
services in molecular biology, cell biology and immunology to governmental
agencies, diagnostic test kit manufacturers and biomedical researchers.
Molecular biology services include DNA sequencing, recombinant DNA support,
probe labeling and custom PCR assays. Cell biology and immunology services
include sterility testing, virus infectivity assays, cultivations of virus or
bacteria from clinical specimens, preparation of viral or bacterial antigens or
nucleic acids, and production of antibodies. The Company is currently providing
research services for assessment of the efficiency of candidate HIV vaccines in
a monkey model system under two separate contracts with the National Institute
for Allergy and Infectious Disease ("NIAID"), a part of the National Institutes
of Health ("NIH"). Each of these contracts has a two year term which expires in
September 1997. In addition, since 1983, the Company, through its BTRL
subsidiary, has provided blood processing and repository services for the
National Cancer Institute ("NCI"), also a part of the NIH. The repository stores
over 2,000,000 specimens and processes or ships up to several thousand specimens
per week in support of various NIH cancer and virus research programs. While the
current NCI repository contract terminates in February 1997, the Company has
responded to a Request for Proposals by the United States government for a new
four year contract to replace this contract. There can be no assurance that any
of these contracts will be replaced with new contracts. See "Risk Factors --
Dependence on Key Customers."
Small Business Innovation Research ("SBIR") grants and other government
contracts similar to the ones described have enabled the Company to develop
technologies applicable to new product development and its specialty clinical
laboratory. For example, recent SBIR grants have enabled the Company to develop
PCR based assays for the detection of the nucleic acids of HIV, HCV and Lyme
Disease. Although the Company does not currently have any SBIR grants, it has
two pending applications for such grants and intends to continue to seek
government grants and contracts that further the Company's core technology and
commercial business. There can be no assurance that the Company will receive any
government research grants in the future.
Clinical Trials. The Company conducts clinical trials for domestic and
foreign test kit manufacturers. Test kit manufacturers must conduct such trials
to collect data for submission to the United States FDA and other regulatory
agencies. By providing this service, the Company is able to maintain close
contact with test kit manufacturers and regulators, and is able to evaluate new
technologies in various stages of development. The Company believes that the
reputation of its laboratory and scientific staff, its large number of Quality
Control Panels, and its inventory of characterized serum and plasma specimens
assist the Company in marketing its clinical trial services to its customers.
The Company has performed clinical trials for a number of United States and
foreign test kit manufacturers seeking to obtain FDA approval for their
infectious disease test kits.
Drug Screening Program. As a subcontractor for an NIH AIDS grant held by the
University of North Carolina at Chapel Hill, the Company has established an
anti-HIV drug screening program to test a large number of natural products
(largely plant derivatives) to determine whether they inhibit HIV replication in
an in vitro assay system. These in vitro assays are also offered as a service to
researchers and pharmaceutical companies who wish to test various candidate
anti-viral agents for anti-HIV activity.
RESEARCH AND DEVELOPMENT
The Company's research and development effort is focused on the development
of (i) new and improved Quality Control Products for the emerging end-user
market, (ii) new products for existing customers, (iii) Diagnostic Components
for use with test kits for both new test methodologies and new diseases, and
(iv) infectious disease testing services using PCR and other amplification
assays for AIDS, Viral Hepatitis, Lyme Disease and Chlamydia, among others. The
Company has approximately 20 full or part-time employees dedicated to its
research and development effort. For the six months ended June 30, 1996 the
Company increased spending on research and development as a percentage of
revenues compared to the same period ended June 30, 1995 and expects to continue
to increase such expenditures as a percentage of revenues for the next several
years. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations." The Company's research
scientists work closely with sales, marketing and manufacturing personnel to
identify and prioritize the development of new products and services.
33
The Company's product development activities center on the identification
and characterization of materials for the manufacture of new Quality Control
Products and the replacement of sold-out products. For example, during 1996, the
Company has introduced 10 new Seroconversion, Performance and Sensitivity Panel
products as well as 14 new Accurun(tm) Run Controls; in addition, during July
1996, the Company released its first Qualification Panel products. The Company
is developing new Quality Control Products for use with molecular diagnostic
tests for HIV, HCV and HBV. Recently the Company expanded its Quality Control
Product line beyond the retrovirus and Viral Hepatitis diagnostics area to
include sexually transmitted diseases (e.g., Syphilis), tick-borne diseases
(e.g., Lyme Disease), and respiratory and other infections (e.g., Tuberculosis)
and is continuing to develop new Quality Control Products for these and other
diseases. The Company has increased the number of Quality Control Products it
offers from approximately 20 in 1990 to approximately 150 products in 1996.
The Company is also developing new and improved infectious disease specialty
tests for Lyme Disease and other tick-borne diseases for use in its specialty
laboratory business. For example, the Company was among the first to develop
enzyme immunoassays and Western Blot assays for Lyme Disease. The Company is
also pursuing new applications of PCR technology to infectious disease
diagnostics, such as amplification assays for the pathogens of AIDS, Viral
Hepatitis, Lyme Disease and Chlamydia, and for the direct detection of other
infectious agents in blood, tissues and other body fluids.
From time to time in the past, the Company has funded a portion of its
research and development activities from grants provided by various agencies and
departments of the U.S. government. See "-- Services."
STRATEGIC ALLIANCES
University of North Carolina at Chapel Hill. The Company is directly
supporting a drug discovery program at UNC, in which a full-time research
scientist is working to develop synthetic derivatives of anti-HIV compounds that
have been discovered pursuant to the Company's joint collaboration with UNC.
This research scientist is also working to introduce modifications to these
derivatives that would make them more soluble, less toxic, or otherwise enhance
their anti-viral properties. UNC has licensed to the Company exclusive worldwide
rights to three series of patent applications filed by the Company and UNC with
respect to three classes of anti-HIV compounds. Two such compounds have
exhibited therapeutic indices in in vitro test model systems in excess of those
recorded for AZT under comparable test conditions. The Company is expending
approximately $100,000 per year for research and development relating to these
compounds. In addition, under this license, the Company will also have the
rights to any new anti-HIV compounds or derivatives developed in the course of
this sponsored research, provided the Company obtains certain regulatory
approvals from the FDA. See "-- Services."
Ajinomoto Co., Inc. The Company entered into an agreement with Ajinomoto
Co., Inc. in October 1995 pursuant to which the Company is performing research
regarding among other things, whether tests for certain amino acids in plasma
can be used to determine a person's immune status, particularly in chronic
fatigue syndrome. This project is funded by Ajinomoto and has a three year
budget of approximately $1,000,000. Discoveries and inventions arising from the
research will be owned by Ajinomoto, but the Company has the right of first
refusal to obtain certain exclusive licenses from Ajinomoto of any patented
technology arising from the research. The Company is entitled to certain
royalties based upon a percentage of sales of products arising out of the
research. This agreement expires in September 1998.
BioSeq, Inc. In October 1996, the Company entered into a strategic alliance
with BioSeq, an early stage biotechnology company that is developing a
technology that may, through the use of pressure, be able to more precisely
control chemical reactions. The Company believes that this technology may be
useful for sequencing, synthesizing and characterizing nucleic acids and
proteins, which may then allow for the more precise identification of infectious
disease agents.
The Company has agreed to purchase approximately 19% of the capital stock of
BioSeq for an aggregate of $1,482,500 in three installments. Of the $1,482,500,
$210,000 has been invested and $522,500 will be invested upon completion of the
Offering. The Company must make the remaining $750,000 installment if BioSeq
attains certain technical milestones by July 31, 1997. If such milestones are
not attained by BioSeq by July 31, 1997, the Company will have the option to
make the remaining $750,000 investment until December 31, 1997. See "Use of
Proceeds." The Company has price anti-dilution protection, pre-emptive rights
and the right to board representation, the last of which terminates if the
Company fails to make the second installment
34
under the Purchase Agreement. In addition, the Company was granted the right to
acquire additional shares of common stock of BioSeq for additional consideration
under certain conditions, provided that this right is not exercisable to the
extent it would cause the Company's ownership of BioSeq to equal or exceed 20%.
BioSeq has also agreed to engage the Company to perform a minimum of $100,000
and $150,000 of research and development services following the payment of the
second and third installments, respectively.
Under the License Agreement, upon the earlier of payment of the final
installment of the Company's investment and December 31, 1997, the Company will
be granted a worldwide right to use the BioSeq technology relating to sequencing
and analysis services. The License will be exclusive until BioSeq commences
selling on a commercial basis the equipment used in the DNA sequencing and
analysis process, at which time the License will become non-exclusive. The
License provides that the Company will pay BioSeq certain royalties based upon
net revenues arising out of the services performed by the Company with the
licensed technology.
SALES AND MARKETING
The Company's sales and marketing efforts are directed by a Senior Vice
President of Sales and Marketing who supervises 15 sales people and four other
full-time sales and marketing employees.
The Company's marketing strategy is focused upon addressing the needs of its
customers in the infectious disease testing market throughout the entire test
kit life-cycle, from initial research and development, through the regulatory
approval process and test kit production, to training, troubleshooting and
routine use by end-users such as clinical laboratories, hospitals and blood
banks. By serving its customers at all stages of the product life-cycle, the
Company expects to stay at the forefront of trends in infectious disease
testing, which in turn enables the Company to anticipate and respond to the
needs of the marketplace.
The Company recently has begun to focus its sales and marketing efforts on
the emerging end-user market for quality control products for infectious disease
test kits. To promote this objective, the Company is implementing a major
marketing platform, known as "Total Quality System" ("TQS"). TQS is a package of
Quality Control Products, including the Company's Accurun(tm) Run Controls,
which is designed to provide test kit end-users with the products needed in an
overall quality assurance program. These products enable laboratories to
evaluate each of the key elements involved in the testing process: the test kit,
laboratory equipment and laboratory personnel. The Company believes that TQS
effectively addresses the need for end-users to ensure the accuracy of their
test results. The Company intends to continue to expand its sales and marketing
activities with respect to its Accurun(tm) line of Run Control products. Since
the beginning of 1996, the Company has hired two new employees for the sales and
marketing of its Accurun(tm) line of products and expects to add six more direct
salespeople by the end of 1997.
The Company's products are currently sold through a combination of
telephone, mail, third party distributors and limited direct sales efforts.
Domestically, products are sold through an in-house tele-sales group consisting
of five sales representatives, two sales managers and one customer service
representative. Internationally, the Company distributes its products both
directly and through 17 independent distributors located in Japan, Australia,
South America, Southeast Asia, Israel and Europe. The Company's international
sales manager oversees the Company's foreign distributors. During the fiscal
years 1993, 1994, 1995 and the six months ended June 30, 1995 and 1996 the
Company's distributors accounted for 1.9%, 3.5%, 6.2%, 2.8% and 8.8% of the
Company's total revenue, respectively. The Company intends to further expand
sales through international distributors, although there can be no assurances
that it will be able to do so. See "Risk Factors -- Risks Associated with Export
Sales."
The Company's Specialty Clinical Laboratory Testing services are marketed
primarily through a direct domestic sales force consisting of seven sales
representatives managed by a sales director. The sales representatives are
located throughout the eastern and mid-western United States. They are supported
internally by a client services representative.
The Company emphasizes high quality products and services, technical
knowledge, and responsiveness to customer needs in its marketing activities for
both products and services. The Company educates its distributors, customers and
prospective customers about its products through a series of detailed marketing
brochures, technical bulletins and pamphlets, press releases and direct mail
pieces. These materials are supplemented by advertising campaigns in major
industry publications, technical presentations, and exhibitions at local,
national and international trade shows and expositions.
35
CUSTOMERS
The Company's customers for Quality Control Products and Diagnostic
Components comprise three major groups: (i) international diagnostics and
pharmaceutical manufacturing companies, such as Abbott Diagnostics, Behring,
Boehringer Mannheim, Chiron, Fujirebio, Hoffman LaRoche, Ortho Diagnostics
(Johnson and Johnson), Sanofi Diagnostics and Sorin Biomedica; (ii) regulatory
agencies such as the United States FDA, the British Public Health Laboratory
Service, the French Institut National de la Transfusion Sanguine, and the German
Paul Ehrlich Institute; and (iii) end-users of diagnostic test kits, such as
hospital clinical laboratories, public health laboratories and blood banks,
including the Swiss Red Cross, United Blood Services and Kaiser Permanente. In
1995, the Company sold products to approximately 100 diagnostics and
pharmaceutical manufacturers, 15 regulatory agencies, and 250 end-users. The
Company's Specialty Clinical Laboratory Testing services are sold to hospital
and clinical laboratories, blood banks, researchers and other health care
providers. The Company's Contract Research services are typically offered under
contracts to governmental agencies, diagnostic test kit manufacturers and
biomedical researchers. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
The Company does not have long-term contracts with its customers for Quality
Control Products and Diagnostic Components. The Company's products are sold to
its customers pursuant to purchase orders for discrete purchases. Although the
Company believes that its relationships with these customers are satisfactory,
termination of the Company's relationship with any one of such customers could
have a material adverse effect on the Company. See "Risk Factors -- Dependence
on Key Customers."
During the fiscal years 1993, 1994 and 1995, and the six months ended June
30, 1995 and 1996, sales to the Company's three largest customers accounted for
an aggregate of approximately 20% of the Company's net sales, although the
customers were not identical in each period and no one customer accounted for
more than 10% of net sales.
MANUFACTURING AND OPERATIONS
The Company manufactures and assembles substantially all of its products at
its facility in West Bridgewater, Massachusetts. The Company has computerized
purchasing, inventory, and test result and materials tracking systems in an
integrated operations management system, and believes that these systems are
adequate for its current level of production, but would require further
enhancements if the Company experiences substantial future growth. The Company
acquires raw materials from a variety of vendors and through a program of donor
recruitment, donor screening, product collection, product characterization and
donor management. All important materials have multiple sources of supply.
The Company's West Bridgewater facility contains environmentally-controlled
freezers and cold rooms, which are used to store raw materials for manufacturing
and finished products. More than 3,000 square feet of space in the West
Bridgewater facility is dedicated to freezers and cold rooms. The freezers and
cold rooms are monitored continuously and the Company maintains a natural gas
fired emergency generator in the event of a power outage.
The Company also operates a specialty clinical laboratory in New Britain,
Connecticut and a research and development laboratory in Rockville, Maryland.
See "-- Properties."
COMPETITION
The market for the Company's products and services is highly competitive.
Many of the Company's competitors are larger than the Company and have greater
financial, research, manufacturing, and marketing resources. Important
competitive factors for the Company's products include product quality, price,
ease of use, customer service and reputation. In a broader sense, industry
competition is based upon scientific and technical capability, proprietary
know-how, access to adequate capital, the ability to develop and market products
and processes, the ability to attract and retain qualified personnel, and the
availability of patent protection. To the extent that the Company's products and
services do not reflect technological advances, the Company's ability to compete
in those products and services could be adversely affected. See "Risk Factors --
Risk of Technological Change" and "-- Competition."
In the area of Quality Control Products, the Company competes in the United
States primarily with NABI (formerly North American Biologicals, Inc.) in Run
Controls and Quality Control Panel products and Blackhawk Biosystems Inc. in Run
Controls. In Europe, the Netherlands Red Cross has recently
36
begun offering several Run Control and panel products. The Company believes that
all three of these competitors currently offer a more limited line of products
than the Company, although there can be no assurance these companies will not
expand their product lines.
In the Diagnostic Components area, the Company competes against integrated
plasma collection and processing companies such as Serologicals, Inc. and NABI,
as well as smaller, independent plasma collection centers and brokers of plasma
products. In the Diagnostic Components area, the Company competes on the basis
of quality, breadth of product line, technical expertise and reputation.
The Company believes that it has competitive advantages in the quality
control products and diagnostic components industry. These include its access to
raw materials, technical know-how, broad product line and established reputation
among large diagnostics and pharmaceutical manufacturers, as well as regulatory
agencies.
In the Specialty Clinical Laboratory Testing services portion of the
Company's business, it competes with large national reference laboratories, such
as LabCorp of America, Corning Clinical Laboratories and SmithKline Beecham
Clinical Laboratories, as well as several independent regional laboratories,
hospital laboratories, government contract laboratories and large research
institutions. The Company believes that by focusing on the specialty clinical
laboratory market, it is able to offer its customers a higher value-added
service on the more complex diagnostic tests than the larger national reference
laboratories.
GOVERNMENT REGULATION
The manufacture and distribution of medical devices, including products
manufactured by the Company that are intended for in vitro diagnostic use, are
subject to extensive government regulation in the United States and in other
countries. See "Risk Factors -- Stringent Government Regulation."
In the United States, the Food, Drug, and Cosmetic Act ("FDCA") prohibits
the marketing of in vitro diagnostic products until they have been cleared or
approved by the FDA, a process that is time-consuming, expensive, and uncertain.
In vitro diagnostic products must be the subject of either a premarket
notification clearance (a "510(k)") or an approved premarket approval
application ("PMA"). With respect to devices reviewed through the 510(k)
process, a Company may not market a device for diagnostic use until an order is
issued by FDA finding the product to be substantially equivalent to a legally
marketed device. A 510(k) submission may involve the presentation of a
substantial volume of data, including clinical data, and may require a
substantial period of review. With respect to devices reviewed through the PMA
process, a Company may not market a device until FDA has approved a PMA
application, which must be supported by extensive data, including preclinical
and clinical trial data, literature, and manufacturing information to prove the
safety and effectiveness of the device.
The Company's Accurun Run Controls, when marketed for diagnostic use, have
been classified by the FDA as medical devices. The Accurun 1(R) Multi-Marker Run
Control, which include eight analytes, has been cleared through the 510(k)
process. The Company expects that, in the future, most of its products that need
FDA premarket review also will be reviewed through the 510(k) process. The FDA
could, however, require that some products be reviewed through the PMA process,
which generally involves a longer review period and the submission of more
information to FDA. There can be no assurance that the Company will obtain
regulatory approvals on a timely basis, if at all. Failure to obtain regulatory
approvals in a timely fashion or at all could have a material adverse effect on
the Company.
All of the Company's Quality Control Products, with the exception of Accurun
1(R), are marketed "for research use only," which do not require FDA premarket
clearance or approval, and not for diagnostic uses, which do require FDA
premarket clearance or approval. The labeling of these products limits their use
to research. It is possible, however, that some purchasers of these products may
use them for diagnostic purposes despite the Company's intended use. In these
circumstances, the FDA could allege that these products should have been cleared
or approved by the FDA prior to marketing, and initiate enforcement action
against the Company, which could have a material adverse effect on the Company.
Once cleared or approved, medical devices are subject to pervasive and
continuing regulation by the FDA, including, but not limited to, good
manufacturing practices ("GMP") regulations governing testing, control, and
documentation; and reporting of adverse experiences with the use of the device.
37
Ongoing compliance with GMP and other applicable regulatory requirements is
monitored through periodic inspections. FDA regulations require agency clearance
or approval for certain changes if they do or could affect the safety and
effectiveness of the device, including, for example, new indications for use,
labeling changes or changes in design or manufacturing methods. In addition,
both before and after clearance or approval, medical devices are subject to
certain export and import requirements under the FDCA. Product labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
instances, by the Federal Trade Commission. Products may be promoted by the
Company only for their approved use. Failure to comply with these and other
regulatory requirements can result, among other consequences, in failure to
obtain premarket approvals, withdrawal of approvals, total or partial suspension
of product distribution, injunctions, civil penalties, recall or seizures of
products and criminal prosecution.
The Company believes that its Quality Control Panels are not regulated by
the FDA because they are not intended for diagnostic purposes. The Company
believes that its Diagnostic Components, which are components of in vitro
diagnostic products, may be subject to certain regulatory requirements under the
FDCA and other laws administered by the FDA, but do not require that the Company
obtain a premarket approval or clearance. There can be no assurance, however,
that the FDA would agree or that the FDA will not adopt a different
interpretation of the FDCA or other laws it administers, which could have a
material adverse effect on the Company.
Laws and regulations affecting some of the Company's products are in effect
in many of the countries in which the Company markets or intends to market its
products. These requirements vary from country to country. Member states of the
European Economic Area (which is composed of the European Union members and the
European Free Trade Association members) are in the process of adopting various
product and services "Directives" to address essential health, safety, and
environmental requirements associated with the subject products and services.
The "Directives" cover both quality system requirements (ISO Series 9000
Standards) and product and marketing related requirements. In addition, some
jurisdictions have requirements related to marketing of the Company's products.
There can be no assurance that the Company will be able to obtain any regulatory
approvals required to market its products on a timely basis, or at all. Delays
in receipt of, or failure to receive such approvals, or the failure to comply
with regulatory requirements in these countries or states could lead to
compliance action, which could have a material adverse effect on the Company's
business, financial condition, or results of operations.
The Company's service-related business (clinical trials, infectious disease
testing, and contract research) is subject to other national and local
requirements. The Company's facilities are subject to review, inspection,
licensure or accreditation by some states, national professional organizations
(College of American Pathologists), and other national regulatory agencies
(Health Care Financing Administration). Studies to evaluate the safety or
effectiveness of FDA regulated products (primarily human and animal drugs or
biologics) must also be conducted in conformance with relevant FDA requirements,
including Good Laboratory Practice ("GLP") regulations, investigational new drug
or device regulations, Institutional Review Board ("IRB") regulations and
informed consent regulations.
CLIA prohibits laboratories from performing in vitro tests for the purpose
of providing information for the diagnosis, prevention or treatment of any
disease or impairment of, or the assessment of, the health of human beings
unless there is in effect for such laboratories a certificate issued by the U.S.
Department of Health and Human Services ("HHS") applicable to the category of
examination or procedure performed.
The Company currently holds permits issued by HHS (CLIA license), Centers
for Disease Control and Prevention (Importation of Etiological Agents or Vectors
of Human Diseases), the U.S. Department of Agriculture (Importation and
Transportation of Controlled Materials and Organisms and Vectors) and the U.S.
Nuclear Regulatory Commission (in vitro testing with byproduct material under
general license, covering the use of certain radioimmunoassay test methods).
The Company is also subject to government regulation under the Clean Water
Act, the Toxic Substances Control Act, the Resource Conservation and Recovery
Act, the Atomic Energy Act, and other national, state and local restrictions
relating to the use and disposal of biohazardous, radioactive and other
hazardous substances and wastes. The Company is an exempt small quantity
generator of hazardous waste
38
and has a U.S. Environmental Protection Agency identification number. The
Company is also registered with the U.S. Nuclear Regulatory Commission for use
of certain radioactive materials. All hazardous waste is manifested and disposed
of properly. The Company is also subject to various state regulatory
requirements governing the handling of and disposal of biohazardous, radioactive
and hazardous wastes. The Company has never been a party to any environmental
proceeding.
Internationally, some of the Company's products are subject to additional
regulatory requirements, which vary significantly from country to country. Each
country in which the Company's products and services are offered must be
evaluated independently to determine the country's particular requirements. In
foreign countries, the Company's distributors are generally responsible for
obtaining any required government consents.
INTELLECTUAL PROPERTY
None of the Company's Quality Control Products or Diagnostic Components have
been patented. The Company has decided to hold as trade secrets current
technology used to prepare Basematrix and other blood-based products. The
Company relies primarily on a combination of trade secrets and non-disclosure
and confidentiality agreements, and in certain limited circumstances, patents,
to establish and protect its proprietary rights in its technology and products.
There can be no assurance that others will not independently develop or
otherwise acquire the same, similar or more advanced trade secrets and know-how.
The Company has two United States patents and, jointly with UNC, has filed
three series of United States and foreign patent applications relating to
compounds, pharmaceutical compositions and therapeutic methods in connection
with the Company's drug discovery program at UNC. See "-- Services," and " --
Research and Development."
The Company has no reason to believe that its products and proprietary
methods infringe the proprietary rights of any other party. There can be no
assurance, however, that other parties will not assert infringement claims in
the future. See "Risk Factors -- Protection of Intellectual Property and
Proprietary Technology."
PROPERTIES
The Company's corporate offices and manufacturing facilities are located in
a two story, 22,500 square foot building in West Bridgewater, Massachusetts. The
Company owns and operates this building. The Company intends to use
approximately $1 million of the proceeds of this Offering to expand its
manufacturing capacity and to purchase necessary equipment at its West
Bridgewater site, and has submitted plans to local authorities for the
development of an additional 7,500 square feet, primarily for manufacturing
purposes. The Company anticipates that these renovations will begin this year.
The Company believes that following these renovations, its facility in West
Bridgewater will be sufficient to meet its foreseeable needs. See "Use of
Proceeds."
The Company leases its laboratory facilities in Rockville, Maryland and New
Britain, Connecticut. The Rockville facility contains 21,000 square feet and is
occupied under a five-year lease that is due to expire on June 30, 1997. The
Company is currently considering the exercise of its option to extend the lease
for an additional five years, as well as relocating its laboratory. The Company
believes that there is sufficient space available in the Rockville facility for
its current needs. The New Britain facility has 15,000 square feet, most of
which is dedicated to laboratory space. The lease is for five years and is due
to expire on July 30, 2000; the Company has an option to renew for an additional
five years.
EMPLOYEES
As of October 23, 1996 the Company employed 186 persons, all of whom were
located in the United States. Seventy-seven of these persons were employed in
West Bridgewater, Massachusetts, 59 in New Britain, Connecticut, and 50 at the
Rockville, Maryland site. None of the Company's employees is covered by a
collective bargaining agreement. The Company believes that it has a satisfactory
relationship with its employees.
39
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard T. Schumacher(1) 46 President; Chief Executive Officer and
Chairman of the Board
Kevin W. Quinlan(2) 46 Senior Vice President, Finance; Chief
Financial Officer; Treasurer and Director
Patricia E. Garrett, Ph.D. 53 Senior Vice President, Regulatory Affairs &
Strategic Programs
Mark M. Manak, Ph.D. 45 Senior Vice President, Research and
Development
Richard C. Tilton, Ph.D. 60 Senior Vice President, Specialty Laboratory
Services
Barry M. Warren 49 Senior Vice President, Sales & Marketing
Ronald V. DiPaolo, Ph.D. 52 Vice President of Operations
Francis E. Capitanio(2) 52 Director
Henry A. Malkasian(1) 79 Director
Calvin A. Saravis(1)(2) 66 Director
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
</TABLE>
Mr. Schumacher, the founder of the Company, has been the President since
1986, and Chief Executive Officer and Chairman since 1992. Mr. Schumacher served
as the Director of Infectious Disease Services for Clinical Science Laboratory,
a New England-based medical reference laboratory, from 1986 to 1988. From 1972
to 1985, Mr. Schumacher was employed by the Center for Blood Research, a
nonprofit medical research institute associated with Harvard Medical School. Mr.
Schumacher received a B.S. in zoology from the University of New Hampshire.
Mr. Quinlan, a Director of the Company since its founding, has been Senior
Vice President, Finance, Treasurer, and Chief Financial Officer since January
1993. From 1990 to December 1992, he was the Chief Financial Officer of ParcTec,
Inc. a New York-based leasing company. Mr. Quinlan served as Vice President and
Assistant Treasurer of American Finance Group, Inc. from 1981 to 1989 and was
employed by Coopers & Lybrand from 1975 to 1980. Mr. Quinlan is a certified
public accountant and received a M.S. in accounting from Northeastern University
and a B.S. in economics from the University of New Hampshire.
Dr. Garrett has been Senior Vice President, Regulatory Affairs & Strategic
Programs since 1988. From 1980 to 1987, Dr. Garrett served as the Technical
Director of the Chemistry Laboratory, Department of Laboratory Medicine at the
Lahey Clinic Medical Center. Dr. Garrett earned her Ph.D. from the University of
Colorado and was a postdoctoral research associate at Harvard University, Oregon
State University, Massachusetts Institute of Technology and the University of
British Columbia.
Dr. Manak has served as Senior Vice President, Research and Development
since 1992. From 1980 to 1992, he served as Senior Research Scientist, Molecular
Biology, of Biotech Research Laboratories. Dr. Manak received his Ph.D. in
biochemistry from the University of Connecticut and completed postdoctoral
research work in biochemistry/virology at Johns Hopkins University.
40
Dr. Tilton has served as Senior Vice President, Specialty Laboratory
Services since the Company's acquisition of BBI-North American Clinical
Laboratories, Inc. in 1993 and was one of the founders of BBI-NACL, where he
served as President from 1989 to 1993. Dr. Tilton has 25 years of experience in
university hospital clinical microbiology laboratories and is board certified in
medical and public health microbiology. Dr. Tilton received his Ph.D. in
microbiology from the University of Massachusetts.
Mr. Warren has served as Senior Vice President, Sales & Marketing since
1993. From 1985 to 1993, Mr. Warren served as Group Director of Marketing of
Organon Teknika, a manufacturer of infectious disease reagents. Mr. Warren
received an M.A. in political science from Loyola University of Chicago and a
B.A. from Loyola University.
Dr. DiPaolo has been Vice President of Operations since 1993. Prior to
joining the Company, Dr. DiPaolo served as Vice President and General Manager of
the Biomedical Products Division of Collaborative Research, a medical research
products company. From 1975 to 1986 he was employed by DuPont New England
Nuclear, an in vitro test kit manufacturer. Dr. DiPaolo received his Ph.D. in
biochemistry from Massachusetts Institute of Technology and later completed
postdoctoral research at the Eunice Shriver Center in Waltham, Massachusetts.
Mr. Capitanio has served as a Director since January 1986. He has been
President, Treasurer and Director of Diatech Diagnostics Inc. (formerly
Immunotech Corporation), an in vitro diagnostics company and a wholly owned
subsidiary of Healthcare Technologies Ltd., since 1980. Mr. Capitanio received
an M.B.A. from the Sloan School of Management, Massachusetts Institute of
Technology and a B.S. in metallurgy from Massachusetts Institute of Technology.
Mr. Malkasian has served as a Director since the Company's organization in
1978. Mr. Malkasian is a practicing attorney-at-law and a member of the firm
Malkasian & Budge in Massachusetts. He received his J.D. degree from Harvard
University School of Law and a B.A. degree from Clark University.
Dr. Saravis has served as a Director since 1978. Since 1971, Dr. Saravis has
been a Senior Research Associate at the Mallory Institute of Pathology and since
1979 he has been a Senior Research Associate at the Cancer Research Institute --
New England Deaconess Hospital. Since 1984, Dr. Saravis has had an appointment
as an Associate Professor of Surgery (biochemistry) at Harvard Medical School
and an Associate Research Professor of Pathology at Boston University School of
Medicine. Dr. Saravis received his Ph.D. in immunology and serology from Rutgers
University.
In August 1990 the Board of Directors established a Compensation Committee
currently composed of Messrs. Schumacher, Saravis and Malkasian. The functions
of the Compensation Committee include presentation and recommendations to the
Board of Directors on compensation levels for officers and directors and
issuance of stock options to the Board of Directors, employees and affiliates.
In August 1990 the Board of Directors established an Audit Committee
currently composed of Messrs. Capitanio, Quinlan and Saravis. The functions of
the Audit Committee include recommending to the Board of Directors the
engagement of the independent accountants, reviewing the scope of internal
controls and reviewing the implementation by management of recommendations made
by the independent accountants.
The Company's Board of Directors is divided into three classes, with the
classes being elected for staggered three-year terms. At each annual meeting of
stockholders, directors will be elected to succeed those in the class whose term
then expires, and each elected director shall serve for a term expiring at the
third succeeding annual meeting of stockholders after such director's election,
and until the director's successor is elected and qualified. Thus, directors
stand for election only once in three years. Executive officers serve at the
discretion of the Board of Directors.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their
services. Each director is eligible to receive options to purchase Common Stock
under the Company's 1987 Non-Qualified Stock Option Plan. As of October 4, 1996,
options to purchase an aggregate of 249,750 shares have been granted to
directors of the Company under this Plan. During fiscal 1995, options to
purchase an aggregate of 15,000 shares of Common Stock were granted to the
Directors as follows: 5,000 shares to Mr. Capitanio, 5,000 shares to Mr.
Malkasian, and 5,000 shares to Dr. Saravis and no shares to either Mr.
Schumacher or Mr. Quinlan.
41
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the fiscal year ended
December 31, 1995 of each of the Chief Executive Officer and the six most highly
compensated officers of the Company (the "Named Executive Officers"), none of
whom received any bonuses during the fiscal year ended December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FOR FISCAL 1995
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY($) COMPENSATION($)
--------------------------- --------- ---------------
<S> <C> <C>
Richard T. Schumacher....................................................... $166,676 $ 2,008(1)
President and Chief Executive Officer
Kevin W. Quinlan............................................................ 120,615 1,650(2)
Senior Vice President, Finance and Chief Financial Officer
Patricia E. Garrett, Ph.D. ................................................. 92,353 1,650(2)
Senior Vice President, Regulatory Affairs & Strategic Programs
Mark M. Manak, Ph.D. ....................................................... 102,753 --
Senior Vice President, Research & Development
Richard C. Tilton, Ph.D. ................................................... 111,924 6,000(3)
Senior Vice President, Specialty Laboratory Services
Barry M. Warren............................................................. 113,454 1,500(2)
Senior Vice President, Sales & Marketing
Ronald V. DiPaolo, Ph.D. ................................................... 86,614 1,500(2)
Vice President of Operations
- ----------------
(1) Consists of personal usage of Company vehicle, and includes the value of
premiums paid for a term life insurance policy.
(2) Consists of automobile allowance, discontinued as of March 31, 1995.
(3) Consists of automobile allowance.
</TABLE>
The following table sets forth the aggregate number and value of options
exercisable and unexercisable by the Named Executive Officers during fiscal
1995. No stock options were granted to, or exercised by, any of the Named
Executive Officers in fiscal 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/31/95(#) AT 12/31/95($)(1)
NAME AND PRINCIPAL POSITION EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
--------------------------- ---------------------------------------------------
<S> <C> <C>
Richard T. Schumacher .............................. 127,500 2,500 $ 988,500 $ 16,250
President and Chief Executive Officer
Kevin W. Quinlan ................................... 58,000 10,000 403,750 65,000
Senior Vice President, Finance and Chief
Financial Officer
Patricia E. Garrett, Ph.D. ......................... 41,250 1,250 334,125 5,625
Senior Vice President, Regulatory Affairs &
Strategic Programs
Mark M. Manak, Ph.D. ............................... 26,250 8,750 170,625 56,875
Senior Vice President, Research & Development
Richard C. Tilton, Ph.D. ........................... 17,500 17,500 105,000 105,000
Senior Vice President, Specialty Laboratory
Services
Barry M. Warren .................................... 7,500 7,500 33,750 33,750
Senior Vice President, Sales & Marketing
Ronald V. DiPaolo, Ph.D. ........................... 25,000 1,000 183,900 4,500
Vice President of Operations
- -----------------------
</TABLE>
(1) There was no public trading market for the Common Stock as of December 31,
1995. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $9.00 per share, less the
applicable exercise price.
42
EMPLOYMENT AGREEMENTS
None of the Company's employees are subject to employment agreements with
the Company.
STOCK PLANS
1987 Non-Qualified Stock Option Plan: The Company adopted the 1987
Non-Qualified Stock Option Plan (the "Non-Qualified Plan") to provide an
opportunity to employees, officers, directors and consultants employed by or
affiliated with the Company or any of its subsidiaries to acquire stock in the
Company, to provide increased incentives to such persons to promote the success
of the Company's business and to encourage such persons to become affiliated
with the Company through the granting of options to acquire its capital stock.
Any employee of the Company or of a subsidiary of the Company, including
officers, as well as directors of the Company and consultants or providers of
services to the Company, are eligible to receive nonqualified stock options
under the Non-Qualified Plan. A total of 897,600 shares of Common Stock has been
reserved for issuance under the Non-Qualified Plan.
The Non-Qualified Plan is required to be administered by a Committee
consisting of at least one member appointed by the Board of Directors, and after
the completion of this Offering, consisting of at least two independent members
of the Board of Directors. The Committee currently consists of Richard
Schumacher, Kevin Quinlan and Henry Malkasian. The Committee has the authority
and discretion to determine those persons to whom options shall be granted under
the Non-Qualified Plan, to determine the number of shares to be granted, to
establish the terms and conditions upon which options may be exercised or
transferred, to alter any restrictions or conditions on the options and to make
all other determinations necessary or desirable for the administration of the
Non-Qualified Plan. The exercise price for options granted under the
Non-Qualified Plan is determined by the Committee, but is in no event less than
the par value of the Common Stock. Options granted under the Non-Qualified Plan
continue in effect for such period as the Committee determines. The
Non-Qualified Plan terminates as of December 16, 1997.
As of October 4, 1996, options to purchase 749,850 had been issued pursuant
to the Non-Qualified Plan at exercise prices ranging from $.25 to $6.00,
including an aggregate of 249,750 shares to the Company's directors, Richard
Schumacher, Kevin Quinlan, Francis Capitanio, Henry Malkasian, and Calvin
Saravis.
Employee Stock Option Plan: The purpose of the Employee Stock Option Plan
(the "Employee Plan") is to provide increased incentives to employees, to
encourage new employees to become affiliated with the Company and to associate
more closely the interests of such persons with those of the Company. The
Employee Plan permits the issuance of options to purchase up to 750,000 shares
of Common Stock in the form of incentive stock options as defined in Section 422
of the Internal Revenue Code of 1986, as amended, and non-qualified stock
options. The Employee Plan is currently administered by a Committee consisting
of at least one member appointed by the Board of Directors, and after the
completion of this Offering, shall consist of at least two independent members
of the Board of Directors. The exercise price of stock options is determined by
the Committee, but is in no event less than par value, and the exercise price of
incentive stock options may not be less than the fair market value of the Common
Stock on the date of grant (or, in the case of holders of 10% or more of the
outstanding Common Stock, 110% of the fair market value on such date). The
Committee also determines the vesting schedule, number of shares and other terms
of the options. As of October 4, 1996, options to purchase 184,537 shares of
Common Stock at exercise prices ranging from $6.00 to $8.50 per share were
outstanding under the Employee Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Schumacher and
Malkasian and Dr. Saravis, each of whom has received options to purchase shares
of Common Stock. See "-- Director Compensation" and "-- Stock Plans."
LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITY; INDEMNIFICATION AGREEMENTS
The Company's Amended and Restated Articles of Organization eliminate,
subject to certain exceptions, the personal liability of directors to the
Company or its stockholders for monetary damages for breaches of fiduciary
duties as directors. The Restated Articles do not provide for the elimination of
or any limitation on the personal liability of a director for (i) any breach of
the director's duty of loyalty
43
to the Company or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
certain unauthorized dividends, redemptions or distributions as provided under
Section 61 of the Massachusetts Business Corporation Law, (iv) certain loans of
assets of the Company to any of its officers or directors as provided under
Section 62 of the Massachusetts Business Corporation Law or (v) any transaction
from which the director derived an improper personal benefit. This provision of
the Amended and Restated Articles of Organization will limit the remedies
available to a stockholder in the event of breaches of any director's duties to
such stockholder or the Company.
The Company's Amended and Restated Articles of Organization provide that the
Company may, either in its By-laws or by contract, provide for the
indemnification of directors, officers, employees and agents, by whomever
elected or appointed, to the full extent permitted by law, as it may be amended
from time to time.
The Company intends to enter into indemnification agreements with each of
the directors and officers. The indemnification agreements will provide that the
Company will pay certain amounts incurred by a director or officer in connection
with any civil or criminal action or proceeding and specifically including
actions by or in the name of the Company (derivative suits) where the
individual's involvement is by reason of the fact that he is or was a director
or officer. Such amounts include, to the maximum extent permitted by law,
attorney's fees, judgments, civil or criminal fines, settlement amounts and
other expenses customarily incurred in connection with legal proceedings. Under
the indemnification agreements, a director or officer will not receive
indemnification if he is found not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Company.
CERTAIN TRANSACTIONS
Registration Rights. The Company is a party to a Registration Rights
Agreement dated June 5, 1990, as amended (the "Registration Agreement"), with G
& G Diagnostics Limited Partnership I and G & G Diagnostics Limited Partnership
II (together, "G & G") pursuant to which G & G has certain rights to have its
shares of Common Stock registered by the Company under the Securities Act. A
total of 366,670 shares of Common Stock (the "Registrable Shares") held by G & G
or subject to warrants held by G & G may be registered under the Registration
Agreement. If the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other
securityholders, G & G is entitled to notice of the registration and is entitled
to include, at the Company's expense, the Registrable Shares therein, provided,
among other conditions, that the underwriters have the right to limit the number
of such shares included in the registration. In addition, G & G may require the
Company at its expense on no more than two occasions, to file a registration
statement under the Securities Act with respect to its Registrable Shares, and
the Company is required to use its best efforts to effect a registration,
subject to certain conditions and limitations. Further, G & G may require the
Company at its expense to register the Registrable Shares on Form S-3 when such
form becomes available to the Company, subject to certain conditions and
limitations. G & G waived its respective registration rights for this Offering.
See "Principal Stockholders."
Warrant Exercise. In May 1995, G & G Diagnostics Limited Partnership II
exercised warrants to purchase 40,000 shares of the Company's Common Stock for
an exercise price of $2.50 per share or an aggregate amount of $100,000.
Indemnification Contracts. The Company intends to enter into indemnification
agreements with each of its directors and officers. See "Management --
Limitation of Officers' and Directors' Liability; Indemnification Agreements."
44
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of October 4, 1996
concerning the beneficial ownership of Common Stock by each director, certain
executive officers, all executive officers and directors as a group, and each
person known by the Company to be the beneficial owner of 5% or more of the
Company's Common Stock. This information is based upon information received from
or on behalf of the named individuals. Unless otherwise noted, the beneficial
owners listed have sole voting and investment power over the shares listed.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES
BENEFICIALLY OWNED(1)
---------------------
NUMBER OF SHARES BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
5% Stockholders
Irwin J. Gruverman(2) 412,920 14.71% 9.37%
c/o G & G Diagnostics Limited Partnership I
30 Ossipee Road
Newton, MA 02164
G & G Diagnostics Limited Partnership II(3) 153,333 5.69 3.57
Directors and Senior Executives
Richard T. Schumacher(4)(5) 1,013,957 35.89 22.91
Henry A. Malkasian(4)(6) 311,510 11.54 7.24
Kevin W. Quinlan(4) 93,100 3.37 2.13
Patricia E. Garrett(4) 55,000 2.01 1.27
Richard C. Tilton(4) 62,500 2.29 1.44
Mark M. Manak(4) 55,500 2.03 1.28
Barry M. Warren(4) 37,500 1.37 *
Ronald V. DiPaolo(4) 28,000 1.03 *
Calvin A. Saravis(4) 23,000 * *
Francis E. Capitanio(4) 8,750 * *
All Executive Officers and Directors as a group
(10 Persons)(4)(5)(6)(7) 1,688,817 54.04 35.74
- -------------------
* Less than 1% of the outstanding Common Stock.
(1) The number of shares of Common Stock outstanding used in calculating the
percentage for each listed person includes the shares of Common Stock
underlying options or warrants held by such person.
(2) Includes 283,333 shares held of record by three limited partnerships
(including G & G Diagnostics Limited Partnership II), of which Mr.
Gruverman is the general partner, 10,000 shares subject to options held by
Mr. Gruverman and 106,670 shares subject to warrants held by one of three
limited partnerships.
(3) The address for G & G Diagnostics Limited Partnership II is the same as
that for Mr. Gruverman. Mr. Gruverman is the beneficial owner of the shares
of Common Stock held of record by G & G Limited Partnership II.
(4) Includes the following shares subject to options: Mr. Capitanio -- 8,750,
all of which are exercisable within 60 days after October 4, 1996; Dr.
DiPaolo -- 28,000, 25,000 of which are exercisable within 60 days after
October 4, 1996; Dr. Garrett -- 45,000, 41,250 of which are exercisable
within 60 days after October 4, 1996; Mr. Quinlan -- 73,000, 58,000 of
which are exercisable within 60 days after October 4, 1996; Mr. Malkasian
-- 10,000, all of which are exercisable within 60 days after October 4,
1996; Dr. Manak -- 37,500, 26,250 of which are exercisable within 60 days
after October 4, 1996; Dr. Saravis -- 23,000, all of which are exercisable
within 60 days after October 4, 1996; Mr. Schumacher --135,000, 127,500 of
which are exercisable within 60 days after October 4, 1996; Dr. Tilton --
37,500, 26,250 of which are exercisable within 60 days after October 4,
1996; and Mr. Warren -- 37,500, 7,500 of which are exercisable within 60
days after October 4, 1996.
(5) Includes 50,000 shares held of record by Mr. Schumacher's spouse and 20,000
shares held of record by Mr. Schumacher as custodian for his daughter.
Excludes an aggregate of 144,067 shares held by other relatives of Mr.
Schumacher as to which Mr. Schumacher disclaims beneficial ownership.
(6) Includes 12,000 shares held of record by Mr. Malkasian's son, 5,000 shares
held by Mr. Malkasian's daughter, 53,850 shares held by Mr. Malkasian's
spouse and 30,000 shares held by Mr. Malkasian as trustee in trust for each
of his son and his daughter.
(7) Includes 4,000 shares held of record by Mr. Manak as custodian for his
daughter.
</TABLE>
45
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $0.01 par value (referred to herein as "Common Stock") and
1,000,000 shares of Preferred Stock, $.01 par value (referred to herein as
"Preferred Stock").
COMMON STOCK
As of October 4, 1996, there were 2,690,064 shares of Common Stock
outstanding, held of record by approximately 130 stockholders.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders and are entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors from funds legally available therefor. The holders of Common Stock do
not have cumulative voting rights in the election of directors. Upon liquidation
or dissolution of the Company, the holders of Common Stock are entitled to
receive all assets available for distribution to the stockholders. The Common
Stock has no preemptive or other subscription rights, and there are no
conversion rights or redemption or sinking fund provisions with respect to such
shares. All of the shares of Common Stock are, and the shares to be sold in this
Offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, none of which are outstanding. The Board of Directors may, without future
action of the stockholders of the Company, issue the Preferred Stock in one or
more classes or series and fix the rights and preferences thereof, including the
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any class or
series, or the designations of such class or series. The voting and other rights
of the holders of Common Stock may be subject to and adversely affected by, the
rights of holders of any Preferred Stock that may be issued in the future.
MASSACHUSETTS ANTI-TAKEOVER AND RELATED STATUTES
Control Share Acquisition Law. Under Chapter 110D of the Massachusetts
General Laws governing "control share acquisitions," any stockholder of certain
publicly-held Massachusetts corporations who acquires certain ranges of voting
power -- one-fifth or more but less than one-third of all voting power,
one-third or more but less than a majority of all voting power, or a majority or
more of all voting power -- may not (except in certain transactions) vote such
stock unless the stockholders (excluding the shares held by the interested
stockholders) of the corporation so authorize. As permitted by Chapter 110D, the
Company's Amended and Restated By-laws include a provision which excludes the
Company from the applicability of that statute upon completion of the Offering.
Business Combination Statute. Chapter 110F of the Massachusetts General
Laws, entitled "Business Combinations with Interested Shareholders," applies to
publicly-held Massachusetts corporations with 200 or more stockholders of
record. Generally, this statute prohibits such Massachusetts corporations from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the date of the transaction in which the person
becomes an interested stockholder unless (a) the interested stockholder obtains
the approval of the corporation's board of directors prior to becoming an
interested stockholder; (b) the interested stockholder acquires at least 90% of
the voting stock of the corporation (excluding shares held by certain affiliates
of the corporation) outstanding at the time he becomes an interested
stockholder; or (c) the business combination is both approved by the board of
directors and authorized at an annual or special meeting of stockholders by the
holders of at least two-thirds of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder). An
"interested stockholder" is a person who, together with
46
affiliates and associates, owns (or at any time within the prior three years did
own) 5% or more of the outstanding voting stock of the Corporation. A "business
combination" includes, among other transactions, a merger, stock or asset sale
and other transactions resulting in a financial benefit to the stockholder. The
Amended and Restated Articles of Organization and Restated By-laws of the
Company do not expressly provide for opting out of the provisions of Chapter
110F. As a result, the application of this statute to the Company after
completion of this Offering could discourage or make it more difficult for any
person or group of persons to attempt to obtain control of the Company. The
Company may at any time amend its Amended and Restated Articles of Organization
or Restated By-laws to elect not to be governed by Chapter 110F, by a vote of
the holders of a majority of its voting stock, but such an amendment would not
be effective for twelve months and would not apply to a business combination
with any person who became an interested stockholder prior to the date of the
amendment.
CERTAIN PROVISIONS OF THE COMPANY'S AMENDED AND RESTATED ARTICLES OF
ORGANIZATION AND AMENDED AND RESTATED BY-LAWS
The Company's Amended and Restated Articles of Organization include several
provisions which may render more difficult an unfriendly tender offer, proxy
contest, merger or other change in control of the Company. See "Risk Factors --
Possible Adverse Effect of Certain Anti-takeover Provisions."
Preferred Stock. The Amended and Restated Articles of Organization permit
the Board of Directors to issue preferred stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof, without further
vote or action by the stockholders. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control of the Company
and may adversely affect the voting and other rights of the holders of Common
Stock. The Company currently has no plans to issue any preferred stock.
Classification of Board of Directors. The Amended and Restated Articles of
Organization provide for the classification of the Company's Board of Directors
into three classes, with the classes being elected for staggered three-year
terms. At each annual meeting of stockholders, directors will be elected to
succeed those in the class whose term then expires, and each elected director
shall serve for a term expiring at the third succeeding annual meeting of
stockholders after such director's election, and until the director's successor
is elected and qualified. Thus, directors stand for election only once in three
years. This provision also restricts the ability of stockholders to enlarge the
Board of Directors. Changes in the number of Directors may be effected by a vote
of a majority of the Continuing Directors (as defined in the Amended and
Restated Articles of Organization) or by the stockholders by vote of at least
80% of the shares of the Company's voting stock outstanding, voting as a single
class. Under this provision, Directors may only be removed with or without cause
by the affirmative vote of the holders at least 80% of the combined voting power
of the outstanding shares of the Company's voting stock, voting together as a
single class, or upon the vote of a majority of the Continuing Directors.
Fair Price Provision. The Amended and Restated Articles of Organization
contain a "Fair Price Provision" that is intended to protect stockholders who do
not tender their shares in a takeover bid by guaranteeing them a minimum price
for their shares in any subsequent attempt to purchase such remaining shares at
a price lower than the acquiror's original acquisition price. The Fair Price
Provision requires the affirmative vote of the holders of at least 80% of the
Company's outstanding voting stock for certain business combinations with a
Related Person, unless specified price criteria and procedural requirements are
met or the business combination is approved by a majority of the Continuing
Directors.
Indemnification Provision. The Amended and Restated Articles of Organization
provide that the Company may, either in its By-laws or by contract, provide for
the indemnification of directors, officers, employees and agents, by whomever
elected or appointed, to the full extent permitted by applicable law, as it may
be amended from time to time. See "-- Limitation of Officers' and Directors'
Liability; Indemnification Agreements."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Securities
Transfer & Trust, Inc.
47
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect the market price of the Common Stock.
Upon completion of this Offering, the Company will have 4,290,064 shares of
Common Stock outstanding (4,530,064 shares if the Underwriters' overallotment
option is exercised in full). Of those shares, the 1,600,000 shares sold in this
Offering (1,840,000 shares if the Underwriters' overallotment option is
exercised in full) will be freely tradeable without restriction (except as to
affiliates of the Company) or further registration under the Securities Act. The
remaining 2,690,064 shares of Common Stock were sold by the Company in reliance
on exemptions from the registration requirements of the Securities Act and are
"restricted securities" within the meaning of Rule 144 under the Securities Act.
All of the Company's directors and executive officers and certain other
stockholders, holding in the aggregate 2,555,244 shares of Common Stock, have
agreed not to offer to sell, sell or otherwise dispose of any shares of Common
Stock prior to the expiration of 180 days from the date of this Prospectus.
Oscar Gruss & Son Incorporated may, in its sole discretion and at any time
without prior notice, release all or any portion of the shares of Common Stock
subject to the lockup agreements.
Beginning 91 days after the date of this Prospectus, 6,475 shares of Common
Stock will be eligible for sale in the public market without registration,
subject to certain volume and other limitations, pursuant to Rule 144 or Rule
701 under the Securities Act of 1933, as amended (the "Securities Act") and an
additional 122,571 shares will be eligible for sale without such restrictions.
Following the expiration of the 180-day lockup period, an additional 1,643,197
shares of Common Stock will be eligible for sale in the public market without
registration, subject to certain volume and other limitations, pursuant to Rule
144 or Rule 701 under the Securities Act and an additional 734,425 shares will
be eligible for sale without such restrictions. The remaining shares of Common
Stock held by existing stockholders will become eligible for sale under Rule 144
or otherwise at various times thereafter. All shares of Common Stock outstanding
on the date of this Prospectus will be eligible for sale to certain qualified
institutional buyers in accordance with Rule 144A under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company, may sell in
the open market within any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then-outstanding shares of the Company's
Common Stock or (ii) the average weekly trading volume in the over-the-counter
market during the four calendar weeks preceding such sale, provided that a
minimum of two years has elapsed between the later of the date of acquisition of
the securities from the issuer or from an affiliate of the issuer. The holding
period of shares of a non-affiliate for this purpose includes the holding period
of all prior non-affiliate holders, provided that if an affiliate has held such
shares at any time, the holding period shall commence upon the sale to a
non-affiliate by the last affiliate to hold the shares. Sales under Rule 144 are
also subject to certain limitations on the manner of sale, notice requirement
and availability of current public information about the Company. Under Rule
144(k), a non-affiliate who holds restricted securities and who has not been
affiliated with the Company during the three-month period preceding the proposed
sale thereof may sell such securities without regard to conditions imposed by
Rule 144 if at least three years have elapsed from the sale of such securities
by the Company or any affiliate. The Securities and Exchange Commission has
proposed amendments to Rule 144, including an amendment which would reduce the
waiting period to one year.
Under Rule 701 of the Securities Act, persons who purchased shares pursuant
to an employee stock purchase program or upon exercise of options granted prior
to the effective date of this Offering are entitled, subject to certain
conditions and limitations of Rule 701, to sell such shares 90 days after the
effective date of this Offering in reliance upon Rule 144, without regard to the
holding period requirement of Rule 144 and, in the case of non-affiliates,
without compliance with the public information, volume limitation or notice
provisions of Rule 144.
The Company intends to register under the Securities Act shortly after the
consummation of the offering an aggregate of 1,647,600 shares of Common Stock
issued or issuable upon exercise of employee stock options granted under the
Non-Qualified Plan and the Employee Plan, including 934,387 shares issuable upon
exercise of such options outstanding on the date of this Prospectus. Two of the
Company's stockholders and the holder of a warrant to purchase Common Stock have
the right to cause the Company to register their shares under the Securities Act
and to include their shares in certain future registrations of securities
effected by the Company under the Securities Act. An aggregate of 627,650 shares
of Common Stock, including 226,670 shares of Common Stock issuable upon exercise
of outstanding warrants are covered by such registration rights. See "Risk
Factors -- Shares Eligible for Future Sale," "Certain Transactions --
Registration Rights" and "Principal Stockholders."
48
UNDERWRITING
The Underwriters named below, for whom Oscar Gruss & Son Incorporated and
Kaufman Bros., L.P. are acting as the Representatives (the "Representatives"),
have severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company the number of shares of
Common Stock set forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ------
<S> <C>
Oscar Gruss & Son Incorporated
Kaufman Bros., L.P.
---------
TOTAL 1,600,000
=========
</TABLE>
The Underwriting Agreement provides that the several Underwriters are
obligated to purchase all of the 1,600,000 shares of Common Stock offered by the
Underwriters hereby (other than shares which may be purchased under the
over-allotment option) if any are purchased. The Representatives have advised
the Company that the Underwriters propose to offer the shares to the public
initially at the public offering price set forth on the cover page of this
Prospectus, that the Underwriters may allow to selected dealers a concession of
$_____ per share and that such dealers may reallow a concession of $_____ per
share to certain other dealers. After the initial public offering, the offering
price and the concessions may be changed by the Representatives. The
Representatives have informed the Company that the Underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, expiring at the close
of business on the 30th day after the date of the Underwriting Agreement, to
purchase up to 240,000 additional shares of Common Stock at the public offering
price less underwriting discounts and commissions, all as set forth on the cover
page of this Prospectus. The Underwriters may exercise the option only to cover
over-allotments, if any, in the sale of shares of Common Stock in this Offering.
To the extent that the Underwriters exercise the option, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them as shown in the foregoing table bears to the 1,600,000 shares of Common
Stock offered hereby.
The Company has agreed to pay to the Representatives a non-accountable
expense allowance of one percent of the gross proceeds of the Offering ($144,000
if the Underwriters' over-allotment option is not exercised and $165,600 if the
Underwriters' overallotment option is exercised in full, at an assumed public
offering price of $9.00 per share), of which $40,000 has been paid to date. If
the Offering is not consummated, the Representatives will return to the Company
any unused portion of the pre-paid expense allowance. The Company has also
agreed to pay all expenses in connection with registering or qualifying the
Common Stock offered hereby for sale under the laws of the states in which the
Common Stock is sold by the Underwriters (including expenses of counsel retained
for such purposes by the Underwriters) as well as certain expenses associated
with information meetings.
The Company has agreed to sell to the Representatives, or their designees,
warrants (the "Underwriters' Warrants") to purchase 160,000 shares of the
Company's Common Stock at an aggregate purchase price of $______. The exercise
price per Underwriters' Warrant, subject to anti-dilution adjustment, is equal
to 135% of the public offering price per share of Common Stock offered hereby.
The Underwriters' Warrants expire on the fifth anniversary of the effective date
of the Offering. The Underwriters' Warrants may not be transferred or exercised
for one year from the date of this Prospectus, except for transfers to officers
of the Representatives or members of the underwriting or selling group and/or
their officers or
49
partners, if any. The Underwriters' Warrants become exercisable during the
four-year period commencing one year from the date of this Prospectus (the
"Warrant Exercise Term"). During the Warrant Exercise Term, the holders of the
Underwriters' Warrants are given, at nominal cost, the opportunity to profit
from an increase in the market price of the Company's Common Stock. The Company
has granted the Representatives certain demand and "piggyback" registration
rights with respect to the Underwriters' Warrants. Demand registration rights
will expire five years from the effective date of the Offering, and the Company
shall be required to effect such registration on one occasion only. "Piggyback"
registration rights will terminate seven years from the effective date of the
Offering.
Except as set forth below, the Company, its officers and directors, and
certain of its stockholders, who will hold an aggregate of 2,555,244 shares
after this Offering, have agreed that they will not, directly or indirectly,
offer, sell, offer to sell, contract to sell, grant any option to purchase or
otherwise sell or dispose of any shares of Common Stock or other capital stock
of the Company or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock of the
Company for a period of 180 days after the date of this Prospectus without the
prior written consent of Oscar Gruss & Son Incorporated on behalf of the
Underwriters. Oscar Gruss & Son Incorporated may, in its sole discretion and at
any time without prior notice, release all or any portion of the shares of
Common Stock subject to these "lock-up" agreements.
Prior to this Offering, there has not been any public market for the Common
Stock. Consequently, the initial public offering price of the Common Stock
offered hereby will be determined through negotiations between the Company and
the Representatives. Among the factors to be considered in making such
determination will be the prevailing market conditions, the Company's fiscal and
operating history and condition, the Company's prospects and the prospects of
its industry, the management of the Company, the market price for securities for
companies in businesses similar to that of the Company and the recent trading
activity and prices of shares of common stock on the Nasdaq National Market. The
estimated initial public offering price range set forth on the cover page of
this Prospectus is subject to change as a result of market conditions and other
factors. See "Risk Factors -- No Assurance of Public Market; Volatility of Stock
Price."
Kaufman Bros., L.P. became registered as a broker-dealer in July 1995 and
has participated in a limited number of public offerings as an underwriter. See
"Risk Factors -- Lack of Underwriting History."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with this Offering will be passed upon
for the Company by Brown, Rudnick, Freed & Gesmer, Boston, Massachusetts.
Certain legal matters in connection with the Common Stock offered hereby will be
passed upon for the Underwriters by Fulbright & Jaworski L.L.P., New York, New
York. A member of Brown, Rudnick, Freed & Gesmer, counsel to the Company, is
Clerk and is the owner of 12,000 shares of the Company's Common Stock.
EXPERTS
The consolidated balance sheets of Boston Biomedica, Inc. and Subsidiaries
as of December 31, 1994 and 1995 and the consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995, included in this prospectus, have been included herein
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For
50
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance where such
contract or document is filed as an exhibit to the Registration Statement,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. A copy of the Registration Statement may be
inspected without charge at the offices of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at Seven World Trade Center, 13th Floor, New York, New York 10048, and at 500
West Madison Street, Northwestern Atrium Center, Suite 1400, Chicago, Illinois
60661-2511. Copies of materials can also be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains registration statements, reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
The Company intends to distribute to its stockholders annual reports
containing consolidated financial statements audited by its independent
accountants and will make available copies of quarterly reports for the first
three quarters of each fiscal year containing unaudited consolidated financial
information.
51
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Coopers & Lybrand L.L.P., Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June
30, 1996 (unaudited) F-3
Consolidated Statements of Operations for the years ended December 31, 1993,
1994, and 1995 and for the six months ended June 30, 1995 (unaudited) and June
30, 1996 (unaudited) F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994, and 1995 and for the six months ended June
30, 1996 (unaudited) F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994, and 1995 and for the six months ended June 30, 1995
(unaudited) and June 30, 1996 (unaudited) F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
BOSTON BIOMEDICA, INC.:
We have audited the accompanying consolidated balance sheets of Boston
Biomedica, Inc. and Subsidiaries as of December 31, 1994 and 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Boston
Biomedica, Inc. and Subsidiaries as of December 31, 1994 and 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 12, 1996, except as to the information
in the first paragraph of Note 11,
for which the date is September 10, 1996
F-2
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
------------ -------------
1994 1995 ACTUAL PRO FORMA
---- ---- ------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 89,129 $ 11,463 $ 10,548 $ 10,548
Accounts receivable, less allowances of $94,723 in 1994,
$142,372 in 1995 and $133,579 in 1996 2,259,842 3,075,870 2,866,401 2,866,401
Inventories (Notes 1 & 3) 3,609,516 3,676,851 3,865,219 3,865,219
Prepaid expense and other 156,117 254,199 294,646 294,646
Deferred income taxes (Note 7) 101,880 110,766 213,538 213,538
---------- --------- ---------- ----------
Total current assets 6,216,484 7,129,149 7,250,352 7,250,352
---------- --------- ---------- ----------
Property and equipment, net (Notes 1 & 4) 1,724,420 2,614,982 2,625,117 2,625,117
OTHER ASSETS:
Notes receivable and other 22,079 83,422 79,037 79,037
Goodwill and other intangibles, net (Notes 1 & 2) 112,521 100,820 92,777 92,777
---------- --------- ---------- ----------
134,600 184,242 171,814 171,814
---------- --------- ---------- ----------
TOTAL ASSETS $ 8,075,504 $9,928,373 $10,047,283 $10,047,283
=========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long term debt (Note 6) $ 242,006 $ 436,509 $ 490,126 $ 490,126
Accounts payable 787,406 745,216 815,946 815,946
Accrued compensation 361,911 395,755 488,223 488,223
Other accrued expenses 139,052 199,334 127,712 127,712
Deferred revenue -- 523,401 831,244 831,244
---------- --------- ---------- ----------
Total current liabilities 1,530,375 2,300,215 2,753,251 2,753,251
---------- --------- ---------- ----------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities (Note 6) 3,179,526 4,215,501 2,797,581 2,797,581
Deferred rent 186,860 141,068 107,832 107,832
Deferred income taxes (Note 7) 137,520 84,641 157,899 157,899
COMMITMENTS AND CONTINGENCIES (Note 8)
REDEEMABLE COMMON STOCK (Note 11)
$.01 par value; 117,647 shares authorized, issued and
outstanding -- -- 898,503 --
STOCKHOLDERS' EQUITY (Note 10):
Common stock, $.01 par value; authorized 15,000,000
shares in 1994, 1995 and 1996; issued and outstanding
2,578,865 in 1994; issued 2,640,417 in 1995;
issued and outstanding 2,572,417 in 1996 actual and
2,690,064 pro forma 25,789 26,404 25,724 26,901
Additional paid-in capital 2,612,500 2,798,620 2,717,700 3,615,026
Retained earnings 402,934 505,924 588,793 588,793
---------- --------- ---------- ----------
3,041,223 3,330,948 3,332,217 4,230,720
Less treasury stock, at cost -- 80,000 shares -- (144,000) -- --
---------- --------- ---------- ----------
Total stockholders' equity 3,041,223 3,186,948 3,332,217 4,230,720
---------- --------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,075,504 $9,928,373 $10,047,283 $10,047,283
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-3
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------ -------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Product sales $ 3,942,328 $ 5,981,378 $ 6,621,631 $ 3,024,629 $ 3,945,759
Services 5,214,688 4,741,376 5,649,099 2,539,851 2,982,624
---------- --------- ---------- ---------- ----------
Total revenue 9,157,016 10,722,754 12,270,730 5,564,480 6,928,383
COSTS AND EXPENSES:
Cost of product sales 2,087,771 3,194,217 3,564,241 1,646,594 2,006,833
Cost of services 3,965,154 3,415,777 4,167,625 1,960,315 2,249,610
Research and development 278,859 469,358 375,712 159,035 361,619
Selling and marketing 894,202 1,191,573 1,339,792 637,567 915,289
General and administrative 1,619,331 2,047,256 2,315,814 1,056,590 1,088,448
---------- --------- ---------- ---------- ----------
Total operating costs and expenses 8,845,317 10,318,181 11,763,184 5,460,101 6,621,799
---------- --------- ---------- ---------- ----------
Income from operations 311,699 404,573 507,546 104,379 306,584
Interest expense, net 178,640 243,694 335,899 164,569 168,469
---------- --------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item 133,059 160,879 171,647 (60,190) 138,115
(Provision) benefit (for) from income taxes
(Notes 1 & 7) (40,473) (64,351) (68,657) 24,034 (55,246)
---------- --------- ---------- ---------- ----------
Income (loss) before extraordinary item 92,586 96,528 102,990 (36,156) 82,869
---------- --------- ---------- ---------- ----------
Extraordinary item-gain on elimination of debt
(Notes 6 & 7), net of income taxes of $33,157 49,736 -- -- -- --
---------- --------- ---------- ---------- ----------
Net income (loss) $ 142,322 $ 96,528 $ 102,990 $ (36,156) $ 82,869
============ ============ ============ ============ ===========
Income (loss) per share:
Before extraordinary gain $ 0.04 $ 0.04 $ 0.04 $ (0.01) $ 0.03
Extraordinary gain 0.02 -- -- -- --
---------- --------- ---------- ---------- ----------
Net income (loss) $ 0.06 $ 0.04 $ 0.04 $ (0.01) $ 0.03
============ =========== =========== ============ ==========
Weighted average common and common equivalent
shares outstanding 2,437,725 2,587,137 3,151,477 2,597,590 3,252,643
============ =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-4
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------
ADDITIONAL TOTAL
$.01 PAR PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES VALUE CAPITAL EARNINGS STOCK EQUITY
------ ----- ------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 2,280,040 $ 22,800 $ 1,635,830 $ 164,084 -- $ 1,822,714
Issuance of common stock 201,298 2,013 711,318 -- -- 713,331
Stock options and warrants exercised 33,000 330 65,420 -- -- 65,750
Conversion of note payable 10,690 107 17,532 -- -- 17,639
Net income -- -- -- 142,322 -- 142,322
---------- --------- ---------- ---------- -------- ----------
BALANCE, December 31, 1993 2,525,028 25,250 2,430,100 306,406 -- 2,761,756
Issuance of common stock 29,862 299 139,403 -- -- 139,702
Stock options and warrants exercised 23,975 240 30,197 -- -- 30,437
Tax benefit of stock options exercised -- -- 12,800 -- -- 12,800
Net income -- -- -- 96,528 -- 96,528
---------- --------- ---------- ---------- -------- ----------
BALANCE, December 31, 1994 2,578,865 25,789 2,612,500 402,934 -- 3,041,223
Issuance of common stock 8,535 85 58,160 -- -- 58,245
Stock options and warrants exercised 47,200 472 117,068 -- -- 117,540
Conversion of note payable 5,817 58 9,542 -- -- 9,600
Treasury stock purchased -- 80,000 shares -- -- -- -- $ (144,000) (144,000)
Tax benefit of stock options exercised -- -- 1,350 -- -- 1,350
Net income -- -- -- 102,990 -- 102,990
---------- --------- ---------- ---------- -------- ----------
BALANCE, December 31, 1995 2,640,417 26,404 2,798,620 505,924 (144,000) 3,186,948
Stock options and warrants exercised
(unaudited) 12,000 120 62,280 -- -- 62,400
Issuance of treasury stock -- 80,000 shares
(unaudited) (80,000) (800) (143,200) -- 144,000 --
Net income (unaudited) -- -- -- 82,869 -- 82,869
---------- --------- ---------- ---------- -------- ----------
BALANCE, June 30, 1996 (unaudited) 2,572,417 $ 25,724 $ 2,717,700 $ 588,793 -- $ 3,332,217
========== ========== =========== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-5
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------ -------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 142,322 $ 96,528 $ 102,990 $ (36,156) $ 82,869
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Depreciation and amortization 301,004 360,512 441,356 202,693 280,426
Provision for doubtful accounts 22,956 102,099 181,084 53,643 77,145
Deferred rent 99,708 5,908 (45,792) (12,556) (33,236)
Deferred income taxes 42,323 (42,798) (61,765) (74,809) (29,514)
Tax benefit of stock options exercised -- 12,800 1,350 -- --
Extraordinary item-gain on elimination of debt (49,736) -- -- -- --
Changes in operating assets and liabilities:
Accounts receivable (215,270) (529,157) (997,112) 11,403 132,324
Note receivable and other assets (17,002) (3,720) (61,343) (12,962) 4,385
Inventories (950,715) (567,420) (67,335) 77,857 (188,368)
Prepaid expenses 25,410 (3,500) (98,082) (79,496) (40,447)
Accounts payable 11,875 (86,130) (42,190) 35,834 70,730
Accrued expenses 160,021 100,767 94,126 (60,639) 20,846
Deferred revenue -- -- 523,401 -- 307,843
---------- --------- ---------- ---------- ----------
Net cash (used in) provided by operating
activities (427,104) (554,111) (29,312) 104,812 685,003
---------- --------- ---------- ---------- ----------
CASH FLOWS FOR INVESTING ACTIVITIES:
Additions to property and equipment (460,591) (404,639) (1,316,217) (215,542) (282,518)
Purchase of intangible assets -- -- (4,000) -- --
Net assets of acquisitions (net of cash
acquired) (389,703) -- -- -- --
---------- --------- ---------- ---------- ----------
Net cash used in investing activities (850,294) (404,639) (1,320,217) (215,542) (282,518)
---------- --------- ---------- ---------- ----------
CASH FLOWS FOR FINANCING ACTIVITIES:
Proceeds from notes payable 1,107,392 1,734,425 1,517,867 191,990 226,300
Proceeds from redeemable common stock, net -- -- -- -- 898,503
Proceeds of common stock issued, net 765,081 170,139 175,785 103,126 62,400
Repayments of long-term debt (613,199) (887,989) (277,789) -- (1,590,603)
Purchase of treasury stock -- -- (144,000) (144,000) --
---------- --------- ---------- ---------- ----------
Net cash (used in) provided by financing
activities 1,259,274 1,016,575 1,271,863 151,116 (403,400)
---------- --------- ---------- ---------- ----------
(DECREASE) INCREASE IN CASH: (18,124) 57,825 (77,666) 40,386 (915)
Cash, beginning of period 49,428 31,304 89,129 89,129 11,463
---------- --------- ---------- ---------- ----------
Cash, end of period $ 31,304 $ 89,129 $ 11,463 $ 129,515 $ 10,548
=========== ========== =========== ============ ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH
ACTIVITIES:
Conversion of note payable to common stock $ 17,639 -- $ 9,600 $ 9,600 --
SUPPLEMENTAL INFORMATION:
Income taxes paid $ 10,689 $ 33,718 $ 168,994 $ 129,100 $ 85,000
Interest paid $ 163,831 $ 254,133 $ 331,495 $ 163,735 $ 178,328
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-6
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND 1995 IS UNAUDITED.)
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Boston Biomedica, Inc. ("BBI") and Subsidiaries (together, the "Company")
provide infectious disease diagnostic products, contract research and specialty
infectious disease testing services to the in-vitro diagnostic industry,
government agencies, blood banks, hospitals and other health care providers
worldwide.
Significant accounting policies followed in the preparation of these
consolidated financial statements are as follows:
(i) Principles of Consolidation
The consolidated financial statements include the accounts of BBI and its
wholly-owned subsidiaries, Biotech Research Laboratories, Inc. ("BTRL") and
BBI-North American Clinical Laboratories, Inc. ("BBI-NACL"). All significant
intercompany accounts and transactions have been eliminated in the
consolidation.
(ii) Reclassification
Certain amounts included in the prior year's financial statements have been
reclassified to conform to the current presentation.
(iii) Use of Significant Estimates
To prepare the financial statements in conformity with generally accepted
accounting principles, management is required 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. In
particular, the Company records reserves for estimates regarding the
collectability of accounts receivable. Actual results could differ from the
estimates and assumptions used by management.
(iv) Revenue Recognition
Product revenues are recognized as sales upon shipment of the products or,
for specific orders at the request of the customer, on a bill and hold basis
after completion of manufacture. All bill and hold transactions meet specified
revenue recognition criteria which include normal billing, credit and payment
terms, and transfer to the customers of all risks and rewards of ownership.
Accounts receivable as of December 31, 1995 and June 30, 1996 include bill and
hold receivables of $179,000 and $85,000, respectively. There were no such
receivables as of December 31, 1993 and 1994.
The Company periodically enters into barter transactions whereby the Company
exchanges inventory for testing services. Revenue on these transactions are
recognized when both the products have been shipped and the testing services
have been completed and are recorded at the estimated fair market value of the
inventory based upon standard Company prices. The revenue recognized on these
transactions for the years ended December 31, 1993, 1994 and 1995 and for the
six months ended June 30, 1995 and 1996 was $30,000, $192,000, $213,000,
$126,000 and $191,000, respectively.
Services are recognized as revenue upon completion of tests for specialty
laboratory services.
Revenue under long-term contracts, including funded research and development
contracts, is recorded under the percentage of completion method, wherein costs
plus profit is recorded as service revenue and billed monthly as the work is
performed. Certain customers make advance payments that are deferred until
revenue recognition is appropriate. Unbilled amounts for fee retainage are
included in accounts receivable at
F-7
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND 1995 IS UNAUDITED.)
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
December 31, 1994, 1995, and June 30, 1996, and are immaterial. When the current
contract estimates indicate a loss, provision is made for the total anticipated
loss. The Company does not believe there are any material collectability issues
associated with these receivables.
Total revenue related to funded research and development contracts was
approximately $1,721,000, $660,000, $728,000, $278,000 and $598,000 for the
years ended December 31, 1993, 1994 and 1995 and for the six months ended June
30, 1995 and 1996, respectively. Total contract costs associated with these
agreements were approximately $1,392,000, $511,000, $575,000, $219,000 and
$553,000 for the years ended December 1993, 1994 and 1995 and for the six months
ended June 30, 1995 and 1996, respectively.
(v) Research and Development Costs
Research and development costs are expensed as incurred.
(vi) Inventories
Inventories are stated at the lower of average cost or net realizable value
and include material, labor and manufacturing overhead.
(vii) Property and Equipment
Property and equipment are stated at cost. For financial reporting purposes,
depreciation is recognized using accelerated and straight-line methods,
allocating the cost of the assets over their estimated useful lives ranging from
five years to ten years for certain manufacturing and laboratory equipment, and
fifteen years for the building. Upon retirement or sale, the cost and related
accumulated depreciation of the asset are removed from the books. Any resulting
gain or loss is credited or charged to income.
(viii) Goodwill and Intangibles
Goodwill results from excess of the purchase prices over the net assets of
BTRL and BBI-NACL acquired and is amortized on a straight line basis over ten
years. Other intangibles primarily consist of patents, licenses, and
intellectual property rights and are amortized over five to ten years.
(ix) Income Taxes
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred taxes arise from temporary differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse. A valuation allowance is provided for net deferred tax assets if,
based on the weighted available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. Tax credits are
recognized when realized using the flow through method of accounting.
(x) Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally cash and accounts receivable. The
Company places its cash in federally chartered banks, each of which is insured
up to $100,000 by the Federal Deposit Insurance Corporation. Concentration of
credit risk with respect to accounts receivable is limited to certain customers
to whom the Company
F-8
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND 1995 IS UNAUDITED.)
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
makes substantial sales. The Company does not require collateral from its
customers. To reduce risk, the Company routinely assesses the financial strength
of its customers and, as a consequence, believes that its trade accounts
receivable credit risk exposure is limited.
(xi) Interim Consolidated Financial Statements
The consolidated financial statements as of June 30, 1996 and for the six
months ended June 30, 1995 and 1996 and related footnote information are
unaudited and have been prepared on a basis substantially consistent with the
audited consolidated financial statements, and, in the opinion of management,
include all adjustments (consisting of only normal recurring adjustments)
necessary for fair presentation of the results of these interim periods. The
results of the six months ended June 30, 1996 are not necessarily indicative of
the results to be expected for the entire year.
(xii) Deferred Revenue
Deferred revenue consists of payments received from customers in advance of
services performed.
(xiii) Computation of Income (Loss) Per Share
Net income (loss) per common share is computed based upon the weighted
average number of common shares and common equivalent shares (using the treasury
stock method) outstanding after certain adjustments described below. Common
equivalent shares consist of common stock options and warrants outstanding. In
accordance with Securities and Exchange Commission Staff Accounting Bulletin No.
83, all common, redeemable common, and common equivalent shares issued during
the twelve month period prior to the proposed date of the initial filing of the
Registration Statement have been included in the calculation as if they were
outstanding for all periods using the treasury stock method and assuming an
initial public offering price of $9.00 per share. Fully diluted net income
(loss) per common share is not presented as it does not differ from primary
earnings per share.
(xiv) Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121").
SFAS 121 requires that an impairment loss be recognized for long-lived assets
and certain identified intangibles when the carrying amount of these assets may
not be recoverable. The Company has adopted SFAS 121 effective in 1996 and the
adoption did not have a material impact on the financial statements.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation," which becomes
effective for fiscal years beginning after December 15, 1995. SFAS 123
establishes new financial accounting and reporting standards for stock-based
compensation plans. However, entities are allowed to elect whether to measure
compensation expense for stock-based compensation under SFAS 123 or APB No. 25,
"Accounting for Stock Issued to Employees." The Company has elected to continue
to account under APB No. 25 and will make the required pro forma disclosures of
net income and earnings per share as if the provisions of SFAS 123 had been
applied in its December 31, 1996 financial statements. The potential impact of
adopting this standard on the Company's pro forma disclosures of net income and
earnings per share has not been quantified at this time.
(xv) Pro Forma Presentation (Unaudited)
As discussed further in Note 11, completion of a public offering will
terminate the redemption feature of the Redeemable Common Stock and cause its
reclassification into 117,647 shares of common stock. The unaudited pro forma
balance sheet has been prepared assuming the reclassification of the Redeemable
Common Stock into common stock as of June 30, 1996.
F-9
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND 1995 IS UNAUDITED.)
(2) ACQUISITION
Effective January 1, 1993, North American Laboratory, Inc., a Massachusetts
corporation and wholly-owned subsidiary of BBI, acquired the net assets of North
American Laboratory Group, Ltd., Inc. from its founder and chief scientific
officer, who remains in this same capacity. During 1995, the name was changed to
BBI-North American Clinical Laboratories, Inc. BBI-NACL is a specialty
infectious disease testing laboratory providing testing services to hospitals
and other health care providers. The purchase price was $425,000 in cash
representing $375,038 of net tangible assets (including cash of $35,297) and
$49,962 of goodwill and other intangibles.
(3) INVENTORIES
The Company purchases human plasma and serum from various private and
commercial blood banks. Upon receipt, such purchases generally undergo
comprehensive testing, and associated costs are included in the value of raw
materials. Most plasma is manufactured into Basematrix and other diagnostic
components to customer specifications. Plasma and serum with the desired
antibodies or antigens are sold or manufactured into Quality Control Panels,
Accurun(tm) run controls, and reagents ("Finished Goods"). Panels and reagents
are unique to specific donors and/or collection periods, and require substantial
time to characterize and manufacture due to stringent technical specifications.
Panels play an important role in diagnostic test kit development, licensure and
quality control. Panels are manufactured in quantities sufficient to meet
expected user demand which may exceed one year.
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1994 1995 JUNE 30, 1996
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials $ 1,548,560 $ 1,298,131 $ 1,272,687
Work-in-process 551,280 565,667 597,922
Finished goods 1,509,676 1,813,053 1,994,610
---------- ---------- ----------
$ 3,609,516 $ 3,676,851 $ 3,865,219
=========== =========== ===========
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Laboratory equipment $1,442,349 $1,630,872
Management information systems 609,923 834,768
Office equipment 249,544 332,496
Automobiles 176,315 178,465
Leasehold improvements 300,341 108,892
Land, building and improvements -- 941,175
--------- ---------
2,778,472 4,026,668
Less accumulated depreciation 1,054,052 1,411,686
--------- ---------
Net book value $1,724,420 $2,614,982
========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1993, 1994 and 1995
and the six months ended June 30, 1995 and 1996 was $286,456, $345,228,
$425,655, $194,236 and $272,383, respectively.
F-10
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND 1995 IS UNAUDITED.)
(5) REVENUE FROM SIGNIFICANT CUSTOMERS AND EXPORT SALES
The Company performs contract research and certain services under contracts,
subcontracts and grants from United States Government Agencies, primarily the
National Institutes of Health ("NIH"). Revenue from such contracts, subcontracts
and grants was approximately $2,707,000 in 1993, $1,677,000 in 1994, and
$1,628,000 in 1995.
Export sales accounted for approximately $1,411,000, or 15% of consolidated
revenue in 1993; $2,279,000, or 21% in 1994; $3,104,000, or 25% in 1995; and
$1,523,000, or 27%, and $1,877,000, or 27% for the six months ended June 30,
1995 and 1996, respectively.
(6) LONG TERM DEBT
In August 1995, the Company's revolving line of credit ("Revolver") was
increased to $3,500,000 and the due date extended to June 30, 1997. In July
1996, the due date of the Company's Revolver was extended to June 30, 1998, and
the interest rate reduced to prime plus 1/2 %. In addition, the Company borrowed
$200,000 under a five-year term loan approved in 1994 ($170,370 outstanding at
December 31, 1995), $100,000 under a five-year term loan, and $123,700 under a
$350,000 five year term loan facility for equipment acquisitions approved in
1995 ("New Term"). As of December 31, 1995, the Company had additional borrowing
capacity available under the New Term facility equal to $226,300. The Company
borrowed this amount prior to the facility expiration date of May 2, 1996. In
July 1996, the Company received approval for a $250,000, five year equipment
facility loan from its bank due July 31, 2001 at a rate of prime plus 1%.
Borrowings under the Revolver are limited to 80% of eligible accounts
receivable plus the lesser of 40% of inventory or $1,500,000. The Company had
approximately $657,000 and $2,028,000 available under it's Revolver as of
December 31, 1995 and June 30, 1996, respectively. Amounts outstanding under the
Revolver bear interest at the lender's base rate plus 1% (9.75% at December 31,
1995 and 9.25% at June 30, 1996) and are collateralized by all of the Company's
assets and a $2 million life insurance policy of an officer/stockholder.
The Revolver contains covenants regarding the Company's debt-to-equity ratio
and certain minimum debt service coverage ratios. The Revolver further provides
for restrictions on the payment of dividends, limitations on the acquisition of
property and equipment, limitations on additional borrowings, and certain
minimum stock ownership levels by the officer/stockholder referred to above.
In December 1995, the Company purchased its corporate headquarters and
manufacturing facility in West Bridgewater, MA from its former landlord at a
price of $806,800 including closing costs, and borrowed $750,000 from its bank
to finance the purchase. See also Note 4.
On June 30, 1993, the Company exercised its option to pre-pay the
acquisition note in connection with the 1992 purchase of BTRL at a substantial
discount from the balance due, resulting in an extraordinary gain of $49,736
($82,893 minus taxes of $33,157).
During 1993, convertible debt in the amount of $17,639 was converted into
10,690 shares of common stock at a price of $1.65 per share. During 1995,
convertible debt in the amount of $9,600 was converted into 5,817 shares of
common stock at a price of $1.65 per share.
F-11
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND 1995 IS UNAUDITED.)
(6) LONG TERM DEBT -- (CONTINUED)
At December 31, 1994 and 1995, and June 30, 1996, the Company had the following
debt outstanding:
<TABLE>
<CAPTION>
JUNE 30,
1994 1995 1996
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Revolving Line of Credit Agreement due June 30, 1998 $2,533,860 $2,784,307 $1,397,884
Note payable to a bank, due in monthly principal
payments of $17,687 through October 1998 with
interest fixed at 9.01%. Collateralized by all of the
assets of the Company 813,625 601,375 495,250
Note payable to a bank, due in monthly principal payments
of $3,704 through October 1999 with interest at prime
rate plus 1.0%. Collateralized by all of the assets of
the Company -- 170,370 148,148
Note payable to a bank, due in monthly principal payments
of $1,667 through December 2000 with interest at 8.22%.
Collateralized by all of the assets of the Company -- 100,000 91,667
Note payable to a bank, with interest only due until May
2, 1996, and thereafter 54 consecutive equal monthly
principal payments of $6,863 commencing June 18, 1996.
Interest is at prime rate plus 1.0%. Collateralized by
all of the assets of the Company -- 123,700 343,137
Note payable to a bank, due in 84 fixed payments of principal
and interest of $11,729, bearing interest fixed at 8.30%
for the first five years, and floating at prime plus 1.0%
for the remaining term. Collateralized by a mortgage and
all of the assets of the Company -- 750,000 705,580
Subordinated convertible note payable, at 12.5% interest
rate, due December 31, 1996, interest payable monthly.
Convertible into common stock at $1.50 per share at the
option of the holder 31,100 21,500 21,500
Other installment notes payable with interest rates ranging
from 7.25% to 10.99% at December 31, 1995, collateralized
by office equipment and vehicles due at various maturity
dates from April 1996 to August 2001 42,947 100,758 84,541
--------- --------- ---------
Total long term debt 3,421,532 4,652,010 3,287,707
Less: current maturities (242,006) (436,509) (490,126)
--------- --------- ---------
$3,179,526 $4,215,501 $2,797,581
========== ========= ==========
</TABLE>
F-12
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND 1995 IS UNAUDITED.)
(6) LONG TERM DEBT -- (CONTINUED)
At December 31, 1995, debt maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
---------- ------
<S> <C>
1996 $ 436,509
1997 3,199,875
1998 386,723
1999 207,300
2000 161,382
Thereafter 260,221
---------
$4,652,010
==========
</TABLE>
(7) INCOME TAXES
The Company's effective tax rate does not significantly differ from the
federal and state income tax statutory rates. The components of the provision
for income taxes are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Current expense: federal and state $ 23,700 $ 91,242 $ 130,422
Deferred (benefit) expense: federal and state 49,930 (26,891) (61,765)
-------- -------- --------
Total $ 73,630 $ 64,351 $ 68,657
========= ========= =========
</TABLE>
The provision for 1993 includes $33,157 of income taxes which was offset
against the extraordinary gain on elimination of debt of $82,893 and presented
net in the Statement of Operations. See also Notes 2 and 6.
Significant items making up deferred tax liabilities and deferred tax assets
are as follows:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Current deferred taxes:
Inventory $ 47,318 --
Allowances and other accruals 54,562 $ 110,766
------- -------
Total deferred tax assets 101,880 110,766
Long term deferred taxes:
Accelerated tax depreciation (163,139) (207,361)
Cash basis benefit of subsidiary (47,818) --
Goodwill (26,859) (22,795)
Tax credits 100,296 106,710
State net operating loss carryforwards -- 38,805
------- -------
Total deferred tax liabilities (137,520) (84,641)
------- -------
Total net deferred tax (liabilities) assets $ (35,640) $ 26,125
=========== =========
</TABLE>
As of December 31, 1995, the net operating loss carryforwards expire at
various dates beginning in 1998 through 2000. Tax credits expire at various
dates beginning in 2006 through 2009.
F-13
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND 1995 IS UNAUDITED.)
(8) COMMITMENTS AND CONTINGENCIES
The Company leases certain office space, laboratory, and research facilities
under operating leases with various terms through July 2000. All the real estate
leases include renewal options at increasing levels of rent.
One of the facility leases includes scheduled base rent increases over the
term of the lease. The amount of base rent payments is being charged to expense
on the straight-line method over the term of the lease. As of December 31, 1995,
the Company has recorded a $141,068 noncurrent liability to reflect the excess
of rent expense over cash payments since inception of the lease. In addition to
base rent, the Company pays a monthly allocation of the operating expenses and
real estate taxes for the above facilities.
Rent expense for the years ended December 31, 1993, 1994 and 1995 and six
months ended June 30, 1995 and 1996 was $479,697, $549,713, $477,580, $225,109
and $181,816, respectively. At December 31, 1995, the remaining fixed lease
commitment was as follows:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
---------- ------
<S> <C>
1996 $371,200
1997 254,600
1998 117,300
1999 124,800
2000 79,700
-------
$947,600
========
</TABLE>
Commencing in February 1995, the Company committed under a sponsored
research agreement with a university to fund a research scientist at a cost of
$13,125 per quarter for three years which costs are charged to research and
development expense. In return, the Company has exclusive rights to any anti-HIV
compounds or derivatives developed in the course of this research, provided the
Company obtains certain regulatory approvals from the FDA.
(9) RETIREMENT PLAN
In January, 1993, the Company adopted a retirement savings plan for its
employees, which has been qualified under Section 401(k) of the Code. Eligible
employees are permitted to contribute to the plan through payroll deductions
within statutory limitations and subject to any limitations included in the
plan. To date, the Company has made no contributions to the plan.
(10) COMMON STOCK
The Company has two stock option plans which are administered by a committee
of the Board of Directors who determines the employees and affiliated persons to
receive options and the number and option price of shares covered by each such
option.
Options granted under both plans may be either incentive stock options or
non-qualified stock options. In general, for incentive stock options, the option
price shall not be less than the fair market value at the time the option is
granted. Generally, options become exercisable at the rate of 25% at the end of
each of the four years following the anniversary of the grant. Options issued
expire ten years from the date of grant, or 30 days from the date of termination
or affiliation.
At December 31, 1995, 897,600 shares have been reserved for non-qualified
stock options, of which 97,125 are available for future grants. At December 31,
1995, 750,000 shares have been reserved for incentive stock options, of which
696,812 are available for future grants.
F-14
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND 1995 IS UNAUDITED.)
(10) COMMON STOCK -- (CONTINUED)
The Company has issued warrants in connection with certain equity and debt
financings. As of June 30, 1996, 226,670 shares of Common Stock have been
reserved for issuance pursuant to the exercise of such warrants at a weighted
average exercise price of $2.50 per share.
The Company has reserved shares of its authorized but unissued common stock
for the following:
<TABLE>
<CAPTION>
STOCK OPTIONS WARRANTS
------------- --------
PRICE PRICE TOTAL
SHARES PER SHARE SHARES PER SHARE SHARES
------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
Balance outstanding, December 31, 1992 747,600 $.25-$4.50 266,670 $2.00-$2.50 1,014,270
Granted 166,250 4.50 59,468 3.75-5.20 225,718
Exercised (13,000) .25-1.50 (20,000) 2.50 (33,000)
Expired (19,000) 2.50 -- (19,000)
------- ------- --------
Balance outstanding, December 31, 1993 881,850 .25-4.50 306,138 2.00-5.20 1,187,988
Granted -- -- -- -- --
Exercised (19,375) .25-4.50 (4,600) 3.75 (23,975)
Expired (81,525) .25-4.50 -- -- (81,525)
------- ------- --------
Balance outstanding, December 31, 1994 780,950 .25-4.50 301,538 2.00-5.20 1,082,488
Granted 73,187 6.00 -- -- 73,187
Exercised (6,000) 1.50-2.50 (41,200) 2.50-5.20 (47,200)
Expired (47,850) 1.50-4.50 -- -- (47,850)
------- ------- --------
Balance outstanding, December 31, 1995 800,287 .25-6.00 260,338 2.00-5.20 1,060,625
Granted (unaudited) 140,600 7.00-8.50 -- -- 140,600
Exercised (unaudited) -- -- (12,000) 5.20 (12,000)
Expired (unaudited) (6,500) 6.00-7.00 (21,668) 5.20 (28,168)
------- ------- --------
Balance outstanding, June 30, 1996
(unaudited) 934,387 .25-8.50 226,670 2.00-5.00 1,161,057
======== ======= ==========
Exercisable at June 30, 1996 (unaudited) 359,500 .25-1.65 -- -- 359,500
262,200 2.50-4.50 206,670 2.00-2.50 468,870
31,984 6.00 20,000 5.00 51,984
------- ------- --------
Total exercisable at June 30, 1996
(unaudited) 653,684 $.25-$6.00 226,670 $2.00-$5.00 880,354
======== ======= ==========
Proceeds of exercisable at June 30, 1996
(unaudited) $1,356,655 $566,675 $1,923,330
========== ======== ==========
</TABLE>
F-15
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30
1996 AND 1995 IS UNAUDITED.)
(11) SUBSEQUENT EVENTS
Stock Split
On August 8, 1996 the Board of Directors approved a 1-for-2 reverse stock
split and an increase in authorized common shares to 20,000,000, and authorized
1,000,000 shares of preferred stock (par value $.01), which were approved by the
stockholders on September 10, 1996. The stock split has been retroactively
reflected in the accompanying financial statements and notes for all periods
presented.
STOCK PURCHASE AGREEMENT (UNAUDITED)
On April 26, 1996, the Company entered into a Stock Purchase Agreement and
Exclusive Distributor Agreement for five years with a foreign distributor.
Pursuant to the Stock Purchase Agreement, the Company issued 117,647 shares of
redeemable common stock at a price per share of $8.50, for which it received net
proceeds of $898,503. Issuance costs were $101,497. Furthermore, the agreement
may require the Company to repurchase the stock at the issuance price
($1,000,000 in total) in three equal installments in the event that the
Distribution Agreement is terminated by the Company prior to the completion of a
public offering. Completion of a public offering will terminate the redemption
feature and cause the reclassification of these shares into stockholders'
equity. In addition, the distributor is restricted from selling these securities
for a one-year period after completion of such Offering. The Company utilized
the 80,000 shares of Treasury Stock in connection with this transaction.
BioSeq, Inc. (Unaudited)
In October 1996, the Company entered into a License Agreement, Purchase
Agreement, Stockholders' Agreement and Warrant Agreement with BioSeq, a
privately held, technology based development stage company.
The Company has agreed to purchase convertible preferred stock of BioSeq for
an aggregate of $1,482,500 in three installments. Of the $1,482,500, $210,000
was invested at the date of the agreements and $522,500 is required to be
invested within ten business days of the closing of the initial public offering
of the Company's common stock provided the closing occurs before December 31,
1996. The Company must make the remaining $750,000 installment if BioSeq attains
certain technical milestones by July 31, 1997. If such milestones are not
attained by BioSeq by July 31, 1997, the Company will still have the option to
make the remaining $750,000 investment until December 31, 1997. Under the
operative documents, the Company has price anti-dilution protection, pre-emptive
rights and the right to board representation, the last of which terminates if
the Company fails to make the second installment under the Purchase Agreement.
In addition, the Company was granted warrants to acquire additional shares of
common stock of BioSeq for additional consideration under certain conditions,
provided that this right is not exercisable to the extent it would cause the
Company's ownership to equal or exceed 20%. The Company is accounting for its
investment in BioSeq on the cost basis in accordance with the provisions of APB
18 since the cumulative investment is and must remain less than 20% of the
equity of BioSeq and the Company does not exert significant influence or
control. Due to the uncertainty of technology based development stage
enterprises and in accordance with the provisions of SFAS 121, the Company will
perform a periodic analysis of the investment to determine whether the carrying
value of its investment in BioSeq has been impaired. If so determined, the
Company would adjust the carrying value of its investment by taking a charge to
earnings.
Upon the earlier of payment of the final installment of the Company's
aggregate $1,482,500 investment and December 31, 1997, the Company will be
granted a worldwide right to use the BioSeq technology relating to sequencing
and analysis services. The License will be exclusive until BioSeq commences
selling on a commercial basis the equipment used in the DNA sequencing and
analysis process, at which time the License will become non-exclusive. The
License provides that the Company will pay BioSeq royalties ranging from five
percent to ten percent of net revenues arising out of the services performed by
the Company with the licensed technology. The Company will account for the
royalty as a cost of revenue as the revenues are earned.
F-16
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND 1995 IS UNAUDITED.)
(11) SUBSEQUENT EVENTS -- (CONTINUED)
Initial Public Offering (Unaudited)
The Company has filed a registration statement for the sale of shares of
common stock. Accordingly, the unaudited pro forma balance sheet has been
prepared assuming the reclassification of the redeemable common stock into
common stock as of June 30, 1996. There can be no assurances that the initial
public offering of common stock will be successfully completed.
(12) SUPPLEMENTARY PRO FORMA EARNINGS PER SHARE -- (UNAUDITED)
If the Offering had been completed on January 1, 1995, a portion of the
proceeds would have been used to retire all debt outstanding at that time, and
all debt incurred in 1995 and 1996 would not have been needed. Based on the
foregoing, supplemental pro forma net earnings per share of common stock would
have been $.09 and $.06 for the year ended December 31, 1995 and the six months
ended June 30, 1996, respectively. Such net earnings per share of common stock
are based on 3,600,007 and 3,701,173 shares of common stock respectively,
consisting of 3,151,477 and 3,252,643 shares of common stock and common stock
equivalents plus 448,530 shares assumed to be issued at $9.00 per share as if
the Offering had occurred on January 1, 1995 to retire indebtedness outstanding
during 1995.
F-17
GLOSSARY
AIDS Acquired Immune Deficiency Syndrome. AIDS is
caused by infection with the Human
Immunodeficiency Virus, HIV.
Antibodies Binding proteins naturally produced by the body in
response to exposure to non-self agents (e.g.,
bacteria, viruses, cancer cells). Antibodies form
part of the immunological defense system.
Antigens Foreign non-self agents (such as the proteins or
the nucleic acids of infectious agents) that
stimulate an immune response, including the
production of antibodies.
Assay Synonym for test: qualitative or quantitative
measurement of some component of a material.
Chlamydia A sexually transmitted pathogen that can cause
Trachoma (an eye disease which culminates in
blindness), chronic infection of genitals (which
can result in infertility), and pneumonia,
especially in the newborn.
CLIA The Clinical Laboratory Improvement Amendments,
passed by Congress in October 1988, and formulated
into regulations and implemented by the Health
Care Financing Administration beginning in 1992.
CLIA refers to a set of regulations which govern
the staffing and function of all U.S. laboratories
that perform in vitro diagnostic tests for
clinical use, except for blood bank laboratories
and Veterans' Administration hospital
laboratories, which are regulated separately using
similar rules.
Cytomegalovirus A virus responsible for several diseases that are
especially prevalent in immunocompromised patients
such as those infected with HIV, receiving organ
transplants or receiving cancer chemotherapy.
Diagnostic Components The solutions and materials that are combined,
sometimes after further manufacture, to make an in
vitro diagnostic test kit.
DNA Deoxyribonucleic Acid, together with RNA, a class
of molecules called "nucleic acids." DNA carries
the genetic information in most living organisms.
The DNA of each cell contains the information for
"building" a whole organism (e.g., a virus, a
plant, or a whole human being). DNA testing can
identify microscopic amounts of the genetic
material of a virus or bacterium, thus indicating
its presence in quantities undetectable in the
bloodstream by immunoassay techniques.
ELISA Enzyme-Linked Immunosorbent Assay, a biochemical
procedure in which interactions among antibodies,
antigens and enzymes are used to detect and
quantify various diseases and other materials of
interest through the measurement of color released
at the end of the assay.
End-User The purchaser and consumer of an in vitro
diagnostic test kit; usually clinical
laboratories, but may also be other health care
providers or members of the general public.
G-1
Hepatitis A disease that causes inflammation of and damage
to the liver, often caused by a virus. In advanced
stages, hepatitis can result in life threatening
liver dysfunction, liver cirrhosis or liver
cancer. The most common causes of viral hepatitis
are the Hepatitis A, B and C viruses (HAV, HBV and
HCV).
HIV Human Immunodeficiency Virus. HIV, a retrovirus,
causes AIDS. HIV infection leads to the
destruction of the immune system.
Immunology Narrowly defined as the study of the immune
system, but often used to describe tests for
infectious diseases which rely on the principle of
the binding of antigens and antibodies.
Immunoassay A test that relies on the specificity of the
reaction between antibodies and antigens to detect
and measure the concentration of biological
molecules.
In Vitro Laboratory procedures that occur "in the test
tube," or outside the body. In vitro diagnostic
testing is the process of analyzing blood, urine,
saliva and other specimens outside the body to
screen for, monitor or diagnose diseases and other
medical conditions.
Infectious Agent Any microorganism, such as bacteria, viruses,
fungi or other parasites, capable of invading
another organism, with or without pathological
manifestations.
Levey-Jennings Chart A chart on which the test results for a Run
Control are plotted over time, so that the
reproducibility of a test method can be monitored.
The acceptable range for the Run Control, as
determined by each individual test kit end-user,
is also indicated on the chart.
Lyme Disease A bacterial infection caused by a spirochete
called Borrelia burgdorferi (B. burgdorferi). This
spirochete usually infects the deer tick which
then bites a person or animal, thus transmitting
the infection.
Marker A substance which, when detected in blood or other
study sample by an in vitro diagnostic test, is
indicative of the presence of disease or other
medical condition.
Microbiology The clinical laboratory testing segment that
specializes in the detection of organisms that
cause infectious disease. Often used to refer to
traditional tests that use a growth medium which
enables an organism, if present, to replicate and
be detected visually. Newer methods for detection
and monitoring of infectious diseases such as
immunology and molecular biology methods are
sometimes performed in separate laboratories and
sometimes incorporated into microbiology
laboratories.
Molecular Biology The clinical laboratory testing segment which uses
newer methods such as PCR to detect nucleic acids
(i.e., DNA and RNA) for infectious disease
diagnosis and other purposes.
G-2
Multi-Marker Run Control A run control designed to be used with several
tests for different analytes or markers. These
controls are designed to cover groups of markers
that are tested in the same laboratory section,
e.g., Accurun 1(R) is a multi-marker run control
for blood bank tests.
Nucleic Acids Two families of compounds called deoxyribonucleic
acid (DNA) and ribonucleic acid (RNA) that carry
the coded information from which all living
organisms are made.
Pathogen An organism that causes disease in the study
subjects (e.g., a virus which causes disease in
humans is human pathogen; an insect that causes
disease in a plant is a plant pathogen).
PCR Polymerase Chain Reaction, a sequence of chemical
steps using DNA primers (short pieces of nucleic
acids) to locate and copy (amplify) specific
sequences of DNA, if present, to a concentration
high enough for chemical detection.
Performance Panels A set of serum and plasma samples collected from
many different individuals and characterized for
the presence or absence of a particular disease
marker.
Plasma The clear liquid portion of blood which contains
clotting factors, proteins, antibodies, hormones,
electrolytes and other components dissolved in
water. Plasma differs from serum only in that
plasma contains clotting factors in addition to
its other components, and serum does not.
Qualification Panels Dilutions of human plasma or serum manifesting a
full range of reactivities in test kits for a
specific marker.
Qualitative Test An assay for which the reportable results are
positive, negative or indeterminate. An
alternative set of terms sometimes used to express
qualitative test results is reactive, non-reactive
or gray zone.
Quality Control Products Materials including characterized samples of
various kinds, data sheets and software, all
designed for use in the performance evaluation of
in vitro diagnostic tests during their
development, manufacture or use.
Quantitative Test An assay for which the reportable results are
numeric.
Reactivity Test result for a qualitative test; can take one
of three forms: positive, negative or
indeterminate.
Reagent A substance, usually a chemical solution, used as
a component of an in vitro diagnostic test.
G-3
Retrovirus A virus with its genetic information encoded in
RNA rather than DNA. HIV is a retrovirus.
RNA Ribonucleic acid, with DNA, a class of molecules
called nucleic acids. RNA functions with DNA in
most organisms to translate the coded genetic
information into the organism itself. In some
viruses, RNA substitutes for DNA in carrying the
coded information from which the organism is made.
HIV and HCV are RNA viruses.
Run Controls Well-characterized samples designed to resemble
the donor and patient samples routinely tested
with a given method, manufactured to specific
levels of reactivity and provided in quantities
sufficient to be used each time the test is run,
over a period of time, so that test performance
can be continuously monitored.
Sensitivity The ability of a test to detect accurately small
quantities of a substance of interest. The greater
the sensitivity, the smaller the quantity of the
substance the test can detect, and the fewer false
negatives will be reported. Sensitivity and
specificity are two important measures of the
quality of a test.
Sensitivity Panels Precise dilutions of human plasma or serum
containing a known amount of an infectious disease
marker as calibrated against international
standards.
Seroconversion Panels Plasma samples collected from a single individual
over a specific time period showing conversion
from negative to positive for markers of an
infectious disease.
Serum The clear liquid portion of blood which contains
proteins, antibodies, hormones, electrolytes and
other components dissolved in water. Serum differs
from plasma only in that serum does not contain
clotting factors.
Single Analyte Run Control A run control designed to be used with tests for a
single analyte or marker, e.g., Accurun 106 is a
positive control for HIV antigen tests from
several manufacturers.
Specificity The ability of a test to distinguish between
similar materials. The greater the specificity,
the better a test is at identifying a substance in
the presence of substances of similar makeup, and
the fewer false positives will be reported.
Sensitivity and specificity are two important
measures of the quality of a test.
Therapeutic Index A mathematical description of the potential
usefulness of a candidate drug, based on its
toxicity to the host system versus its
effectiveness against the pathogen. The
Therapeutic Index of a candidate drug is compared
to the Therapeutic Index in the same test system
of a drug already in use for the disease being
studied.
G-4
Titer An approximation of the quantity of a marker in a
qualitative test, arrived at by diluting the
sample repeatedly and testing the dilutions until
the marker is no longer detected by the test
method.
Toxoplasma A protozoan parasite, ubiquitous in the
environment, and which causes Toxoplasmosis.
Toxoplasmosis is commonly acquired by eating food
contaminated by cysts. Pregnant women may be at
risk of acquiring Toxoplasmosis from cats, with
subsequent infection of the baby.
Virus A microorganism dependent on host cells in order
to grow and reproduce.
Western Blot Method The standard diagnostic method for confirmation of
the presence of an infectious disease marker (e.g.
HIV, Borrelia burgdorferi), in which lysate (a
mixture of proteins) is separated on a gel by
electrochemical means and then transferred to a
nitrocellulose filter. The filter is then tested
against a blood sample to identify antibodies to
the proteins.
G-5
Photograph showing certain of the Company's Quality Control Panel Products,
including Seroconversion and Performance Panels.
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, OR THE UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE
SPECIFICALLY OFFERED HEREBY OR OF ANY SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR
SOLICITATION IN SUCH JURISDICTION. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
----------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary 3
Risk Factors 6
Use of Proceeds 14
Dividend Policy 14
Capitalization 15
Dilution 16
Selected Consolidated Financial Data 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 19
Business 25
Management 40
Certain Transactions 44
Principal Stockholders 45
Description of Capital Stock 46
Shares Eligible for Future Sale 48
Underwriting 49
Legal Matters 50
Experts 50
Additional Information 50
Index to Consolidated Financial Statements F-1
Glossary G-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
1,600,000 SHARES
[LOGO]
BOSTON BIOMEDICA, INC.
COMMON STOCK
----------
PROSPECTUS
----------
OSCAR GRUSS & SON INCORPORATED
KAUFMAN BROS., L.P.
, 1996
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
TOTAL
EXPENSES
--------
SEC Registration Fee $ 8,508
NASD Filing Fee 2,708
Nasdaq National Market Listing Fee 30,000*
Blue Sky Fees and Expenses 15,000*
Underwriters' Non-Accountable Expense
Allowance 144,000*
Transfer Agent and Registrar Fees 2,500*
Accounting Fees and Expenses 150,000*
Legal Fees and Expenses 300,000*
Printing and Engraving 60,000*
Miscellaneous 79,284*
---------
TOTAL $792,000*
=========
- ---------
* Estimate
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated By-Laws include provisions to permit the
indemnification of officers and directors of the Company for damages arising out
of the performance of their duties unless such damages arise out of the
officer's or director's failure to exercise his duties and to discharge the
duties of his office in good faith and in the reasonable belief that his action
was in, or not opposed to, the best interest of the Company, and with respect to
any criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful. The Company intends to enter into indemnification
contracts with each of its directors and officers. Reference is hereby made to
the caption "Management -- Limitation of Officers' and Directors' Liability;
Indemnification Agreements."
Reference is hereby made to the caption "Description of Capital Stock --
Limitation of Directors' Liability" in the Prospectus, which is a part of this
Registration Statement.
Reference is hereby made to Section 6 of the Underwriting Agreement between
the Company and the Underwriter, filed as Exhibit 1.1 to this Registration
Statement, for a description of indemnification arrangements between the Company
and the Underwriter.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities issued
by the Registrant within the past three years which were not registered under
the Securities Act.
In August 1996, the stockholders of the Registrant voted to approve an
amendment to the Registrant's Articles of Organization to effect a one-for-two
reverse stock split of the Registrant's Common Stock, $.01 par value per share.
All references to number of shares of Common Stock give effect to this stock
split.
II-1
(1) In August 1993, the Registrant sold to eight individual investors an
aggregate of 45,000 shares of Common Stock for total cash consideration of
$202,500, at a price per share of $4.50, and to another investor 1,958 shares of
Common Stock in exchange for services rendered valued at $8,811, which
securities were not registered under the Securities Act.
(2) In April 1994, the Registrant sold to eight individual investors an
aggregate of 21,200 shares of Common Stock, for total consideration of $127,200
at a price per share of $6.00, which securities were not registered under the
Securities Act.
(3) From June through December 1994, the Registrant sold the following at
$6.00 per share: to one investor 5,000 shares of Common Stock for cash
consideration of $30,000, to a second investor 1,167 shares of Common Stock for
cash consideration of $3,501 and in exchange for services rendered valued at
$3,501, and to a third investor 2,494 shares in exchange for services rendered
valued at $14,964, which securities were not registered under the Securities
Act.
(4) In November and December 1995, the Registrant sold to two investors an
aggregate of 7,800 shares of Common Stock for total cash consideration of
$54,600 at a price of $7.00, and to another investor 734 shares of Common Stock
in exchange for services rendered valued at $5,138, which securities were not
registered under the Securities Act.
(5) On April 26, 1996, the Registrant sold 117,647 shares of Common Stock to
Kyowa Medex, Co., Ltd. for total cash consideration of $1,000,000, which
securities were not registered under the Securities Act.
(6) For the period August 1, 1993 to date, the Registrant granted to
directors, officers, employees and consultants, 15,000 ($6.00 per share), 63,000
($4.50 to $7.00 per share), 244,037 ($4.50 to $8.50 per share), and 8,000 ($6.00
per share), respectively, options to purchase shares of Common Stock under the
Registrant's 1987 Non-Qualified Stock Option Plan or Employee Stock Option Plan,
which securities were not registered under the Securities Act.
(7) During the period from March 1994 through June 1996, the Registrant
issued an aggregate of 88,993 shares to fifteen persons pursuant to the exercise
of options, warrants or convertible notes of the Registrant for exercise prices
ranging from $0.25 to $5.20 per share (an aggregate exercise price of
$219,977.50), which securities were not registered under the Securities Act.
To the extent that the foregoing transactions constituted "sales" within the
meaning of the Securities Act, the securities issued in such transactions were
not registered under the Securities Act, as amended, in reliance upon the
exemptions from registration set forth in Section 3(b) and 4(2) of the
Securities Act, relating to sales by an issuer not involving any public
offering, or in reliance upon Regulation S of the Securities Act relating to
sales by an issuer of securities outside the United States. None of the
foregoing transactions, either individually or in the aggregate, involved a
public offering.
ITEM 16. FINANCIAL STATEMENT SCHEDULE AND EXHIBITS
<TABLE>
<CAPTION>
SCHEDULE
NO.
---
<S> <C>
II -- Valuation and Qualifying Accounts
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
---
<S> <C>
1.1 -- Form of Underwriting Agreement
3.1 -- Amended and Restated Articles of Organization of the Registrant*
3.2 -- Amended and Restated By-Laws of the Registrant*
4.1 -- Description of Certificate for Shares of the Registrant's Common Stock*
</TABLE>
II-2
<TABLE>
<CAPTION>
EXHIBIT
NO.
---
<S> <C>
5.1 -- Legal Opinion of Brown, Rudnick, Freed & Gesmer
10.1 -- Agreement, dated January 17, 1994, between Roche Molecular Systems, Inc. and the
Registrant*
10.2 -- Exclusive License Agreement, dated December 6, 1994, between the University of
North Carolina at Chapel Hill and the Registrant**
10.3 -- Contract, dated September 30, 1995, between the National Institutes of Health
and the Registrant (No. 1-AI-55273)
10.4 -- Contract, dated September 30, 1995, between the National Institutes of Health
and the Registrant (No. 1-AI-55277)
10.5 -- Contract, dated March 1, 1993, between the National Cancer Institute and the
Registrant**
10.6 -- Agreement, dated October 1, 1995, between Ajinomoto Co., Inc. and the Registrant***
10.7 -- Lease Agreement, dated June 30, 1992, for Rockville, Maryland Facility between
Cambridge Biotech Corporation and the Registrant
10.8 -- Lease Agreement, dated July 28, 1995, for New Britain, Connecticut Facility between
MB Associates and the Registrant
10.9 -- Worcester County Institution for Savings Warrant dated December 1, 1995 (No. 1)*
10.10 -- Worcester County Institution for Savings Warrant dated July 26, 1993 (No. 2)*
10.11 -- Stock Purchase Agreement, dated June 5, 1990, between G&G Diagnostics Limited
Partnership I and the Registrant, as amended*
10.12 -- Purchase and Sale Agreement, dated December 11, 1995, for 375 West Street Property
between James Leonard, Trustee, C.W.B. Trust and the Registrant*
10.13 -- Purchase and Sale Agreement, dated December 20, 1995, for 80 Manley Street Property
between the Registrant and Donald M. Leonard, Trustee, Live Oak Realty Trust*
10.14 -- Stock Purchase Agreement, dated April 26, 1996, between Kyowa Medex Co., Ltd.
and the Registrant*
10.15 -- 1987 Non-Qualified Stock Option Plan*
10.16 -- Employee Stock Option Plan*
10.17 -- Form of Underwriters Warrant (contained in Exhibit 1.1)
10.18.1 -- Second Amended and Restated Loan and Security Agreement,
dated August 2, 1995, between the First National Bank of Boston
and the Registrant, as amended*
10.18.2 -- Note Payable to The First National Bank of Boston, dated
October 1994, in the amount of $200,000*
10.18.3 -- Note Payable to The First National Bank of Boston, dated October 1994, in the
amount of $849,000*
10.18.4 -- Note Payable to The First National Bank of Boston, dated August 1995, in the amount
of $350,000*
10.18.5 -- Note Payable to The First National Bank of Boston, dated December 1995, in the
amount of $100,000*
10.18.6 -- Mortgage Note to The First National Bank of Boston, dated December 1995, in the
amount of $750,000*
10.18.7 -- Note Payable to The First National Bank of Boston, dated July 1996, in the amount
of $250,000*
10.19 -- Form of Indemnification Agreement with Officers and Directors*
</TABLE>
II-3
<TABLE>
<CAPTION>
EXHIBIT
NO.
---
<S> <C>
10.20 -- Purchase Agreement, dated October 7, 1996, between BioSeq, Inc. and the Registrant*
10.21 -- Warrant Agreement, dated October 7, 1996, between BioSeq, Inc. and the Registrant*
10.22 -- Stockholders' Agreement, dated October 7, 1996, between BioSeq, Inc. and the Registrant*
10.23 -- License Agreement, dated October 7, 1996, between BioSeq, Inc. and the Registrant*
11 -- Statement re Computation of Per Share Earnings*
21 -- Subsidiaries of the Registrant*
23.1 -- Consent of Brown, Rudnick, Freed & Gesmer (contained in Exhibit 5.1)
23.2 -- Consent of Coopers & Lybrand L.L.P., independent accountants
24 -- Power of Attorney*
27 -- Financial Data Schedule*
</TABLE>
* Previously filed.
** Confidential Treatment requested for certain portions of this document which
has been previously filed.
*** Confidential Treatment requested for certain portions of this document.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(b) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the Registrant's By-Laws, the Underwriting Agreement
relating to this Offering, or otherwise, the Registrant has been
II-4
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of West
Bridgewater, Commonwealth of Massachusetts, on October 25, 1996.
BOSTON BIOMEDICA, INC.
By: /s/ RICHARD T. SCHUMACHER
-----------------------------
RICHARD T. SCHUMACHER
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD T. SCHUMACHER Principal Executive Officer October 25, 1996
---------------------- and Director
RICHARD T. SCHUMACHER
/s/ KEVIN W. QUINLAN Principal Financial and Accounting October 25, 1996
------------------- Officer and Director
KEVIN W. QUINLAN
* Director October 25, 1996
-------------------
HENRY A. MALKASIAN
* Director October 25, 1996
-------------------
FRANCIS E. CAPITANIO
* Director October 25, 1996
--------------------
CALVIN A. SARAVIS
*By /s/ RICHARD T. SCHUMACHER
----------------------
RICHARD T. SCHUMACHER
ATTORNEY-IN-FACT
</TABLE>
II-6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
BOSTON BIOMEDICA, INC.:
In connection with our audits of the consolidated financial statements of
Boston Biomedica, Inc. and Subsidiaries, as of December 31, 1994 and 1995, and
for each of the three years in the period ended December 31, 1995, which
financial statements are included in this Amendment No. 2 to the Registration
Statement on Form S-1 (File No. 333-10759), we have also audited the
consolidated financial statement schedule listed in Item 16 herein.
In our opinion, this consolidated financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 12, 1996
S-1
SCHEDULE II
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
RECOVERIES
BALANCE AT FOR ACCOUNTS UNCOLLECTIBLE BALANCE AT
BEGINNING PROVISION FOR PREVIOUSLY ACCOUNTS END OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS OF PERIOD BAD DEBT WRITTEN OFF WRITTEN OFF PERIOD
------------------------------- --------- -------- ----------- ----------- ------
<S> <C> <C> <C> <C> <C>
Six months ended June 30, 1996 $142,372 $ 77,145 -- $ (85,938) $133,579
1995 94,723 181,084 -- (133,435) 142,372
1994 43,956 102,099 -- (51,332) 94,723
1993 21,000 22,956 -- -- 43,956
</TABLE>
S-2
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ----
<S> <C> <C>
1.1 -- Form of Underwriting Agreement
3.1 -- Amended and Restated Articles of Organization of the Registrant*
3.2 -- Amended and Restated By-Laws of the Registrant*
4.1 -- Description of Certificate for Shares of the Registrant's Common Stock*
5.1 -- Legal Opinion of Brown, Rudnick, Freed & Gesmer
10.1 -- Agreement, dated January 17, 1994, between Roche Molecular Systems, Inc. and
the Registrant*
10.2 -- Exclusive License Agreement, dated December 6, 1994, between the University
of North Carolina at Chapel Hill and the Registrant**
10.3 -- Contract, dated September 30, 1995, between the National Institutes of Health
and the Registrant (No. 1-AI-55273)
10.4 -- Contract, dated September 30, 1995, between the National Institutes of Health
and the Registrant (No. 1-AI-55277)
10.5 -- Contract, dated March 1, 1993, between the National Cancer Institute and the
Registrant**
10.6 -- Agreement, dated October 1, 1995, between Ajinomoto Co., Inc. and the Registrant***
10.7 -- Lease Agreement, dated June 30, 1992, for Rockville, Maryland Facility between
Cambridge Biotech Corporation and the Registrant
10.8 -- Lease Agreement, dated July 28, 1995, for New Britain, Connecticut Facility
between MB Associates and the Registrant
10.9 -- Worcester County Institution for Savings Warrant dated December 1, 1995 (No.1)*
10.10 -- Worcester County Institution for Savings Warrant dated July 26, 1993 (No. 2)*
10.11 -- Stock Purchase Agreement, dated June 5, 1990, between G&G
Diagnostics Limited Partnership I and the Registrant, as amended*
10.12 -- Purchase and Sale Agreement, dated December 11, 1995, for 375 West Street
Property between James Leonard, Trustee, C.W.B. Trust and the Registrant*
10.13 -- Purchase and Sale Agreement, dated December 20, 1995, for 80 Manley Street
Property between the Registrant and Donald M. Leonard, Trustee, Live Oak Realty
Trust*
10.14 -- Stock Purchase Agreement, dated April 26, 1996, between Kyowa Medex Co., Ltd.
and the Registrant*
10.15 -- 1987 Non-Qualified Stock Option Plan*
10.16 -- Employee Stock Option Plan*
10.17 -- Form of Underwriters Warrant (contained in Exhibit 1.1)
10.18.1 -- Second Amended and Restated Loan and Security Agreement, dated
August 2, 1995, between the First National Bank of Boston and the
Registrant, as amended*
10.18.2 -- Note Payable to The First National Bank of Boston, dated
October 1994, in the amount of $200,000*
10.18.3 -- Note Payable to The First National Bank of Boston, dated October 1994, in
the amount of $849,000*
</TABLE>
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ----
<S> <C> <C>
10.18.4 -- Note Payable to The First National Bank of Boston, dated August 1995, in the
amount of $350,000*
10.18.5 -- Note Payable to The First National Bank of Boston, dated December 1995, in
the amount of $100,000*
10.18.6 -- Mortgage Note to The First National Bank of Boston, dated December 1995, in
the amount of $750,000*
10.18.7 -- Note Payable to The First National Bank of Boston, dated July 1996, in the
amount of $250,000*
10.19 -- Form of Indemnification Agreement with Officers and Directors*
10.20 -- Purchase Agreement, dated October 7, 1996, between BioSeq, Inc. and the Registrant*
10.21 -- Warrant Agreement, dated October 7, 1996, between BioSeq, Inc. and the Registrant*
10.22 -- Stockholders' Agreement, dated October 7, 1996, between BioSeq, Inc. and the
Registrant*
10.23 -- License Agreement, dated October 7, 1996, between BioSeq, Inc. and the Registrant*
11 -- Statement re Computation of Per Share Earnings*
21 -- Subsidiaries of the Registrant*
23.1 -- Consent of Brown, Rudnick, Freed & Gesmer (contained in Exhibit 5.1)
23.2 -- Consent of Coopers & Lybrand L.L.P., independent accountants
24 -- Power of Attorney*
27 -- Financial Data Schedule*
</TABLE>
- -----------
* Previously filed.
** Confidential Treatment requested for certain portions of this document which
has been previously filed.
*** Confidential Treatment requested for certain portions of this document.
EXHIBIT 1.1
1,600,000 Shares*
Boston Biomedica, Inc.
Common Stock
UNDERWRITING AGREEMENT
___________, 1996
OSCAR GRUSS & SON INCORPORATED
KAUFMAN BROS., L.P.
c/o Oscar Gruss & Son Incorporated
74 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Boston Biomedica, Inc., a Massachusetts corporation (the "COMPANY"),
proposes to issue and sell 1,600,000 shares (the "FIRM SHARES") of Common Stock
of the Company, $.01 par value (the "COMMON STOCK"), to you (the "UNDERWRITERS")
as set forth on Schedule I hereto. In addition, the Company has agreed to grant
to you an option (the "OPTION") to purchase up to an additional 240,000 shares
of Common Stock (the "OPTION SHARES") on the terms and for the purposes set
forth in Section 1(b) below. The Firm Shares and the Option Shares are referred
to collectively herein as the "SHARES."
It is understood that, subject to the conditions hereinafter stated,
the Firm Shares will be sold to you. The Company confirms its agreement with the
Underwriters as follows:
- --------
* Plus an option to purchase up to an additional 240,000 shares to cover over-
allotments.
1. AGREEMENT TO SELL AND PURCHASE
a. On the basis of the representations, warranties and agreements
herein contained and subject to all the terms and conditions of this Agreement,
(i) the Company agrees to issue and sell the Firm Shares to the several
Underwriters and (ii) each of the Underwriters, severally and not jointly,
agrees to purchase from the Company the respective number of Firm Shares set
forth opposite that Underwriter's name in Schedule I hereto, at the purchase
price of $______ for each Firm Share.
b. Subject to all the terms and conditions of this Agreement, the
Company grants the Option to the several Underwriters to purchase, severally and
not jointly, up to the maximum number of Option Shares at the same price per
share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of this Agreement upon
written or telegraphic notice (the "OPTION SHARES NOTICE") by the Underwriters
to the Company no later than 12:00 noon, New York City time, at least two and no
more than three business days before the date specified for closing in the
Option Shares Notice (the "OPTION CLOSING DATE"), setting forth the aggregate
number of Option Shares to be purchased and the time and date for such purchase.
On the Option Closing Date, the Company will sell to the Underwriters the number
of Option Shares set forth in the Option Shares Notice, and each Underwriter
will purchase such percentage of the Option Shares as is equal to the percentage
of the Firm Shares that such Underwriter is purchasing, as adjusted by the
Underwriters in such manner as they deem advisable to avoid fractional shares.
c. Subject to the terms and conditions herein set forth, on the Closing
Date (as defined below), the Company shall issue to Oscar Gruss & Son
Incorporated ("OSCAR GRUSS") and Kaufman Bros., L.P., in their individual
capacity, warrants in the form attached hereto as Exhibit A (the
"REPRESENTATIVES' WARRANTS") to purchase ___________ and __________ shares of
Common Stock, respectively [an aggregate of 160,000 shares], at an exercise
price equal to 135% of the price per Firm Share.
-2-
2. DELIVERY AND PAYMENT
Delivery of the Firm Shares shall be made to the Underwriters against
payment of the purchase price by certified or official bank check payable in New
York Clearing House (next-day) funds to the order of the Company at the offices
of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103, at
10:00 a.m., New York Time, on the third (or, if the Firm Shares are priced, as
contemplated by Rule 15c6-1(c) under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), after 4:30 p.m. New York Time, the fourth) full
business day following the commencement of the offering contemplated by this
Agreement, or at such time on such other date, not later than five business days
after the date of this Agreement, as may be agreed upon by the Company and the
Underwriters (such date is hereinafter referred to as the "CLOSING DATE").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form and
shall be registered in such names and in such denominations as the Underwriters
shall request at least two business days prior to the Closing Date or the Option
Closing Date, as the case may be, by written notice to the Company. For the
purpose of expediting the checking and packaging of certificates for the Shares,
the Company agrees to make such certificates available for inspection at least
24 hours prior to the Closing Date or the Option Closing Date, as the case may
be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Shares by the Company to the respective
Underwriters shall be borne by the Company. The Company will pay and save each
Underwriter and any subsequent holder of the Shares harmless from any and all
liabilities with respect to or resulting from any failure or delay in paying
federal and state stamp and other transfer taxes, if any, which may be payable
or determined to be payable in connection with the original issuance or the sale
to such Underwriter of the Shares sold by such entity.
-3-
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents, warrants and covenants to each Underwriter
that:
a. A registration statement (Registration No. 333-10759) on Form S-1
relating to the Shares, including a preliminary prospectus and such amendments
to such registration statement as may have been required to the date of this
Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "ACT"), and the rules and regulations
(collectively referred to as the "RULES AND REGULATIONS") of the Securities and
Exchange Commission (the "COMMISSION") thereunder, and has been filed with the
Commission. The term "preliminary prospectus" as used herein means a preliminary
prospectus as contemplated by Rule 430 or Rule 430A of the Rules and Regulations
included at any time as part of the registration statement. Copies of such
registration statement, amendments and exhibits thereto and of each related
preliminary prospectus have been delivered to the Representatives. If such
registration statement has not become effective, a further amendment to such
registration statement, including a form of final prospectus, necessary to
permit such registration statement to become effective will be filed promptly by
the Company with the Commission. If the registration statement has become
effective, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the Rules and Regulations will be
filed promptly by the Company with the Commission in accordance with Rule 424(b)
of the Rules and Regulations. The term "REGISTRATION STATEMENT" means the
registration statement as amended at the time it becomes or became effective
(the "EFFECTIVE DATE"), including financial statements and all exhibits and any
information deemed to be included by Rule 430A. If an abbreviated registration
statement is prepared and filed with the Commission in accordance with Rule
462(b) under the Act (an "ABBREVIATED REGISTRATION STATEMENT"), the term
"Registration Statement" as used in this Agreement includes the Abbreviated
Registration Statement. The term "PROSPECTUS" means (i) if the Company relies on
Rule 434 of the Rules and Regulations, the Term Sheet that is first filed
pursuant to Rule 424(b)(7) under the Act, together with the preliminary
prospectus identified therein that such Term Sheet supplements, (ii) if the
Company does not rely on Rule 434 of the Rules and Regulations, the prospectus
first filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations; or (iii) if the Company does not rely on Rule 434 of the Rules and
Regulations and if no prospectus is required to be filed pursuant to Rule 424(b)
of the Rules and Regulations, the prospectus
-4-
included in the Registration Statement. The term "TERM SHEET" means any term
sheet that satisfies the requirements of Rule 434 of the Rules and Regulations.
b. The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus. When any Preliminary Prospectus was filed
with the Commission it complied in all material respects with the applicable
requirements of the Act and the Rules and Regulations and did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. On the
Effective Date, the date the Term Sheet, if utilized, is first filed with the
Commission pursuant to Rule 424(b), the date the Prospectus is first filed with
the Commission pursuant to Rule 424(b) (if required), at all times subsequent to
and including the Closing Date and, if later, the Option Closing Date and when
any post-effective amendment to the Registration Statement becomes effective or
any amendment or supplement to the Prospectus is filed with the Commission, the
Registration Statement and the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment or supplement
thereto), including the financial statements included in the Prospectus, did and
will comply with all applicable provisions of the Act and the Rules and
Regulations and will contain all statements required to be stated therein in
accordance with the Act and the Rules and Regulations. At the Effective Date and
when any post-effective amendment to the Registration Statement becomes
effective, no part of the Registration Statement, the Prospectus or any such
amendment or supplement did or will contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading. At the Effective Date,
the date the Term Sheet, the Prospectus or any amendment or supplement to the
Prospectus is filed with the Commission and at the Closing Date and, if later,
the Option Closing Date, the Prospectus did not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The foregoing representations and warranties in this
Section 3(b) do not apply to any statements or omissions made in reliance on and
in conformity with information relating to any Underwriter furnished in writing
to the Company by the Underwriters specifically for inclusion in the
Registration Statement or Prospectus or any amendment or supplement thereto. The
Company acknowledges that the statements set forth in the first two paragraphs
under the heading "Underwriting" in the Prospectus
-5-
constitute the only information relating to any Underwriter furnished in writing
to the Company by the Underwriters specifically for inclusion in the
Registration Statement.
c. The Company is, and each of BTRL Contracts and Services, Inc. and
BBI North American Clinical Laboratories, Inc. (collectively, the
"SUBSIDIARIES") are, and at the Closing Date and, if later, the Option Closing
Date will be, duly organized, validly existing and in good standing under the
laws of the Commonwealth of Massachusetts. The Company and the Subsidiaries
have, and at the Closing Date and, if later, the Option Closing Date will have,
full power and authority to conduct all the activities conducted by them, to own
or lease all the assets owned by or leased by them, and to conduct their
business as described in the Registration Statement and the Prospectus. The
Company is, and the Subsidiaries are, and at the Closing Date and, if later, the
Option Closing Date they will be, duly licensed or qualified to do business and
in good standing as foreign corporations in all jurisdictions in which the
nature of the activities conducted by them or the character of the assets owned
or leased by them makes such license or qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not
materially and adversely affect the Company and its Subsidiaries, taken as a
whole, their business, properties, business prospects, condition (financial or
otherwise) net worth or results of operations. The Subsidiaries are the only
subsidiaries (as defined in the Act) of the Company. Except as set forth in the
Prospectus, the Company and the Subsidiaries (i) do not own, and at the Closing
Date and, if later, the Option Closing Date will not own, directly or
indirectly, any shares of stock or any other equity or long-term debt securities
of any corporation (except, in the case of the Company, for the Subsidiaries) or
have any equity interest in any corporation, firm, partnership, joint venture,
association or other entity and (ii) are not, and at the Closing Date and, if
later, the Option Closing Date will not be, engaged in any discussions or a
party to any agreement or understanding, written or oral, regarding the
acquisition of an interest in any corporation, firm, partnership, joint venture,
association or other entity where such discussions, agreements or understandings
would require amendment to the Registration Statement pursuant to applicable
securities laws. Complete and correct copies of the articles of incorporation,
the bylaws or other organizational documents of the Company and the Subsidiaries
and all amendments thereto have been delivered to the Representatives, and no
changes therein will be made subsequent to the date hereof and prior to Closing
Date or, if later, the Option Closing Date.
-6-
d. The Company has authorized, issued and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus. All of the
outstanding shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable, were issued in compliance with
all applicable state and federal securities laws, were not issued in violation
of or subject to any preemptive rights or other rights to subscribe for or
purchase securities, and conform to the description thereof contained in the
Prospectus; the Shares have been duly authorized and when issued and paid for as
contemplated herein will be validly issued, fully paid and nonassessable and the
Shares will conform to the description thereof contained in the Prospectus; the
shares of Common Stock issuable by the Company upon the exercise of the
Representatives' Warrants have been duly authorized, and, when issued and paid
for in accordance with the terms of the Representatives' Warrants, will be
validly issued, fully paid and nonassessable; and no preemptive rights or other
rights to subscribe for or purchase exist with respect to the issuance and sale
of the Shares or with respect to the Common Stock issuable upon the exercise of
the Representatives' Warrants. The Company has reserved and will keep available
for the exercise of the Representatives' Warrants such number of authorized but
unissued shares of Common Stock to permit the exercise in full of the
Representatives' Warrants. The description of the capital stock of the Company
in the Registration Statement and the Prospectus is, and at the Closing Date
and, if later, the Option Closing Date will be, complete and accurate in all
respects. Except as set forth in the Prospectus, the Company does not have
outstanding, and at the Closing Date and, if later, the Option Closing Date will
not have outstanding, any options to purchase, or any rights or warrants to
subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell, any shares of Common Stock, or any
such warrants, convertible securities or obligations. The description of the
Company's stock option and other stock plans or arrangements, and the options or
other rights granted or exercised thereunder, set forth in the Prospectus,
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights. No further approval or
authority of the shareholders or the Board of Directors of the Company will be
required for the issuance and sale of the Shares by the Company as contemplated
herein. The Company owns of record and beneficially, free and clear of any lien,
adverse claim, security interest, equity or other encumbrance, the capital stock
of the Subsidiaries and there are no other owners of any securities of any kind
issued by or related to the Subsidiaries.
-7-
e. The financial statements and schedules included in the Registration
Statement or the Prospectus comply in all material respects with the
requirements of the Act and the Rules and Regulations, and present fairly the
financial condition of the Company and the Subsidiaries as of the respective
dates thereof and the results of operations, changes in shareholders' equity and
cash flows of the Company for the respective periods covered thereby, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the entire period involved. No other financial statements or
schedules of the Company are required by the Act or the Rules and Regulations to
be included in the Registration Statement or the Prospectus. Coopers & Lybrand
L.L.P., who have reported on such financial statements and schedules, are
independent accountants with respect to the Company as required by the Act and
the Rules and Regulations. The summary financial and statistical data included
in the Registration Statement present fairly the information shown therein and
have been compiled on a basis consistent with the financial statements presented
therein.
f. Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus and prior to the Closing Date
and, if later, the Option Closing Date, except as set forth in or contemplated
by the Registration Statement and the Prospectus, (i) there has not been and
will not have been any change in the capitalization of the Company (other than
in connection with the exercise of outstanding options to purchase the Company's
Common Stock granted pursuant to the Company's stock option plans from the
reserves as described in the Registration Statement, which shares received upon
exercise will be subject to the lock-up agreements described in Section 5(i)
below), or any material adverse change, or any development which could
reasonably be expected to involve a prospective material adverse change, in the
business, properties, business prospects, condition (financial or otherwise),
net worth or results of operations of the Company and the Subsidiaries, taken as
a whole, arising for any reason whatsoever, (ii) the Company and the
Subsidiaries, taken as a whole, have not incurred nor will they incur, except in
the ordinary course of business as described in the Prospectus, any material
liabilities or obligations, direct or contingent, nor have they entered into nor
will they enter into, except in the ordinary course of business as described in
the Prospectus, any material transactions other than pursuant to this Agreement
and the transactions referred to herein, and (iii) the Company has not and will
not have paid or declared any dividends or other distributions of any kind on
any class of its capital stock.
-8-
g. Neither the Company nor any of the Subsidiaries is, and upon the
sale of the Shares to be issued and sold by it hereunder and application of the
net proceeds from such sale as described in the Prospectus under the caption
"Use of Proceeds" will be, an "investment company" or an "affiliated person" of,
or "promoter" or "principal underwriter" for, an "investment company," as such
terms are defined in the Investment Company Act of 1940, as amended.
h. There are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any
Subsidiary, or any of their officers in their capacity as such, nor any basis
therefor, before or by any federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding would materially and adversely affect
the Company and the Subsidiaries, taken as a whole, or their respective,
business, properties, business prospects, condition (financial or otherwise),
net worth or results of operations. Neither the Company nor any of the
Subsidiaries is involved in any strike, job action or labor dispute, and to the
Company's best knowledge no such action or dispute is threatened.
i. The Company and the Subsidiaries have, and at the Closing Date and,
if later, the Option Closing Date will have, performed all their obligations
required to be performed by them as of such date, and neither the Company nor
any Subsidiary is, and at the Closing Date nor, if later, the Option Closing
Date will be, nor with the passage of time or the giving of notice or both would
be, in violation of its certificate of incorporation or by-laws or other
organizational documents, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any Subsidiary, or
of any judgment, order or decree of any court or governmental agency or body or
of any arbitrator having jurisdiction over the Company or the Subsidiaries, or
in default in the performance or observance of any obligation, agreement,
covenant or condition contained in any mortgage, loan agreement, note, bond,
debenture, credit agreement or any other evidence of indebtedness to which any
of them a party or by which their property is bound or affected, which violation
or default might materially and adversely affect the Company and the
Subsidiaries, taken as a whole, or their business, properties, business
prospects, condition (financial or otherwise), net worth or results of
operations. To the Company's best knowledge, no other party under any contract
or other instrument to which the Company or its Subsidiaries are a party is in
default in any respect thereunder, which default would materially and
-9-
adversely affect the Company and the Subsidiaries, taken as a whole, or their
business, properties, business prospects, condition (financial or otherwise),
net worth or results of operations. The Company and the Subsidiaries are not,
and at the Closing Date and, if later, the Option Closing Date will not be, in
violation of any provision of their respective articles of incorporation, bylaws
or other organizational documents.
j. No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
issuance and sale of the Shares and the Representatives' Warrants by the
Company, the execution, delivery or performance of the Agreement and the
Representatives' Warrants by the Company or the consummation by the Company of
the transactions on its part contemplated herein and in the Representatives'
Warrants, except such as have been obtained under the Act or the Rules and
Regulations and such as may be required under state securities or Blue Sky laws
or the bylaws and rules of the National Association of Securities Dealers, Inc.
(the "NASD") in connection with the purchase and distribution by the
Underwriters of the Shares.
k. The Company has full corporate power and authority to enter into
this Agreement and the Representatives' Warrants, to issue and sell the Shares
and the Representatives' Warrants and to perform its respective obligations
thereunder. The execution, delivery and performance of this Agreement and the
Representatives' Warrants has been duly and validly authorized by the Company,
and each of this Agreement and the Representatives' Warrants has been duly
executed and delivered by the Company and constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms. The performance of this Agreement and the Representatives' Warrants and
the consummation of the transactions contemplated hereby and thereby will not,
with or without notice, the passage of time or both, result in the imposition of
any lien, charge or encumbrance upon any of the assets of the Company or any
Subsidiary pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
or give any party a right to terminate any of its obligations under, or result
in the acceleration of any obligation under the articles of incorporation,
bylaws or other organizational documents of the Company and any Subsidiary, any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to
-10-
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their properties is bound or affected, or violate or
conflict with any judgment, ruling, decree, order, statute, rule or regulation
of any court or other governmental agency or body applicable to the business or
properties of the Company and any Subsidiary, presently in effect, a breach or
violation of which, a default under which, a termination of which, an
acceleration under which, or a conflict with which would materially and
adversely affect the Company and any Subsidiary, taken as a whole, and their
business, properties, business prospects, condition (financial or otherwise),
net worth or results of operations.
l. The Company and the Subsidiaries have good and marketable title to
all properties and assets described in the Prospectus as owned by them, free and
clear of all liens, charges, encumbrances or restrictions, except such liens,
charges, encumbrances or restrictions as are described in the Prospectus and
those which, individually and in the aggregate, are not material in amount or
which, individually and in the aggregate, do not adversely affect the use made
or proposed to be made of such properties and assets by the Company and the
Subsidiaries. The Company and the Subsidiaries, as lessees, have valid,
subsisting and enforceable leases for the properties described in the Prospectus
as leased by them. The agreements to which the Company or any Subsidiary are a
party described in the Prospectus are valid agreements, enforceable by the
Company or any Subsidiary (as applicable), except as the enforcement thereof may
be limited by bankruptcy and laws relating to the rights and remedies of
creditors generally or by the availability of general equitable remedies. The
Company any the Subsidiaries own or lease all such properties as are necessary
to their operations as now conducted or as proposed to be conducted.
m. There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which the Company or any Subsidiary is a party
have been duly authorized, executed and delivered by the Company or the
Subsidiary, constitute valid and binding agreements of the Company or the
Subsidiary and are enforceable against the Company or the Subsidiary and by the
Company or the Subsidiary against the other parties thereto in accordance with
the terms thereof, except as to (i) bankruptcy and laws relating to the rights
and remedies of creditors generally and (ii) the availability of equitable
remedies.
-11-
n. No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
Section 5 of this Agreement to be delivered to the Underwriters was or will be,
when made, inaccurate, untrue or incorrect.
o. Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action designed, or
which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.
p. No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement or consummation of the transactions contemplated by this
Agreement which rights have not been validly waived by the holder or otherwise
satisfied as of the date hereof. Except as disclosed in the Prospectus under the
caption "Shares Eligible For Future Sale," no person has the right to require
registration under the Act of any Common Stock or other securities of the
Company.
q. The Common Stock is listed and duly admitted to trading on the
Nasdaq National Market (the "NASDAQ NATIONAL MARKET"), and the Company has
received notification that the quotation by the Nasdaq National Market of the
Shares has been approved, subject to official notice of issuance of the Shares.
r. (i) The Company and the Subsidiaries, taken as a whole, have all
trademarks, trade names, patent rights, copyrights, licenses, approvals and
governmental authorizations necessary to conduct their business as now
conducted, except where the failure to have any such right would not have a
material and adverse effect on the Company and the Subsidiaries, taken as a
whole, or their respective business, properties, business prospects, condition
(financial or otherwise), net worth or results of operations; (ii) the Company
and the Subsidiaries are not infringing any copyrights, trade secrets or other
similar rights, trademarks, trade name rights or patent rights of others where
such infringement would have a material and adverse effect on the Company and
the Subsidiaries, taken as a whole, or their respective business, properties,
business prospects, condition (financial or otherwise), net worth or results of
operations; and (iii) no claim has been made against the Company regarding
trademark, trade name, patent, copyright, license, trade secret or other
infringement which would have a
-12-
material and adverse effect on the Company and the Subsidiaries, taken as a
whole, or their respective business, properties, business prospects, condition
(financial or otherwise), net worth or results of operations.
s. The Company has filed all federal, state, local and foreign income
tax returns which have been required to be filed, which returns are complete and
correct in all material respects, and has paid all taxes and assessments
received by it to the extent that such taxes or assessments have become due. All
payroll withholdings required to be made by the Company or any Subsidiary with
respect to employees have been made. The charges, accruals and reserves on the
books of the Company and the Subsidiaries in respect of any tax liability for
any years not finally determined are adequate to meet any assessments or
reassessments for additional taxes. The Company has no tax deficiency which has
been or might be asserted or threatened against the Company which could have a
material and adverse effect on the Company or its business, properties, business
prospects, condition (financial or otherwise), net worth or results of
operations.
t. The Company and its Subsidiaries own or possess all authorizations,
approvals, orders, licenses, registrations, certificates and permits of and
from, and have made all declarations and filings with, all governmental
regulatory officials and bodies necessary to conduct their business as
contemplated in the Prospectus, except where the failure to own or possess all
such authorizations, approvals, orders, licenses, registrations, certificates
and permits or make such declarations and filings would not, individually or in
the aggregate, materially and adversely affect the Company and the Subsidiaries,
taken as a whole, or their respective business, properties, business prospects,
condition (financial or otherwise), net worth or results of operations. There is
no proceeding pending or, to the knowledge of the Company, threatened, or any
basis therefor known to the Company, which may cause or allow any such
authorization, approval, order, license, registration, certificate or permit to
be revoked, withdrawn, canceled, suspended or not renewed or result in any
material impairment of the rights thereunder; and the Company and its
Subsidiaries are conducting their business in compliance with all laws, rules
and regulations applicable thereto, except where any such failure to comply
would not have a material adverse effect on the Company and the Subsidiaries,
taken as a whole, or their respective business, properties, business prospects,
condition (financial or otherwise), net worth or results of operations. Except
as described in the Registration Statement and the Prospectus, none of such
authorizations, approvals, orders, licenses, registrations, certificates or
permits
-13-
contains any restriction that is materially burdensome to the Company and the
Subsidiaries, taken as a whole.
u. The Company and the Subsidiaries maintain insurance of the types and
in the amounts generally deemed adequate for their respective business,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company and the Subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect. The Company and the
Subsidiaries are in compliance with the terms of such policies in all material
respects. The Company and the Subsidiaries have not been refused any insurance
coverage sought or applied for; and the Company has no reason to believe that it
and the Subsidiaries will not be able to renew their existing insurance coverage
as and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue their business at a cost that would not
have a material adverse effect on the Company and the Subsidiaries, taken as a
whole, or their business, properties, business prospects, condition (financial
or otherwise), net worth or results of operations. There are no material claims
by the Company or any of the Subsidiaries under any such policy as to which any
insurance company is denying liability or defending under a reservation of
rights clause.
v. The Company and the Subsidiaries are (i) in compliance with any and
all applicable foreign, federal, state and local laws and regulations relating
to the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"),
(ii) have received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective business and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a material adverse effect on the
Company and the Subsidiaries, taken as a whole, or their respective business,
properties, business prospects, condition (financial or otherwise), net worth or
results of operations.
w. In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business, operations
and properties of the Company and the Subsidiaries in the course of which it
-14-
identifies and evaluates associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review, the Company has
reasonably concluded that such associated costs and liabilities would not,
singly or in the aggregate, have a material adverse effect on the Company and
the Subsidiaries, taken as a whole, or their respective business, properties,
business prospects, condition (financial or otherwise), net worth or results of
operations.
x. Neither the Company nor any Subsidiary nor, to the Company's
knowledge, any employee or agent of the Company or any Subsidiary, has at any
time during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
y. The Company has not distributed and, prior to the later to occur of
(i) the Closing Date or (ii) completion of the distribution of the Shares, will
not distribute without the prior written consent of the Underwriters any
offering material in connection with the offering and sale of the Shares other
than the Registration Statement, any Preliminary Prospectus, the Prospectus or
other materials, if any, permitted by the Act and the Rules and Regulations. The
Company is not involved in any labor dispute and, to the knowledge of the
Company, no such dispute is threatened.
z. Neither the Company nor its officers, directors, employees or agents
have taken or will take, directly or indirectly, (i) any action designed to
cause or to result in, or that has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares, or (ii)
since the filing of the Registration Statement, except in connection with the
sale of the Shares, (A) sold, bid for, purchased, attempted to induce any person
to purchase, or paid anyone any compensation for soliciting the purchase of, the
Shares or (B) paid or agreed to pay any person any compensation for soliciting
another to purchase any other securities of the Company.
-15-
aa. The Company has obtained from each of its directors, officers and
the other shareholders specified by the Representatives a written agreement
that, for a period of 180 days from the date of the Prospectus, he, she or it
will not, without the prior written consent of Oscar Gruss, offer, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any security convertible
into, or exchangeable or exercisable for, shares of Common Stock or other
securities of the Company.
bb. The Company has complied with all provisions of Florida Statutes,
ss. 517.075, relating to issuers doing business with Cuba.
cc. The Company has no liability or obligation of any nature (absolute,
accrued, contingent or otherwise) which is not fully reflected or adequately
reserved against in the balance sheet at June 30, 1996, except for liabilities
(i) incurred in the ordinary course of business and not required under generally
accepted accounting procedures to be reflected on the balance sheet, (ii)
incurred since June 30, 1996 in the ordinary course of business and consistent
with past practice, or (iii) described in the Prospectus. The Company maintains
a system of internal accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in accordance with management's
general or specific authorizations; (B) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accounting for assets; (C) access
to assets is permitted only in accordance with management's general or specific
authorization; (D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences and (E) reserves for obsolete inventory, bad debts
and sales returns and allowances are adequate.
Any certificate signed by an officer of the Company and delivered to
the Underwriters or counsel for the Underwriters at a closing hereunder shall be
deemed a representation and warranty of the Company to each Underwriter as to
the matters covered thereby as of the date thereof.
4. AGREEMENTS OF THE COMPANY
The Company agrees with the several Underwriters as follows:
-16-
a. The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Underwriters within a reasonable period of time prior to the filing thereof and
the Underwriters shall not have objected thereto in good faith.
b. The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Underwriters and will confirm
such advice in writing, (i) when the Registration Statement has become effective
and when any post-effective amendment thereto becomes effective, (ii) of any
request by the Commission for amendments or supplements to the Registration
Statement or the Prospectus or for additional information, (iii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose or
the threat thereof, (iv) of the happening of any event during the period
mentioned in the third sentence of Section 4(e) that makes any statement made in
the Registration Statement or the Prospectus untrue or that requires the making
of any changes in the Registration Statement or the Prospectus in order to make
the statements therein not misleading, and (v) of receipt by the Company or any
representative or attorney of the Company of any other communication from the
Commission relating to the Company, the Registration Statement, any preliminary
prospectus, the Term Sheet or the Prospectus. If at any time the Commission
shall issue any order suspending the effectiveness of the Registration
Statement, the Company will make every reasonable effort to obtain the
withdrawal of such order at the earliest possible moment. If the Company has
omitted any information from the Registration Statement pursuant to Rule 430A of
the Rules and Regulations, the Company will use its best efforts to comply with
the provisions of, and make all requisite filings with the Commission pursuant
to, said Rule 430A and, if a Term Sheet is used, Rule 434 and to notify the
Underwriters promptly of all such filings.
c. The Company will furnish to the Underwriters without charge three
signed copies of the Registration Statement and of any post-effective amendment
thereto, including financial statements and schedules, and all exhibits thereto,
and will furnish to the Underwriters, without charge, for transmittal to each of
the other Underwriters, such number of conformed copies of the Registration
Statement and
-17-
any post-effective amendment thereto, including financial statements and
schedules, but without exhibits, as you may reasonably request.
d. The Company will comply with all the provisions of any undertakings
contained in the Registration Statement.
e. On the Effective Date, and thereafter from time to time, the Company
will deliver to each of the Underwriters, without charge, as many copies of the
Prospectus or any amendment or supplement thereto as the Representatives may
reasonably request. The Company consents, subject to the provisions of the
following sentence, to the use of the Prospectus or any amendment or supplement
thereto by the several Underwriters and by all dealers to whom the Shares may be
sold, both in connection with the offering or sale of the Shares and for any
period of time thereafter during which the Prospectus is required by law to be
delivered in connection therewith. If during the nine-month period referred to
in Section 10(a)(3) of the Act any event shall occur which in the judgment of
the Company or counsel to the Underwriters should be set forth in the Prospectus
in order to make any statement therein, in light of the circumstances under
which it was made, not misleading, or if it is necessary to supplement or amend
the Prospectus to comply with law, the Company will forthwith prepare and duly
file with the Commission an appropriate supplement or amendment thereto, and
will deliver to each of the Underwriters, without charge, such number of copies
of such supplement or amendment to the Prospectus as the Representatives may
reasonably request and, in case any Underwriter is required to deliver a
prospectus after such nine month period, the Company upon request, but at the
expense of such Underwriter, will promptly prepare such amendment or amendments
to the Registration Statement and Prospectus as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act.
f. Prior to any public offering of the Shares, the Company will
cooperate with the Underwriters and counsel to the Underwriters in connection
with the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the Underwriters may
request; provided that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in any jurisdiction
where it is not now so subject.
-18-
g. During the period of five years commencing on the Effective Date,
the Company will furnish to the Representatives, and each other Underwriter who
may so request, copies of such financial statements and other periodic and
special reports as the Company may from time to time distribute generally to the
holders of any class of its capital stock, and will furnish to the
Representatives, and each other Underwriter who may so request, a copy of each
annual or other report it shall be required to file with the Commission.
h. The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last day
of the fifteenth full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not be audited but shall
be in reasonable detail) for the applicable 12-month period after the Effective
Date, satisfying the provisions of Section 11(a) of the Act (including Rule 158
of the Rules and Regulations).
i. Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay, or reimburse
if paid by the Underwriters all costs and expenses incident to the performance
of the obligations of the Company under this Agreement, including but not
limited to costs and expenses of or relating to (i) the preparation, printing
and filing of the Registration Statement and exhibits to it, each preliminary
prospectus, Term Sheet, Prospectus and any amendment or supplement to the
Registration Statement or Prospectus, (ii) the preparation and delivery of
certificates representing the Shares, (iii) the printing of this Agreement, the
Agreement among Underwriters, any Dealer Agreements and any Underwriters'
Questionnaires, (iv) furnishing (including costs of shipping and mailing) such
copies of the Registration Statement, the Prospectus, the Term Sheet and any
preliminary prospectus, and all amendments and supplements thereto, as may be
requested for use in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be sold, (v) the listing of the
Shares on the Nasdaq National Market, (vi) any filings required to be made by
the Underwriters with the NASD, including the fees, disbursements and other
charges of counsel for the Underwriters in connection therewith, (vii) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions designated pursuant to Section
4(f), including the fees, disbursements and other charges of counsel to the
Underwriters in connection therewith, and the preparation and printing of
preliminary, supplemental and final Blue Sky memoranda, (viii) fees,
disbursements
-19-
and other charges to the Company (but not those of counsel for the Underwriters,
except as otherwise provided herein), (ix) the transfer agent for the Shares,
(x) informational meetings and (xi) the "tombstone" advertisement with respect
to the Shares. In addition to the Company's responsibility for payment of the
foregoing expenses, the Company shall pay to the Underwriters a non-accountable
expense allowance equal to one percent (1%) of the gross proceeds from the sale
of the Shares (including in such amount the proceeds from any sale of the Option
Shares), of which $40,000 has been paid to date. If the offering is not
consummated, the Underwriters will be entitled to reimbursement for actual
out-of-pocket expenses, and will return to the Company any unused portion of the
$40,000. If the Offering is not consummated, the Underwriters will return to the
Company any unused portion of the pre-paid expense allowance.
j. If this Agreement shall be terminated by the Company pursuant to any
of the provisions hereof (otherwise than pursuant to Section 8 hereof) or if for
any reason the Company shall be unable to perform its obligations hereunder, the
Company will reimburse the several Underwriters for all reasonable out-of-pocket
expenses (including the fees, disbursements and other charges of counsel to the
Underwriters) reasonably incurred by them in connection herewith. The Company
shall reimburse Oscar Gruss within five days of termination of this Agreement.
k. The Company will not at any time, directly or indirectly, take any
action designed, or which might reasonably be expected, to cause or result in,
or which will constitute, stabilization of the price of the shares of Common
Stock to facilitate the sale or resale of any of the Shares.
l. The Company will apply the net proceeds from the offering and sale
of the Shares in the manner set forth in the Prospectus under "Use of Proceeds,"
and shall file such reports with the Commission with respect to the sale of the
Company Shares and the application of the proceeds therefrom as may be required
in accordance with Rule 463 under the Act.
m. During the period of 180 days commencing at the Closing Date,
without the prior written consent of Oscar Gruss, which consent may be withheld
in the sole discretion of Oscar Gruss and other than pursuant to the exercise of
outstanding warrants and stock options or otherwise pursuant to the Company's
stock option plan disclosed in the Prospectus, the Company will not issue,
offer, sell, grant options to purchase or otherwise dispose of any of the
Company's equity
-20-
securities or any other securities convertible into or exchangeable with its
Common Stock or other equity security. During a period of 180 days after the
Closing Date, the Company will not file a registration statement for the purpose
of registering any securities of the Company without the prior written consent
of Oscar Gruss, which consent may be withheld in its sole discretion. The
Company will not, for a period of two years from the date hereof, without the
prior written approval of Oscar Gruss, propose or enter into any arrangement not
existing on the date hereof, for the granting or awarding of the stock options.
n. The Company will cause each of its officers, directors, and
shareholders holding in the aggregate at least ______ shares of Common Stock to
enter into lock-up agreements with the Underwriters to the effect that they will
not, without the prior written consent of Oscar Gruss, sell, contract to sell or
otherwise dispose of any shares of Common Stock or rights to acquire such shares
according to the terms set forth in Exhibit B hereto.
5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS
The obligations of each Underwriter hereunder are subject to the
following conditions:
a. Notification that the Registration Statement has become effective
shall be received by the Underwriters not later than 5:00 p.m., New York City
time, on the date of this Agreement or at such later date and time as shall be
consented to in writing by the Underwriters and all filings required by Rule
424, Rule 430A and Rule 434 of the Rules and Regulations shall have been made.
b. (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for the purpose shall be
pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Shares under the securities or Blue Sky laws of any jurisdiction shall be
in effect and no proceeding for such purpose shall be pending before or
threatened or contemplated by the Commission or the authorities of any such
jurisdiction, (iii) any request for additional information on the part of the
staff of the Commission or any such authorities shall have been complied with to
the satisfaction of the staff of the Commission or such authorities, and (iv)
after the date hereof no amendment or supplement to the Registration Statement
or the Prospectus shall have been filed
-21-
unless a copy thereof was first submitted to the Underwriters and the
Underwriters do not object thereto in good faith, and the Underwriters shall
have received certificates, dated the Closing Date and the Option Closing Date
and signed by the Chief Executive Officer and the Chief Financial Officer of the
Company (who may, as to proceedings threatened, rely upon the best of their
knowledge), to the effect of clauses (i), (ii) and (iii) of this Section 5(b).
c. Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change, or any development involving a prospective material
adverse change, in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise), net worth or results
of operations of the Company or any Subsidiary, whether or not arising from
transactions in the ordinary course of business, in each case other than as
described in or contemplated by the Registration Statement and the Prospectus,
and (ii) neither the Company nor any Subsidiary shall have sustained any
material loss or interference with its business or properties from fire,
explosion, flood, earthquake or other casualty, whether or not covered by
insurance, or from any labor dispute or any court of legislative or other
governmental action, order or decree, which is not described in the Registration
Statement and the Prospectus, if in the judgment of the Underwriters any such
development makes it impracticable or inadvisable to consummate the sale and
delivery of the Shares by the Underwriters at the public offering price.
d. Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted or threatened against the Company or any
Subsidiary or any of their respective officers or directors in their capacities
as such, before or by any federal, state or local court, commission, regulatory
body, administrative agency or other governmental body, domestic or foreign, in
which litigation or proceeding an unfavorable ruling, decision or finding would
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise), net worth or results of operations of the
Company and the Subsidiaries, taken as a whole.
e. Each of the representations and warranties of the Company contained
herein shall be true and correct in all material respects at the Closing Date
and, with respect to the Option Shares, at the Option Closing Date, and all
-22-
covenants and agreements contained herein to be performed on the part of the
Company and all conditions contained herein to be fulfilled or complied with by
the Company at or prior to the Closing Date and, with respect to the Option
Shares, at or prior to the Option Closing Date, shall have been duly performed,
fulfilled or complied with.
f. The Underwriters shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to the Underwriters and counsel for the
Underwriters, from Brown, Rudnick, Freed & Gesmer, P.C., counsel to the Company,
covering the following matters:
(i) the Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Massachusetts, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification except where the failure so to qualify does not have a material
adverse effect on the business, properties, business prospects, condition
(financial or otherwise), net worth or results of operations of the Company;
(ii) each of the Subsidiaries has been duly organized and is
validly existing as a corporation in good standing under its jurisdiction of
organization and is qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification except where the failure so to
qualify does not have a material adverse effect on the business, properties,
business prospects, condition (financial or otherwise), net worth or results of
operations of such Subsidiary. Except for the Subsidiaries, the Company does not
have any active subsidiaries or own or control any other corporation,
association, or other business entity;
(iii) the authorized capital stock of the Company conforms to
the description thereof contained in the Prospectus;
(iv) the authorized, issued and outstanding capital stock of
the Company is as set forth under the caption "Capitalization" in the Prospectus
as of the date therein; the shares of Common Stock outstanding prior to the
issuance
-23-
of the Firm Shares (or, with respect to the opinion to be delivered on the
Option Closing Date, prior to the issuance of the Company Option Shares) have
been duly authorized and are validly issued, fully paid and nonassessable, have
been issued pursuant to exemptions from the registration and qualification
requirements of federal and applicable state securities laws, were not issued in
violation of or subject to any preemptive rights or, to the best of such
counsel's knowledge, other rights to subscribe for or purchase any securities,
and conform to the description thereof contained in the Prospectus;
(v) the specimen certificate evidencing the Company's Common
Stock filed as an exhibit to the Registration Statement is in due and proper
form under Massachusetts law; the Shares have been duly authorized and, when the
certificates evidencing the Shares have been issued and delivered in accordance
with the terms of this Agreement, the Shares will be validly issued, fully paid
and nonassessable; the issuance of such Shares is not subject to any preemptive
rights or, to the best of such counsel's knowledge, other rights to subscribe
for or purchase securities; and the Common Stock conforms in all material
respects to the description thereof contained in the Prospectus;
(vi) the Representatives' Warrants have been duly authorized,
executed and delivered by the Company and the Company has all requisite
corporate power and authority to execute the Representatives' Warrants; the
Representatives' Warrants are enforceable against the Company in accordance with
their terms; the shares of Common Stock issuable upon the exercise of the
Representatives' Warrants have been reserved for such issuance and, when issued
in accordance with the terms of the Representatives' Warrants, will be duly
authorized, validly issued, fully paid and nonassessable and free of preemptive
rights and, to the best of such counsel's knowledge, other rights to subscribe
for or purchase securities; and the Representatives' Warrants conform in all
material respects to the description thereof contained in the Prospectus;
(vii) the Registration Statement has become effective under
the Act, and, to the best of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement or preventing the use of the
Prospectus has been issued and no proceedings for that purpose have been
instituted or are pending or, to the best of such counsel's knowledge,
threatened by the Commission; any required filing of the Prospectus or of the
Term Sheet and any supplement thereto pursuant to Rule 424(b) or Rule 434 of the
Rules and
-24-
Regulations has been made in the manner and within the time period required by
such Rule 424(b) and Rule 434;
(viii) the Registration Statement and the Prospectus and any
supplements or amendments thereto (except for financial statements, schedules
and financial information included therein, as to which such counsel need not
express any opinion) comply as to form in all material respects with the Act and
the Rules and Regulations.
(ix) this Agreement has been duly authorized, executed and
delivered by the Company, and the Company has all requisite corporate power and
authority to enter into this Agreement and consummate the transactions
contemplated hereby;
(x) this Agreement is a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except as
to (A) rights to indemnity and contribution thereunder which may be limited by
applicable law, (B) bankruptcy and laws relating to the rights and remedies of
creditors generally, and (C) the availability of equitable remedies; the
execution and delivery by the Company of, and the performance by the Company of
its obligations under, this Agreement and the Representatives' Warrants do not
contravene any provision of applicable law, statute, rule or regulation or the
articles of incorporation, bylaws or other organizational documents of the
Company and the Subsidiaries or any agreement or other instrument binding upon
the Company or any Subsidiary that is filed as an exhibit to the Registration
Statement or is known to such counsel, or any judgment or decree known to such
counsel of any governmental body, agency or court having jurisdiction over the
Company or any Subsidiary, presently in effect and a breach or violation of
which, a default under which, a termination of which, an acceleration under
which, or a conflict with which would materially and adversely affect the
Company and the Subsidiaries, taken as a whole, or their business, properties,
business prospects, financial condition or results of operations, and no
consent, approval or authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Company of
its obligations under this Agreement and the Representatives' Warrants, except
such as may have been obtained under the Act and the Exchange Act and such as
required by the securities or Blue Sky laws of the various states in connection
with the offer and sale of the Shares by the Underwriters;
-25-
(xi) the statements in the Prospectus insofar as such
statements constitute a summary of documents referred to therein or matters of
law, fairly summarize in all material respects the information called for with
respect to such documents and matters of law;
(xii) each of the Company and each Subsidiary has all
necessary approvals, orders, licenses, registrations, certificates and permits
of and from and have made all declarations and filings with all governmental
regulatory officials and bodies necessary to conduct their business as described
in the Prospectus, except where the failure to have all such authorizations,
approvals, orders, licenses, registrations, certificates and permits or make
such declarations or filings would not, individually or in the aggregate, have a
material adverse effect on the business, properties, business prospects,
condition (financial or otherwise), net worth or results of operations of the
Company and the Subsidiaries taken as a whole.
(xiii) neither the Company nor any of the Subsidiaries is an
"investment company" or a person "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(xiv) to such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened to which the Company or any
Subsidiary are a party or to which any of the properties of the Company is
subject that are required to be described in the Registration Statement or the
Prospectus and are not so described;
(xv) to such counsel's knowledge, no holder of securities of
the Company has rights which have not been waived to require the Company to
register with the Commission shares of Common Stock or other securities as part
of the offering contemplated hereby;
(xvi) such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or Prospectus or any supplements or amendments
thereto which are required to be filed and are not so filed as required, and
each description of such contracts and documents as is contained in the
Registration Statement and Prospectus fairly presents in all material respects
the information required under the Act and the Rules and Regulations;
-26-
(xvii) as of the Effective Date, the Shares were duly
authorized for quotation on the Nasdaq National Market upon official notice of
issuance.
Such counsel shall also state that such counsel has participated in
conferences with representatives of the Underwriters, officers and
representatives of the Company and representatives of the independent certified
public accountants of the Company, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were discussed and
that, although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus (except as set forth
in Section 5(f)(xi)), on the basis of the foregoing, nothing has come to the
attention of such counsel that leads them to believe that (except for financial
statements, schedules and financial information, as to which such counsel need
not express any belief), the Registration Statement and the Prospectus, as
amended, included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading and the Prospectus, as amended or
supplemented, if applicable, as of the date it was filed pursuant to the Rules
and Regulations and as of the Closing Date or the Option Closing Date, as the
case may be, contained any untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
In rendering the foregoing opinions, counsel may rely, to the extent
they deem such reliance proper, on the opinions (in form and substance
reasonably satisfactory to Underwriters' counsel) of other counsel reasonably
acceptable to Underwriters' counsel as to matters governed by the laws of
jurisdictions other than the United States and the Commonwealth of
Massachusetts, and as to matters of fact, upon certificates of officers of the
Company and of government officials; provided that such counsel shall state that
the opinion of any other counsel is in form satisfactory to such counsel and, in
such counsel's opinion, such counsel and the Underwriters are justified in
relying on such opinions of other counsel. Copies of all such opinions and
certificates shall be furnished to counsel to the Underwriters on the Closing
Date or the Option Closing Date, as the case may be.
-27-
g. The Underwriter shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to the Underwriters and counsel for the
Underwriters, from Buc and Beardsley, regulatory counsel for the Company,
covering the following matters:
(i) Any statements set forth in the Registration Statement and
the Prospectus under the captions "Risk Factors -- Stringent Government
Regulation" and "Business -- Government Regulation" (collectively, the "FDA
PORTION") constitute an accurate summary in all material respects of
restrictions applicable to the business of the Company arising under the Federal
Food, Drug, and Cosmetic Act (the "FFDCA") or the regulations thereunder or the
FDA regulation of the business or operations of the Company, or of any legal
matters, documents or proceedings referred to therein and relating to the FFDCA
or the FDA's regulation of the business or operations of the Company or the
Company's compliance therewith.
(ii) To counsel's knowledge, the Company has filed with the
FDA for and received approval of all applications, licenses, registrations, and
permits ("REGULATORY AUTHORIZATIONS") necessary to conduct the business of the
Company described in the Registration Statement and the Prospectus.
(iii) Based upon a review of the FDA Portion, counsel has no
reason to believe that the information contained in the FDA Portion of the
Registration Statement and the Prospectus at the time it became effective
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that on the Closing Date or the Option Closing Date, as the
case may be, the information contained in the FDA Portion of the Prospectus or
any amendments or supplements to the FDA Portion of the Prospectus contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein not misleading.
h. The Underwriters shall have received from the Company the duly
executed Representatives' Warrants.
i. The Underwriters shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date, from
Fulbright & Jaworski L.L.P., counsel to the Underwriters, with respect to the
-28-
Registration Statement, the Prospectus and this Agreement, which opinion shall
be satisfactory in all respects to the Underwriters.
j. The Underwriters shall have received, on or prior to the date
hereof, agreements from all directors, officers and certain shareholders of the
Company in the form attached as Exhibit B hereto holding in the aggregate at
least ____ shares of Common Stock, stating that each of such persons, without
the prior written consent of Oscar Gruss, will not offer to sell, contract to
sell, sell, distribute, grant any option to purchase, pledge, hypothecate or
otherwise dispose of, directly or indirectly, any Common Stock, or any
securities convertible into or exchangeable for Common Stock of the Company
(including, without limitation, Common Stock of the Company that may be deemed
to be beneficially owned by the undersigned in accordance with the rules and
regulations of the Commission and Common Stock that may be issued upon exercise
of a stock option or warrant), or rights to acquire such Common Stock, for a
period of 180 days from the date hereof.
k. At the Effective Date and concurrently with the execution and
delivery of this Agreement, Coopers & Lybrand L.L.P. shall have furnished to the
Underwriters a letter, dated the date of its delivery, addressed to the
Underwriters and in form and substance satisfactory to the Underwriters
confirming that they are independent accountants with respect to the Company as
required by the Act and the Rules and Regulations and with respect to certain
financial and other statistical and numerical information contained in the
Registration Statement. At the Closing Date, and, as to the Option Shares, the
Option Closing Date, Coopers & Lybrand L.L.P. shall have furnished to the
Underwriters a letter, dated the date of its delivery, which shall confirm, on
the basis of a review in accordance with the procedures set forth in the letter
from each accountant, that nothing has come to their attention during the period
from the date of each letter referred to in the prior sentence to a date
(specified in each letter) not more than five days prior to the Closing Date and
the Option Closing Date, as the case may be, which would require any change in
their letter dated the date hereof if it were required to be dated and delivered
at the Closing Date and the Option Closing Date.
l. Concurrently with the execution and delivery of this Agreement and
at the Closing Date and, with respect to the Option Shares, the Option Closing
Date, there shall be furnished to the Underwriters a certificate, dated the date
of its delivery, signed by the Chief Executive Officer and the Chief Financial
Officer of
-29-
the Company, in form and substance satisfactory to the Underwriters, to the
effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, the Registration Statement and the Prospectus do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading and (B) in the case of the certificate delivered at the Closing Date
and the Option Closing Date, since the Effective Date no event has occurred as a
result of which it is necessary to amend or supplement the Prospectus in order
to make the statements therein not untrue or misleading in any material respect.
(ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the time
such certificate is delivered, true and correct.
(iii) Each of the covenants required to be performed by the
Company herein on or prior to the date of such certificate has been duly, timely
and fully performed and each condition herein required to be satisfied or
fulfilled on or prior to the date of such certificate has been duly, timely and
fully satisfied or fulfilled.
m. The Shares shall be qualified for sale in such jurisdictions as the
Underwriters may, pursuant to the provisions of Section 4(f), reasonably
request, and each such qualification shall be in effect and not subject to any
stop order or other proceeding on the Closing Date or the Option Closing Date.
n. Prior to the Closing Date, the Shares shall have been duly
authorized for listing on the Nasdaq National Market upon official notice of
issuance.
o. The Company shall have furnished to the Underwriters such
certificates, in addition to those specifically mentioned herein, as the
Underwriters may have reasonably requested as to the accuracy and completeness
at the Closing Date and the Option Closing Date of any statement in the
Registration Statement or the Prospectus, as to the accuracy at the Closing Date
and the Option Closing Date of the representations and warranties of the Company
herein, as to the performance by the Company of its obligations hereunder, or as
to the fulfillment
-30-
of the conditions concurrent and precedent to the obligations hereunder of the
Underwriters.
6. INDEMNIFICATION
a. The Company will indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each person,
if any, who controls, within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, each Underwriter, from and against any and all losses,
claims, liabilities, expenses and damages (including any and all investigative,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted) to
which they, or any of them, may become subject under the Act, the Exchange Act
or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages (i)
arise out of or are based on any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, or the omission or alleged omission to state in
such document a material fact required to be stated in it or necessary to make
the statements in it not misleading, (ii) arise out of or are based in whole or
in part on any inaccuracy in the representations and warranties of the Company
contained herein, or (iii) arise out of or are based upon any failure of the
Company to perform its obligations hereunder or under law in connection with the
transactions contemplated hereby; provided that the Company will not be liable
to the extent that such loss, claim, liability, expense or damage arises from
the sale of the Shares in the public offering to any person by an Underwriter
and is based on an untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company expressly for inclusion in the
Registration Statement, the preliminary prospectus or the Prospectus, or any
amendment or supplement thereto. The Company acknowledges that the statements
set forth in the first two paragraphs under the heading "Underwriting" in the
preliminary prospectus and the Prospectus constitute the only information
relating to any Underwriter furnished in writing to the Company expressly for
inclusion in the Registration Statement, the preliminary prospectus or the
Prospectus. This indemnity will be in addition to any liability that the Company
might otherwise have.
-31-
b. Each Underwriter will indemnify and hold harmless the Company, each
director of the Company and each officer of the Company who signs the
Registration Statement and each person, if any, who controls, within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, the Company, to the
same extent as the foregoing indemnity from the Company to each Underwriter, as
set forth in Section 6(a), but only insofar as losses, claims, liabilities,
expenses or damages arise out of or are based on any untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to any Underwriter furnished in writing to
the Company expressly for use in the Registration Statement, the preliminary
prospectus or the Prospectus, or any amendment or supplement thereto. The
Company acknowledges that the statements set forth in the first two paragraphs
under the heading "Underwriting" in the preliminary prospectus and the
Prospectus constitute the only information relating to any Underwriter furnished
in writing to the Company by the Underwriters expressly for inclusion in the
Registration Statement, the preliminary prospectus or the Prospectus. This
indemnity will be in addition to any liability that each Underwriter might
otherwise have.
c. Any party that proposes to assert the right to be indemnified under
this Section 6 shall, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 6, notify each such
indemnifying party in writing of the commencement of such action, enclosing with
such notice a copy of all papers served, but the omission so to notify such
indemnifying party will not relieve it from any liability that it may have to
any indemnified party under the foregoing provisions of this Section 6 unless,
and only to the extent that, such omission results in the loss of substantive
rights or defenses by the indemnifying party. If any such action is brought
against any indemnified party and it notifies the indemnifying party of its
commencement, the indemnifying party will be entitled to participate in and, to
the extent that it elects by delivering written notice to the indemnified party
promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly notified,
to assume the defense of the action, with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense, the indemnifying party will not be
liable to the indemnified party for any legal or other expenses except as
provided below and except for the reasonable costs of investigation subsequently
incurred by the indemnified party in connection with the defense. The
indemnified
-32-
party will have the right to employ its own counsel in any such action, but the
fees, expenses and other charges of such counsel will be at the expense of such
indemnified party unless (i) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (ii) there are legal
defenses available to it or other indemnified parties that are different from or
in addition to those available to the indemnifying party, (iii) the indemnified
party has reasonably concluded that a conflict or potential conflict exists
(based on advice of counsel to the indemnified party) between the indemnified
party and the indemnifying party (in which case the indemnifying party will not
have the right to direct the defense of such action on behalf of the indemnified
party), or (iv) the indemnifying party has not in fact employed counsel to
assume the defense of such action within a reasonable time after receiving
notice of the commencement of the action, in each of which cases the reasonable
fees, disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm admitted to practice in such
jurisdiction at any one time for all such indemnified party or parties. All such
fees, disbursements and other charges will be reimbursed by the indemnifying
party promptly as they are incurred. Any indemnifying party will not be liable
for any settlement of any action or claim effected without its written consent
(which consent will not be unreasonably withheld or delayed).
d. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 6 is applicable in accordance with its terms, but for
any reason is held to be unavailable from the Company or the Underwriters, the
indemnifying party will contribute to the total losses, claims, liabilities,
expenses and damages (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted, but after deducting any
contribution received by the Company from persons other than the Underwriters,
such as persons who control the Company within the meaning of the Act, officers
of the Company who signed the Registration Statement and directors of the
Company, who also may be liable for contribution) to which the Company and any
one or more of the Underwriters may be subject in such proportion as shall be
appropriate to reflect the relative benefits received by the Company and the
Underwriters. The relative benefits received by the Company and the Underwriters
shall be deemed to be in the same proportion
-33-
as the total net proceeds from the offering (before deducting expenses) received
by the Company bears to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. If, but only if, the allocation provided by the
foregoing sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to reflect not
only the relative benefits referred to in the foregoing sentence, but also the
relative fault of the Company and the Underwriters with respect to the
statements or omissions which resulted in such loss, claim, liability, expense
or damage, or action in respect thereof, as well as any other relevant equitable
considerations with respect to such offering. Such relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or the Underwriters, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 6(d) were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, liability, expense or damage, or action in respect
thereof, referred to above in this Section 6(d) shall be deemed to include, for
purpose of this Section 6(d), any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 6(d), no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts received by it and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 6(d) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 6(d), any person who
controls a party to this Agreement within the meaning of the Act will have the
same rights to contribution as that party, and each officer of the Company who
signed the Registration Statement will have the same rights to contribution as
the Company, subject in each case to the provisions hereof. Any party entitled
to contribution, promptly after receipt of notice of commencement of any action
against any such party in respect of which a claim for contribution may be made
under this Section 6(d), will notify any such party or
-34-
parties from whom contribution may be sought from any other obligation it or
they may have under this Section 6(d). No party will be liable for contribution
with respect to any action or claim settled without its written consent (which
consent will not be unreasonably withheld or delayed).
e. The indemnity and contribution agreements contained in this Section
6 and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any investigation made by or on behalf of the Underwriters, (ii) acceptance of
any of the Shares and payment therefor, or (iii) any termination of this
Agreement
7. REIMBURSEMENT OF CERTAIN EXPENSES
In addition to its other obligations under Section 6(a) of this
Agreement, the Company hereby agrees to reimburse the Underwriters on a
quarterly basis for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon in whole or part, (i)
as described in Section 6(a), any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, or the omission or alleged omission to state in
such document a material fact required to be stated in it or necessary to make
the statements in it not misleading, (ii) any inaccuracy in the representations
and warranties of the Company contained herein, or (iii) any failure of the
Company to perform its obligations hereunder or under law in connection with the
transactions contemplated hereby, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 7 and the possibility that such payment might later be held to be
improper; provided, however, that, to the extent any such payment is ultimately
held to be improper, the persons receiving such payments shall promptly refund
them.
8. TERMINATION
The obligations of the several Underwriters under this Agreement may be
terminated at any time on or prior to the Closing Date (or, with respect to the
Option Shares, on or prior to the Option Closing Date), by notice to the Company
from the Underwriters, without liability on the part of any Underwriter to the
-35-
Company if, prior to delivery and payment for the Firm Shares or Option Shares,
as the case may be, in the sole judgment of the Underwriters, (a) trading in any
of the equity securities of the Company shall have been suspended by the
Commission or by the Nasdaq National Market, (b) trading in securities generally
on the New York Stock Exchange or the Nasdaq National Market shall have been
suspended or limited or minimum or maximum prices shall have been generally
established on such exchange, or additional material governmental restrictions,
not in force on the date of this Agreement, shall have been imposed upon trading
in securities generally by such exchange or by order of the Commission or any
court or other governmental authority, (c) a general banking moratorium shall
have been declared by either Federal or New York State authorities, (d) any
material adverse change in the financial or securities markets in the United
States, or in political, financial or economic conditions in the United States
or any outbreak or material escalation of hostilities or other calamity or
crises, shall have occurred, the effect of which is such as to make it, in the
sole judgment of the Underwriters, impracticable to market the Shares, (e) there
has been a material adverse change since the respective dates as of which
information is given in the Registration Statement and the Prospectus in the
general affairs, business, business prospects, properties, management, condition
(financial or otherwise), net worth or results of operations of the Company or
any Subsidiary, whether or not arising from transactions in the ordinary course
of business, in each case other than as described in or contemplated by the
Registration Statement and the Prospectus, or (f) the Company or any Subsidiary
has sustained any material loss or interference with its business or properties
from fire, explosion, flood, earthquake or other casualty, whether or not
covered by insurance, or from any labor dispute or any court or legislative or
other government action, order or decree, which is not described in the
Registration Statement and the Prospectus, if in the judgment of the
Underwriters any such development makes it impracticable or inadvisable to
consummate the sale and delivery of the Shares by the Underwriters at the public
offering price.
9. SUBSTITUTION OF UNDERWRITERS
If any one or more of the Underwriters shall fail or refuse to purchase
the Shares which it or they have agreed to purchase hereunder, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of Shares, the other Underwriters shall be obligated, severally, to purchase the
-36-
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase, in the proportions which the number of Shares which they
have respectively agreed to purchase pursuant to Section 1 bears to the
aggregate number of Shares which all such nondefaulting Underwriters have so
agreed to purchase, or in such other proportions as the Underwriters may
specify, provided that in no event shall the maximum number of Shares which any
Underwriter has become obligated to purchase pursuant to Section 1 be increased
pursuant to this Section 9 by more than one-ninth of such number of Shares
without the prior written consent of such Underwriter. If any Underwriter or
Underwriters shall fail or refuse to purchase any Shares and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase exceeds one-tenth of the aggregate number of the
Shares and arrangements satisfactory to the Underwriters and the Company for the
purchase of such Shares are not made within 48 hours after such default, this
Agreement will terminate without liability on the part of any nondefaulting
Underwriter or the Company for the purchase or sale of any Shares under this
Agreement. In any such case which does not result in termination of this
Agreement, either the Underwriters or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and the
Prospectus or in any other documents or arrangements may be effected. Any action
taken pursuant to this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
10. MISCELLANEOUS
Notice given pursuant to any of the provisions of this Agreement shall
be in writing and, unless otherwise specified, shall be mailed or delivered (a)
if to the Company, at the offices of the Company, 375 West Street, West
Bridgewater, Massachusetts 02379,, Attention: President, with a copy to Steven
R. London, Esq., Brown, Rudnick, Freed & Gesmer, One Financial Center, Boston,
Massachusetts 02111, and (b) if to the Underwriters, c/o Oscar Gruss & Son
Incorporated, 74 Broad Street, New York, New York 10004, Attention: Stephen
McGrath, Managing Director, with a copy to Paul Jacobs, Esq., Fulbright &
Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103. Any such notice
shall be effective only upon receipt. Any notice may be made by telex or
telephone, but if so made shall be subsequently confirmed in writing.
-37-
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company and the controlling persons, directors and
officers referred to in Section 6, and their respective successors and assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "SUCCESSORS AND ASSIGNS" as used in this Agreement shall not
include a purchaser, as such, of Shares from any of the several Underwriters.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts made and to be
performed entirely within such State.
This Agreement may not be amended or modified except in a writing
signed by both parties.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Please confirm that the foregoing correctly sets forth the Agreement
among the Company and the several Underwriters.
-38-
Very truly yours,
BOSTON BIOMEDICA, INC.
By: ____________________________________
Title: _________________________________
The foregoing Agreement is hereby confirmed
and accepted as of the date first above
written on behalf of themselves and the
other several Underwriters named in Schedule
I hereto.
KAUFMAN BROS., L.P.
As Representatives of the several Underwriters
By: OSCAR GRUSS & SON INCORPORATED
By: _______________________________
Title: _______________________________
-39-
SCHEDULE I
SCHEDULE OF UNDERWRITERS
NUMBER OF
FIRM
SHARES
UNDERWRITERS TO BE PURCHASED
- ------------ ---------------
Oscar Gruss & Son Incorporated...............................
Kaufman Bros., L.P...........................................
---------
Total...................................... 1,600,000
=========
-40-
EXHIBIT A
[REPRESENTATIVES' WARRANT]
WARRANT
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
VOID AFTER 5:00 P.M., NEW YORK TIME, ON [insert date of fifth
anniversary of closing] _______________, 2001, OR IF NOT A BUSINESS
DAY, AS DEFINED HEREIN, AT 5:00 P.M., NEW YORK TIME, ON THE NEXT
FOLLOWING BUSINESS DAY.
WARRANT TO PURCHASE
[-----------------]
SHARES OF COMMON STOCK
OF
BOSTON BIOMEDICA, INC.
No. W-___
This certifies that, for and in consideration of services rendered and
in connection with the initial public offering of Common Stock of the Company
named below (the "OFFERING") and other good and valuable consideration, [Oscar
Gruss & Son Incorporated/Kaufman Bros., L.P.] and its registered, permitted
assigns (collectively, the "WARRANTHOLDER"), is entitled to purchase from Boston
Biomedica, Inc., a corporation incorporated under the laws of the Commonwealth
of Massachusetts (the "COMPANY"), subject to the terms and conditions hereof, at
any time on or after 9:00 a.m., New York time, on [insert date of closing]
_____________,
A-1
1997 and before 5:00 p.m., New York time on [insert date of fifth anniversary at
closing] ______________, 2001 (or, if such day is not a Business Day, at or
before 5:00 p.m., New York time, on the next following Business Day), up to
160,000 fully paid and nonassessable shares of Common Stock of the Company at
the Exercise Price (as defined herein). The Exercise Price and the number of
shares purchasable hereunder are subject to adjustment from time to time as
provided in Article 3 hereof.
ARTICLE 1
DEFINITION OF TERMS
As used in this Warrant, the following capitalized terms shall have the
following respective meanings:
(a) Business Day: A day other than a Saturday, Sunday or other day on
which banks in the State of New York are authorized by law to remain closed.
(b) Common Stock: Common Stock, $.01 par value per share, of the
Company.
(c) Common Stock Equivalents: Securities that are convertible into or
exercisable for shares of Common Stock.
(d) Demand Registration: See Section 6.2.
(e) Exchange Act: The Securities Exchange Act of 1934, as amended.
(f) Exercise Price: $___ per Warrant Share, equal to 135% of the
initial price to public in the offering as set forth on the cover page of the
prospectus, dated _____, 1996, with respect to the initial public offering of
the Company's Common Stock, as such price may be adjusted from time to time
pursuant to Article 3 hereof.
(g) Expiration Date: 5:00 p.m., New York time, on [fifth anniversary of
closing] _____________, 2001, or if such day is not a Business Day, the next
succeeding day which is a Business Day.
(h) Holder: A Holder of Registrable Securities.
A-2
(i) NASD: National Association of Securities Dealers, Inc.
(j) Net Issuance Exercise Date: See Section 2.3.
(k) Net Issuance Right: See Section 2.3.
(l) Net Issuance Warrant Shares: See Section 2.3.
(m) Person: An individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof.
(n) Piggyback Registration: See Section 6.1.
(o) Prospectus: Any prospectus included in any Registration Statement,
as amended or supplemented by any prospectus supplement, or to which a Term
Sheet (as defined in Rule 434 under the Securities Act) relates, with respect to
the terms of the offering of any portion of the Registrable Securities covered
by such Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments and all materials incorporated
by reference in such Prospectus.
(p) Public Offering: A public offering of any of the Company's equity
or debt securities pursuant to Registration Statement under the Securities Act.
(q) Registrable Securities: Any Warrant Shares issued to __________
[Oscar Gruss & Son Incorporated/Kaufman Bros., L.P.] and/or its designees or
transferees and/or other securities that may be or are issued by the Company
upon exercise of the Warrants, including those which may thereafter be issued by
the Company in respect of any such securities by means of any stock splits,
stock dividends, recapitalizations, reclassifications or the like, and as
adjusted pursuant to Article 3 hereof; provided, however, that as to any
particular security contained in Registrable Securities, such securities shall
cease to be Registrable Securities when (i) a Registration Statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such Registration Statement; or (ii) they shall have been sold to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act.
A-3
(r) Registration Expenses: Any and all expenses incurred in connection
with any registration or action incident to performance of or compliance by the
Company with Article 6, including, without limitation, (i) all SEC, national
securities exchange and NASD registration and filing fees; all listing fees and
all transfer agent fees; (ii) all fees and expenses of complying with state
securities or blue sky laws (including the fees and disbursements of counsel of
the underwriters in connection with blue sky qualifications of the Registrable
Securities); (iii) all printing, mailing, messenger and delivery expenses; (iv)
all fees and disbursements of counsel for the Company and of its accountants,
including the expenses of any special audits and/or "cold comfort" letters
required by or incident to such performance and compliance; and (v) any
disbursements of underwriters customarily paid by issuers or sellers of
securities including the reasonable fees and expenses of any special experts
retained by the underwriters in connection with the requested registration, but
excluding underwriting discounts and commissions, brokerage fees and transfer
taxes, if any, and fees of counsel or accountants retained by the holders of
Registrable Securities to advise them in their capacity as Holders of
Registrable Securities.
(s) Registration Statement: Any registration statement of the Company
filed or to be filed with the SEC which covers any of the Registrable Securities
pursuant to the provisions of this Agreement, including all amendments
(including post-effective amendments) and supplements thereto, all exhibits
thereto and all material incorporated therein by reference.
(t) SEC: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act and the Exchange Act.
(u) Securities Act: The Securities Act of 1933, as amended.
(v) 25% Holders: At any time as to which a Demand Registration is
requested, the Holder and/or the holders of any other Warrants and/or the
holders of Warrant Shares who have the right to acquire or hold, as the case may
be, not less than 25% of the combined total of Warrant Shares issuable and
Warrant Shares outstanding (other than Warrant Shares which are no longer
Registrable Securities by reason of the proviso to the definition of the term
"Registrable Securities") at the time such Demand Registration is requested.
A-4
(w) Warrant Shares: Common Stock, Common Stock Equivalents and other
securities purchased or purchasable upon exercise or conversion of the Warrants.
(x) Warrantholder: The person(s) or entity(ies) to whom this Warrant is
originally issued, or any successor in interest thereto, or any assignee or
transferee thereof, in whose name this Warrant is registered upon the books to
be maintained by the Company for that purpose.
(y) Warrants: This Warrant, all other warrants issued on the date
hereof and all other warrants that may be issued in its or their place (together
evidencing the right to purchase an aggregate of up to 160,000 shares of Common
Stock), originally issued as set forth in the definition of Registrable
Securities.
ARTICLE 2
DURATION AND EXERCISE OF WARRANT
2.1 DURATION OF WARRANT
The Warrantholder may exercise this Warrant at any time and from time
to time after 9:00 a.m., New York time, on ____________, 1997 [one year after
the date of closing] and before 5:00 p.m., New York time, on the Expiration
Date. If this Warrant is not exercised on the Expiration Date, it shall become
void, and all rights hereunder shall thereupon cease.
2.2 METHOD OF EXERCISE
(a) The Warrantholder may exercise this Warrant, in whole or
in part, by presentation and surrender of this Warrant to the Company at its
corporate office at 375 West Street, West Bridgewater, Massachusetts 62379, or
at the office of its stock transfer agent, if any, with the Exercise Form
annexed hereto duly executed and, in the event of an exercise for cash pursuant
to Section 2.3(a), accompanied by payment of the full Exercise Price for each
Warrant Share to be purchased.
(b) Upon receipt of this Warrant with the Exercise Form fully
executed and, in the event of an exercise for cash pursuant to Section 2.3(a),
A-5
accompanied by payment of the aggregate Exercise Price for the Warrant Shares
for which this Warrant is then being exercised, the Company shall cause to be
issued certificates for the total number of whole shares of Common Stock for
which this Warrant is being exercised (adjusted to reflect the effect of the
anti-dilution provisions contained in Article 3 hereof, if any, and as provided
in Section 2.4 hereof) in such denominations as are requested for delivery to
the Warrantholder, and the Company shall thereupon deliver such certificates to
the Warrantholder. A net issuance exercise pursuant to Section 2.3(b) shall be
effective upon receipt by the Company of this Warrant together with the
aforesaid written statement, or on such later date as is specified therein (the
"NET ISSUANCE EXERCISE DATE"), and, at the election of the Holder hereof, may be
made contingent upon the closing of the sale of the Warrant Shares in a Public
Offering. The Warrantholder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise as of the time of receipt of
the Exercise Form and payment in accordance with the preceding sentence, in the
case of an exercise for cash pursuant to Section 2.3(a), or as of the Net
Issuance Exercise Date, in the case of a net issuance exercise pursuant to
Section 2.3(b), notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be actually delivered to the Warrantholder. If at the time
this Warrant is exercised, a Registration Statement is not in effect to register
under the Securities Act the Warrant Shares issuable upon exercise of this
Warrant, the Company may, in the case of an exercise for cash pursuant to
Section 2.3(a) or in the case of a net issuance exercise prior to the
satisfaction of any holding period required by Rule 144 promulgated under the
Securities Act, require the Warrantholder to make such representations, and may
place the legends on certificates representing the Warrant Shares, as may be
reasonably required in the opinion of counsel to the Company to permit the
Warrant Shares to be issued without such registration.
(c) In case the Warrantholder shall exercise this Warrant with
respect to less than all of the Warrant Shares that may be purchased under this
Warrant, the Company shall execute as of the exercise date (or, if later, the
Net Issuance Exercise Date) a new warrant in the form of this Warrant for the
balance of such Warrant Shares and deliver such new warrant to the Warrantholder
within 10 days following the exercise date (or, if later, the Net Issuance
Exercise Date).
(d) The Company shall pay any and all stock transfer and
similar taxes which may be payable in respect of the issuance of any Warrant
Shares.
A-6
2.3 EXERCISE OF WARRANT
(a) Right to Exercise for Cash. This Warrant may be exercised
by the Holder by delivery of payment to the Company, for the account of the
Company, by cash, by certified or bank cashier's check or by wire transfer, of
the Exercise Price for the number of Warrant Shares specified in the Exercise
Form in lawful money of the United States of America.
(b) Right to Exercise on a Net Issuance Basis. In lieu of
exercising this Warrant for cash pursuant to Section 2.3(a), the Holder shall
have the right to exercise this Warrant or any portion thereof (the "NET
ISSUANCE RIGHT") into shares of Common Stock as provided in this Section 2.3(b)
at any time or from time to time during the period specified in Section 2.1
hereof by the surrender of this Warrant to the Company with a duly executed and
completed Exercise Form marked to reflect net issuance exercise. Upon exercise
of the Net Issuance Right with respect to a particular number of shares subject
to this Warrant and noted on the Exercise Form (the "NET ISSUANCE WARRANT
SHARES"), the Company shall deliver to the Holder (without payment by the Holder
of any Exercise Price or any cash or other consideration) (X) that number of
shares of fully paid and nonassessable Common Stock equal to the quotient
obtained by dividing the value of this Warrant (or the specified portion hereof)
on the Net Issuance Exercise Date, which value shall be determined by
subtracting (A) the aggregate Exercise Price of the Net Issuance Warrant Shares
immediately prior to the exercise of the Net Issuance Right from (B) the
aggregate fair market value of the Net Issuance Warrant Shares issuable upon
exercise of this Warrant (or the specified portion hereof) on the Net Issuance
Exercise Date (as herein defined) by (Y) the fair market value of one share of
Common Stock on the Net Issuance Exercise Date (as herein defined).
Expressed as a formula, such net issuance exercise shall be computed as
follows:
X = B-A
Y
Where: X = the number of shares of Common Stock that may be
issued to the Holder
A-7
Y = the fair market value ("FMV") of one share of Common
Stock as of the Net Issuance Exercise Date
A = the aggregate Exercise Price (i.e., the product
determined by multiplying the Net Issuance Warrant
Shares by the Exercise Price)
B = the aggregate FMV (i.e., the product determined by
multiplying the FMV by the Net Issuance Warrant
Shares)
(c) Determination of Fair Market Value. For purposes of this
Section 2.3, "FAIR MARKET VALUE" of a share of Common Stock as of the Net
Issuance Exercise Date shall mean:
(i) if the Net Issuance Right is exercised in
connection with and contingent upon a Public Offering, and if the Company's
Registration Statement relating to such Public Offering has been declared
effective by the SEC, then the initial "Price to Public" specified in the final
Prospectus with respect to such offering.
(ii) if the Net Issuance Right is not exercised in
connection with and contingent upon a Public Offering, then as follows:
(A) If traded on a securities exchange, the fair
market value of the Common Stock shall be deemed to be the average of
the closing prices of the Common Stock on such exchange over the 30-day
period ending five business days prior to the Net Issuance Exercise
Date;
(B) If traded on the Nasdaq National Market or the
Nasdaq SmallCap Market, the fair market value of the Common Stock shall
be deemed to be the average of the last reported sales prices of the
Common Stock on such Market over the 30-day period ending five business
days prior to the Net Issuance Exercise Date;
(C) If traded over-the-counter other than on the
Nasdaq National Market or the Nasdaq SmallCap Market, the fair market
value of the Common Stock shall be deemed to be the average of the
closing bid
A-8
prices of the Common Stock over the 30-day period ending five business
days prior to the Net Issuance Exercise Date; and
(D) If there is no public market for the Common
Stock, then fair market value shall be determined by mutual agreement
of the Warrantholder and the Company, and if the Warrantholder and the
Company are unable to so agree, at the Company's sole expense, by an
investment banker of national reputation selected by the Company and
reasonably acceptable to the Warrantholder.
2.4 RESERVATION OF SHARES
The Company hereby agrees that at all times there shall be reserved for
issuance and delivery upon exercise of this Warrant such number of shares of
Common Stock or other shares of capital stock of the Company from time to time
issuable upon exercise of this Warrant. All such shares shall be duly
authorized, and when issued upon such exercise, shall be validly issued, fully
paid and non-assessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale (except as contemplated
by Sections 2.2(b) and 5.2) and free and clear of all preemptive and other
similar rights.
2.5 FRACTIONAL SHARES
The Company shall not be required to issue any fraction of a share of
its capital stock in connection with the exercise of this Warrant, and in any
case where the Warrantholder would, except for the provisions of this Section
2.5, be entitled under the terms of this Warrant to receive a fraction of a
share upon the exercise of this Warrant, the Company shall, upon the exercise of
this Warrant, pay to the Warrantholder an amount in cash equal to the fair
market value of such fractional share as of the exercise date (or, if applicable
and a later date, the Net Issuance Exercise Date).
2.6 LISTING
Prior to the issuance of any shares of Common Stock upon exercise of
this Warrant, the Company shall secure the listing of such shares of Common
Stock upon each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed (subject to official
notice of
A-9
issuance upon exercise of this Warrant) and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, and shall maintain such listing of, any other shares of
capital stock of the Company issuable upon the exercise of this Warrant if and
so long as any shares of the same class shall be listed on such national
securities exchange or automated quotation system.
ARTICLE 3
ADJUSTMENT OF SHARES OF COMMON STOCK
PURCHASABLE AND OF EXERCISE PRICE
The Exercise Price and the number and kind of Warrant Shares shall be
subject to adjustment from time to time upon the happening of certain events as
provided in this Article 3.
3.1 MECHANICAL ADJUSTMENTS
(a) If at any time prior to the exercise of this Warrant in
full, the Company shall (i) declare a dividend or make a distribution on the
Common Stock payable in shares of its capital stock (whether shares of Common
Stock or of capital stock of any other class); (ii) subdivide, reclassify or
recapitalize its outstanding Common Stock into a greater number of shares; (iii)
combine, reclassify or recapitalize its outstanding Common Stock into a smaller
number of shares; or (iv) issue any shares of its capital stock by
reclassification of its Common Stock (including any such reclassification in
connection with a consolidation or a merger in which the Company is the
continuing corporation), the number of Warrant Shares issuable upon exercise of
the Warrant and/or the Exercise Price in effect at the time of the record date
of such dividend, distribution, subdivision, combination, reclassification or
recapitalization shall be adjusted so that the Warrantholder shall be entitled
to receive the aggregate number and kind of shares which, if this Warrant had
been exercised in full immediately prior to such event, the Warrantholder would
have owned upon such exercise and been entitled to receive by virtue of such
dividend, distribution, subdivision, combination, reclassification or
recapitalization. Any adjustment required by this Section 3.1(a) shall be made
successively immediately after the record date, in the case of a
A-10
dividend or distribution, or the effective date, in the case of a subdivision,
combination, reclassification or recapitalization, to allow the purchase of such
aggregate number and kind of shares.
(b) If any time prior to the exercise of this Warrant in full,
the Company shall fix a record date for the issuance or making of a distribution
to all holders of the Common Stock (including any such distribution to be made
in connection with a consolidation or merger in which the Company is to be the
continuing corporation) of evidences of its indebtedness, any other securities
of the Company or any cash, property or other assets (excluding a combination,
reclassification or recapitalization referred to in Section 3.1(a), regular cash
dividends or cash distributions paid out of net profits legally available
therefor and in the ordinary course of business if the full amount thereof,
together with the value of other dividends and distributions made substantially
concurrently therewith or pursuant to a plan which includes payment thereof, is
equivalent to not more than 5% of the Company's net worth, or subscription
rights, options or warrants for Common Stock or Common Stock Equivalents
(excluding those referred to in Section 3.1(b)) (any such nonexcluded event
being herein called a "SPECIAL DIVIDEND")), the Exercise Price shall be
decreased immediately after the record date for such Special Dividend to a price
determined by multiplying the Exercise Price then in effect by a fraction, the
numerator of which shall be the then current market price of the Common Stock
(as defined in Section 3.1(e)) on such record date less the fair market value
(as determined in good faith by the Board of Directors of the Company) of the
evidences of indebtedness, securities or property, or other assets issued or
distributed in such Special Dividend applicable to one share of Common Stock or
of such subscription rights or warrants applicable to one share of Common Stock
and the denominator of which shall be the then current market price per share of
Common Stock (as so determined). Any adjustments required by this Section 3.1(b)
shall be made successively whenever such a record date is fixed and in the event
that such distribution is not so made, the Exercise Price shall again be
adjusted to be the Exercise Price that was in effect immediately prior to such
record date.
(c) If at any time prior to the exercise of this Warrant in
full, the Company shall make a distribution to all holders of the Common Stock
of stock of a subsidiary or securities convertible into or exercisable for such
stock, then in lieu of an adjustment in the Exercise Price or the number of
Warrant Shares purchasable upon the exercise of this Warrant, each
Warrantholder, upon the exercise hereof
A-11
at any time after such distribution, shall be entitled to receive from the
Company, such subsidiary or both, as the Company shall determine, the stock or
other securities to which such Warrantholder would have been entitled if such
Warrantholder had exercised this Warrant immediately prior thereto, all subject
to further adjustment as provided in this Article 3, and the Company shall
reserve, for the life of the Warrant, such securities of such subsidiary or
other corporation; provided, however, that no adjustment in respect of dividends
or interest on such stock or other securities shall be made during the term of
this Warrant or upon its exercise.
(d) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to one or more of paragraphs (a) and (b) of this
Section 3.1, the Warrant Shares shall simultaneously be adjusted by multiplying
the number of Warrant Shares initially issuable upon exercise of each Warrant by
the Exercise Price in effect on the date thereof and dividing the product so
obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under this Section 3.1,
the current market price per share of Common Stock at any date shall be deemed
to be the average of the daily closing prices for 20 consecutive trading days
commencing 30 trading days before such date. The closing price for each day
shall be the last sale price regular way or, in case no such reported sales take
place on such day, the average of the last reported bid and asked prices regular
way, in either case on the principal national securities exchange on which the
Common Stock is admitted to trading or listed, or if not listed or admitted to
trading on such exchange, the representative closing bid price as reported by
Nasdaq, or other similar organization if Nasdaq is no longer reporting such
information, or if not so available, the fair market price as determined in good
faith by the Board of Directors of the Company.
(f) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least five
cents ($.05) in such price; provided, however, that any adjustments which by
reason of this paragraph (f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 3.1 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Notwithstanding anything in this
Section 3.1 to the contrary, the
A-12
Exercise Price shall not be reduced to less than the then existing par value of
the Common Stock as a result of any adjustment made hereunder.
(g) In the event that at any time, as a result of any
adjustment made pursuant to Section 3.1(a), the Warrantholder thereafter shall
become entitled to receive any shares of the Company other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of any
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in this Section 3.1.
(h) In case any event shall occur as to which the other
provisions of this Article 3 are not strictly applicable but as to which the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof then, in each such case, the Warrantholders representing the
right to purchase a majority of the Warrant Shares subject to all outstanding
Warrants may appoint a firm of independent public accountants of recognized
national standing reasonably acceptable to the Company, which shall give their
opinion as to the adjustment, if any, on a basis consistent with the essential
intent and principles established herein, necessary to preserve the purchase
rights represented by the Warrants. Upon receipt of such opinion, the Company
will promptly mail a copy thereof to the Warrantholder and shall make the
adjustments described therein. The fees and expenses of such independent public
accountants shall be borne by the Company.
(i) If, as a result of an adjustment made pursuant to this
Article 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall determine the allocation of the adjusted Exercise Price between or among
shares or such classes of capital stock or shares of Common Stock and other
capital stock.
3.2 NOTICES OF ADJUSTMENT
A-13
Whenever the number of Warrant Shares or the Exercise Price is adjusted
as herein provided, the Company shall prepare and deliver forthwith to the
Warrantholder a certificate signed by its President, and by any Vice President,
Treasurer or Secretary, setting forth the adjusted number of shares purchasable
upon the exercise of this Warrant and the Exercise Price of such shares after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which adjustment was made.
3.3 NO ADJUSTMENT FOR DIVIDENDS
Except as provided in Section 3.1 of this Agreement, no adjustment in
respect of any cash dividends shall be made during the term of this Warrant or
upon the exercise of this Warrant.
3.4 PRESERVATION OF PURCHASE RIGHTS IN CERTAIN TRANSACTIONS
In case of any reclassification, capital reorganization or other change
of outstanding shares of Common Stock (other than a subdivision or combination
of the outstanding Common Stock and other than a change in the par value of the
Common Stock) or in case of any consolidation or merger of the Company with or
into another corporation (other than merger with a subsidiary in which the
Company is the continuing corporation and that does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant) or in the
case of any sale, lease, transfer or conveyance to another corporation of the
property and assets of the Company as an entirety or substantially as an
entirety, the Holder of this Warrant shall have the right thereafter to receive
on the exercise of this Warrant the kind and amount of securities, cash or other
property which the Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Article 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Article 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this
A-14
Warrant. The provisions of this Section 3.4 shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The issuer of any shares of stock or other
securities or property thereafter deliverable on the exercise of this Warrant
shall be responsible for all of the agreements and obligations of the Company
hereunder. Notice of any such reorganization, reclassification, consolidation,
merger, statutory exchange, sale or conveyance and of said provisions so
proposed to be made, shall be mailed to the Holders of the Warrants not less
than 30 days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes.
3.5 FORM OF WARRANT AFTER ADJUSTMENTS
The form of this Warrant need not be changed because of any adjustments
in the Exercise Price or the number or kind of the Warrant Shares, and Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in this Warrant, as initially issued.
3.6 TREATMENT OF WARRANTHOLDER
Prior to due presentment for registration of transfer of this Warrant,
the Company may deem and treat the Warrantholder as the absolute owner of this
Warrant (notwithstanding any notation of ownership or other writing hereon) for
all purposes and shall not be affected by any notice to the contrary.
ARTICLE 4
OTHER PROVISIONS RELATING TO RIGHTS OF WARRANTHOLDER
4.1 NO RIGHTS AS SHAREHOLDERS; NOTICE TO WARRANTHOLDERS
Nothing contained in this Warrant shall be construed as conferring upon
the Warrantholder or his, her or its transferees the right to vote or to receive
dividends or to consent or to receive notice as a shareholder in respect of any
meeting of shareholders for the election of directors of the Company or of any
other matter, or any rights whatsoever as shareholders of the Company. The
Company shall give
A-15
notice to the Warrantholder by registered mail if at any time prior to the
expiration or exercise in full of the Warrants, any of the following events
shall occur:
(a) the Company shall authorize the payment of any dividend
payable in any securities upon shares of Common Stock or authorize the
making of any distribution (other than a cash dividend subject to the
parenthetical set forth in Section 3.1(b)) to all holders of Common
Stock;
(b) the Company shall authorize the issuance to all holders of
Common Stock of any additional shares of Common Stock or Common Stock
Equivalents or of rights, options or warrants to subscribe for or
purchase Common Stock or Common Stock Equivalents or of any other
subscription rights, options or warrants;
(c) a dissolution, liquidation or winding up of the Company
shall be proposed; or
(d) a capital reorganization or reclassification of the Common
Stock (other than a subdivision or combination of the outstanding
Common Stock and other than a change in the par value of the Common
Stock) or any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the
Company is the continuing corporation and that does not result in any
reclassification or change of Common Stock outstanding) or in the case
of any sale or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety.
Such notice shall be given (i) at least 10 Business Days prior to the
date fixed as a record date or effective date or the date of closing of the
Company's stock transfer books for the determination of the shareholders
entitled to such dividend, distribution or subscription rights, or for the
determination of the shareholders entitled to vote on such proposed merger,
consolidation, sale, conveyance, dissolution, liquidation or winding up. Such
notice shall specify such record date or the date of closing the stock transfer
books, as the case may be. Failure to provide such notice shall not affect the
validity of any action taken in connection with such dividend, distribution or
subscription rights, or proposed merger, consolidation, sale, conveyance,
dissolution, liquidation or winding up.
A-16
4.2 LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS
If this Warrant is lost, stolen, mutilated or destroyed, the Company
may, on such terms as to indemnity or otherwise as it may in its reasonable
judgment impose (which shall, in the case of a mutilated Warrant, include the
surrender thereof), issue a new Warrant of like denomination and tenor as, and
in substitution for, this Warrant.
ARTICLE 5
SPLIT-UP, COMBINATION, EXCHANGE AND
TRANSFER OF WARRANTS AND WARRANT SHARES
5.1 SPLIT-UP, COMBINATION AND EXCHANGE OF WARRANTS
This Warrant may be split up, combined or exchanged for another Warrant
or Warrants containing the same terms to purchase a like aggregate number of
Warrant Shares. If the Warrantholder desires to split up, combine or exchange
this Warrant, he, she or it shall make such request in writing delivered to the
Company and shall surrender to the Company this Warrant and any other Warrants
to be so split up, combined or exchanged. Upon any such surrender for a
split-up, combination or exchange, the Company shall execute and deliver to the
person entitled thereto a Warrant or Warrants, as the case may be, as so
requested. The Company shall not be required to effect any split-up, combination
or exchange which will result in the issuance of a Warrant entitling the
Warrantholder to purchase upon exercise a fraction of a share of Common Stock or
a fractional Warrant. The Company may require such Warrantholder to pay a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any split-up, combination or exchange of Warrants.
5.2 RESTRICTIONS ON TRANSFER, RESTRICTIVE LEGENDS
Except as otherwise permitted by this Section 5.2, each Warrant shall
(and each Warrant issued upon direct or indirect transfer or in substitution for
any Warrant issued pursuant to Section 5.1 shall) be stamped or otherwise
imprinted with a legend in substantially the following form:
A-17
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 5.2, each stock
certificate for Warrant Shares issued upon the exercise of any Warrant and each
stock certificate issued upon the direct or indirect transfer of any such
Warrant Shares shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UwNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Notwithstanding the foregoing, the Warrantholder may require the
Company to issue a Warrant or a stock certificate for Warrant Shares, in each
case without a legend, if (i) the issuance of such Warrant Shares has been
registered under the Securities Act, (ii) such Warrant or such Warrant Shares,
as the case may be, have been registered for resale under the Securities Act or
sold pursuant to Rule 144 under the Securities Act (or a successor thereto) or
(iii) the Warrantholder has received an opinion of counsel (who may be house
counsel for such Warrantholder) reasonably satisfactory to the Company that such
registration is not required with respect to such Warrant or such Warrant
Shares, as the case may be.
ARTICLE 6
REGISTRATION UNDER THE SECURITIES ACT OF 1933
6.1 PIGGYBACK REGISTRATION
(a) Right to Include Registrable Securities. If at any time or
from time to time prior to the second anniversary of the Expiration Date, the
Company proposes to register any of its securities under the Securities Act on
any form for the registration of securities under such Act, whether or not for
its own account (other
A-18
than by a registration statement on Form S-8 or other form which does not
include substantially the same information as would be required in a form for
the general registration of securities or would not be available for the
Registrable Securities) (a "PIGGYBACK REGISTRATION"), it shall as expeditiously
as possible give written notice to all Holders of its intention to do so and of
such Holders' rights under this Section 6.1. Such rights are referred to
hereinafter as "PIGGYBACK REGISTRATION RIGHTS." Upon the written request of any
such Holder made within 20 days after receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
Holder), the Company shall include in the Registration Statement the Registrable
Securities which the Company has been so requested to register by the Holders
thereof and the Company shall keep such registration statement in effect and
maintain compliance with each federal and state law or regulation for the period
necessary for such Holder to effect the proposed sale or other disposition (but
in no event for a period greater than 90 days).
(b) Withdrawal of Piggyback Registration by Company. If, at
any time after giving written notice of its intention to register any securities
in a Piggyback Registration but prior to the effective date of the related
Registration Statement, the Company shall determine for any reason not to
register such securities, the Company shall give notice of such determination to
each Holder and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such Piggyback Registration. All best
efforts obligations of the Company pursuant to Section 6.4 shall cease if the
Company determines to terminate prior to such effective date any registration
where Registrable Securities are being registered pursuant to this Section 6.1.
(c) Piggyback Registration of Underwritten Public Offering. If
a Piggyback Registration involves an offering by or through underwriters, then
(i) all Holders requesting to have their Registrable Securities included in the
Company's Registration Statement must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to other selling shareholders and (ii) any Holder requesting to have his, her or
its Registrable Securities included in such Registration Statement may elect in
writing, not later than three Business Days prior to the effectiveness of the
Registration Statement filed in connection with such registration, not to have
his or its Registrable Securities so included in connection with such
registration.
A-19
(d) Payment of Registration Expenses for Piggyback
Registration. The Company shall pay all Registration Expenses in connection with
each registration of Registrable Securities requested pursuant to a Piggyback
Registration Right contained in this Section 6.1.
(e) Priority in Piggyback Registration. If a Piggyback
Registration involves an offering by or through underwriters, the Company,
except as otherwise provided herein, shall not be required to include
Registrable Shares therein if and to the extent the underwriter managing the
offering reasonably believes in good faith and advises each Holder requesting to
have Registrable Securities included in the Company's Registration Statement
that such inclusion would materially adversely affect such offering; provided,
that (i) if other selling shareholders without contractual registration rights
have requested registration of securities in the proposed offering, the Company
will reduce or eliminate such securities held by selling shareholders without
registration rights before any reduction or elimination of Registrable
Securities; and (ii) any such reduction or elimination (after taking into
account the effect of clause (i)) shall be pro rata to all other selling
shareholders with contractual registration rights.
6.2 DEMAND REGISTRATION
(a) Request for Registration. If, at any time prior to the
Expiration Date, any 25% Holders request that the Company file a registration
statement under the Securities Act, as soon as practicable thereafter the
Company shall use its best efforts to file a registration statement with respect
to all Warrant Shares that it has been so requested to include and obtain the
effectiveness thereof, and to take all other action necessary under federal or
state law or regulation to permit the Warrant Shares that are held and/or that
may be acquired upon the exercise of the Warrants specified in the notices of
the Holders or holders hereof to be sold or otherwise disposed of, and the
Company shall maintain such compliance with each such federal and state law and
regulation for the period necessary for such Holders or holders to effect the
proposed sale or other disposition; provided, however, the Company shall be
entitled to defer such registration for a period of up to 60 days if and to the
extent that its Board of Directors shall determine in good faith that such
registration would require disclosure of information not then otherwise required
to be disclosed and that such disclosure would adversely affect any material
business situation, transaction or negotiation then proposed, contemplated or
being engaged in by the Company. The Company shall also
A-20
promptly give written notice to the Holders and the holders of any other
Warrants and/or the holders of any Warrant Shares who or that have not made a
request to the Company pursuant to the provisions of this Section 6.2(a) of its
intention to effect any required registration or qualification, and shall use
its best efforts to effect as expeditiously as possible such registration or
qualification of all such other Warrant Shares that are then held and/or that
may be acquired upon the exercise of the Warrants, the Holders or holders of
which have requested such registration or qualification, within 15 days after
such notice has been given by the Company, as provided in the preceding
sentence. The Company shall be required to effect a registration or
qualification pursuant to this Section 6.2(a) on one occasion only.
(b) Payment of Registration Expenses for Demand Registration.
The Company shall pay all Registration Expenses in connection with the Demand
Registration.
(c) Selection of Underwriters. If any Demand Registration is
requested to be in the form of an underwritten offering, the managing
underwriter shall be Oscar Gruss & Son Incorporated and the co-manager (if any)
and the independent price required under the rules of the NASD (if any) shall be
selected and obtained by the Holders of a majority of the Warrant Shares to be
registered. Such selection shall be subject to the Company's consent, which
consent shall not be unreasonably withheld. All fees and expenses (other than
Registration Expenses otherwise required to be paid) of any managing
underwriter, any co-manager or any independent underwriter or other independent
price required under the rules of the NASD shall be paid for by such
underwriters or by the Holders or holders whose shares are being registered. If
Oscar Gruss & Son Incorporated should decline to serve as managing underwriter,
the Holders of a majority of the Warrant Shares to be registered may select and
obtain one or more managing underwriters. Such selection shall be subject to the
Company's consent, which shall not be unreasonably withheld.
(d) Procedure for Requesting Demand Registration. Any request
for a Demand Registration shall specify the aggregate number of the Registrable
Securities proposed to be sold and the intended method of disposition. Within 10
days after receipt of such a request the Company will give written notice of
such registration request to all Holders, and, subject to the limitations of
Section 6.2(b), the Company will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 15
A-21
Business Days after the date on which such notice is given. Each such request
shall also specify the aggregate number of Registrable Securities to be
registered and the intended method of disposition thereof.
6.3 BUY-OUTS OF REGISTRATION DEMAND
In lieu of carrying out its obligations to effect a Piggyback
Registration or Demand Registration of any Registrable Securities pursuant to
this Article 6, the Company may carry out such obligation by offering to
purchase and purchasing such Registrable Securities requested to be registered
in an amount in cash equal to the difference between (a) 95% of the last sale
price of the Common Stock on the day the request for registration is made and
(b) the Exercise Price in effect on such day; provided, however, that the Holder
or Holders may withdraw such request for registration rather than accept such
offer by the Company.
6.4 REGISTRATION PROCEDURES
If and whenever the Company is required to use its best efforts to take
action pursuant to any Federal or state law or regulation to permit the sale or
other disposition of any Registrable Securities that are then held or that may
be acquired upon exercise of the Warrants in order to effect or cause the
registration of any Registrable Securities under the Securities Act as provided
in this Article 6, the Company shall, as expeditiously as practicable:
(a) prepare and file with the SEC, as soon as practicable
within 60 days after the end of the period within which requests for
registration may be given to the Company (but subject to the provision for
deferral contained in Section 6.2(a) hereof) a Registration Statement or
Registration Statements relating to the registration on any appropriate form
under the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof, and use its best efforts to cause such Registration
Statements to become effective; provided, that before filing a Registration
Statement or Prospectus or any amendment or supplements thereto, including
documents incorporated by reference after the initial filing of any Registration
Statement, the Company will furnish to the Holders of the Registrable Securities
covered by such Registration Statement and the underwriters, if any, copies of
all such documents proposed to be filed, which documents will be subject to the
review of such Holders and underwriters;
A-22
(b) prepare and file with the SEC such amendments and
post-effective amendments to a Registration Statement as may be necessary to
keep such Registration Statement effective for 180 days if the offering is not
underwritten, provided, that such 180 day period shall be extended by the number
of days a Prospectus is not available pursuant to Section 6.4(k) because of the
occurrence of an event set forth in Section 6.4(c)(vi); cause the related
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such Registration Statement or supplement to such Prospectus;
(c) notify the selling Holders of Registrable Securities and
the managing underwriters, if any, promptly, and (if requested by any such
Person) confirm such advice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related Prospectus or for additional information;
(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of a Registration Statement or the initiation of any proceedings for that
purpose; (iv) if at any time the representations and warranties of the Company
contemplated by paragraph (m) below ceases to be true and correct in all
material respects; (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purposes; and (vi) of the happening of any event that makes
any statement of a material fact made in the Registration Statement, the
Prospectus or any document incorporated therein by reference untrue or which
requires the making of any changes in the Registration Statement or Prospectus
so that they will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading:
(d) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement at the
earliest possible moment;
A-23
(e) if reasonably requested by the managing underwriters,
immediately incorporate in a Prospectus supplement or post-effective amendment
such information as the managing underwriters believe (on advice of counsel)
should be included therein as required by applicable law relating to such sale
of Registrable Securities, including, without limitation, information with
respect to the purchase price being paid for the Registrable Securities by such
underwriters and with respect to any other terms of the underwritten (or
"best-efforts" underwritten) offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(f) furnish to each selling Holder of Registrable Securities
and each managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling Holder of Registrable Securities
and the underwriters, if any, without charge, as many copies of the Prospectus
or Prospectuses (including each preliminary prospectus) any amendment or
supplement thereto as such Persons may reasonably request; the Company consents
to the use of such Prospectus or any amendment or supplement thereto by each of
the selling Holders of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities,
cooperate with the selling Holders of Registrable Securities, the underwriters,
if any, and their respective counsel in connection with the registration or
qualification of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder or underwriter reasonably requests in writing, keep each such
registration or qualification effective during the period such Registration
Statement is required to be kept effective and do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions of
the Registrable Securities covered by the applicable Registration Statement;
provided that the Company will not be required to qualify to do business in any
jurisdiction where it not then so qualified or to take any action which would
subject the Company to general service of process in any jurisdiction where it
is not at the time so subject;
A-24
(i) cooperate with the selling Holders of Registrable
Securities and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and not bearing any restrictive legends; and enable such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriters may request at least two Business Days prior to any sale
of Registrable Securities to the underwriters;
(j) use its best efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities within the United
States as may be necessary to enable the seller or sellers thereof or the
underwriters, if any, to consummate the disposition of such Registrable
Securities;
(k) upon the occurrence of any event contemplated by Section
6.4(c)(vi) above, prepare a supplement or post-effective amendment to the
applicable Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities being
sold thereunder, such Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(l) with respect to each issue or class of Registrable
Securities, use its best efforts to cause all Registrable Securities covered by
the Registration Statements to be listed on each securities exchange or
automated quotation system, if any, on which similar securities issued by the
Company are then listed if requested by the Holders of a majority of such issue
or class of Registrable Securities;
(m) enter into such agreements (including an underwriting
agreement) and take all such other action reasonably required in connection
therewith in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, if the registration is in connection with an
underwritten offering (i) make such representations and warranties to the
underwriters (or the Holders of the Registrable Securities if such offering is
not underwritten), in such form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings and confirm the same if and
when requested; (ii) obtain opinions of counsel to the Company and updates
thereof
A-25
(which counsel and opinions in form, scope and substance shall be reasonably
satisfactory to the underwriters) addressed to the underwriters (or the Holders
of the Registrable Securities if such offering is not underwritten) covering the
matters customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such underwriters (or the
Holders of the Registrable Securities if such offering is not underwritten);
(iii) obtain "cold comfort" letters and updates thereof from the Company's
accountants addressed to the underwriters (or the Holders of the Registrable
Securities if such offering is not underwritten), such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters by underwriters in connection with underwritten offerings; (iv)
set forth in full in any underwriting agreement entered into the indemnification
provisions and procedures of Section 6.5 hereof with respect to all parties to
be indemnified pursuant to said Section; and (v) deliver such documents and
certificates as may be reasonably requested by the underwriters to evidence
compliance with clause (i) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company; the
above shall be done at each closing under such underwriting or similar agreement
or as and to the extent required hereunder;
(n) make available for inspection by one or more
representatives of the Holders of Registrable Securities being sold, any
underwriter participating in any disposition pursuant to such registration, and
any attorney or accountant retained by such Holders or underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representatives, in connection with
such; and
(o) otherwise use its best efforts to comply with all
applicable Federal and state regulations; and take such other action as may be
reasonably necessary to or advisable to enable each such Holder and each such
underwriter to consummate the sale or disposition in such jurisdiction or
jurisdiction in which any such Holder or underwriter shall have requested that
the Registrable Securities be sold.
Except as otherwise provided in this Agreement, the Company shall have
sole control in connection with the preparation, filing, withdrawal, amendment
or supplementing of each Registration Statement, the selection of underwriters,
and
A-26
the distribution of any preliminary prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders.
The Company may require each Seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities and such other
information as may otherwise be required by the Securities Act to be included in
such Registration Statement.
6.5 INDEMNIFICATION
(a) Indemnification by Company. In connection with each
Registration Statement relating to disposition of Registrable Securities, the
Company shall indemnify and hold harmless each Holder, its officers, directors
and agents and each underwriter of Registrable Securities and each Person, if
any, who controls such Holder or underwriter (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) against any and all
losses, claims, damages and liabilities, joint or several (including any
reasonable investigation, legal and other expenses incurred in connection with,
and any amount paid in settlement of any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement, Prospectus or
preliminary prospectus or any amendment thereof or supplement thereto, or arise
out of or are based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that such indemnity shall not inure
to the benefit of any Holder or underwriter (or any Person controlling such
Holder or underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) on account of any losses, claims, damages or
liabilities arising from the sale of the Registrable Securities if such untrue
statement or omission or alleged untrue statement or omission was made in such
Registration Statement, Prospectus or preliminary prospectus, or such amendment
or supplement, in reliance upon and in conformity with information furnished in
writing to the Company by such Holder or underwriter specifically for
A-27
use therein. The Company shall also indemnify selling brokers, dealer managers
and similar securities industry professionals participating in the distribution,
their officers and directors and each Person who controls such Persons (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) to the same extent as provided above with respect to the indemnification of
the Holders of Registrable Securities, if requested. This indemnity agreement
shall be in addition to any liability which the Company may otherwise have.
(b) Indemnification by Holder. In connection with each
Registration Statement, each Holder shall indemnify, to the same extent as the
indemnification provided by the Company in Section 6.5(a), the Company, its
directors and each officer who signs the Registration Statement and each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act) but only insofar as such losses, claims,
damages and liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in the
Registration Statement, the Prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, in reliance upon and in conformity with
information furnished in writing by such Holder to the Company specifically for
use therein. In no event shall the liability of any selling Holder of
Registrable Securities hereunder be greater in amount than the dollar amount of
the net proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to information
so furnished in writing by such Persons specifically for inclusion in any
Prospectus, Registration Statement or preliminary prospectus or any amendment
thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that
proposes to assert the right to be indemnified hereunder will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim is to be made against an indemnifying party or
parties under this Section, notify each such indemnifying party of the
commencement of such action, suit or proceeding, enclosing a copy of all papers
served. No indemnification provided for in Section 6.5(a) or 6.5(b) shall be
available to any party who shall fail to give notice as provided in this Section
6.5(c) if the party to whom notice was not given was unaware of the proceeding
to which such notice
A-28
would have related and was prejudiced by the failure to give such notice, but
the omission so to notify such indemnifying party of any such action, suit or
proceeding shall not relieve it from any liability that it may have to any
indemnified party for contribution otherwise than under this Section. In case
any such action, suit or proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in, and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of such counsel, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the defense
thereof. The indemnified party shall have the right to employ its counsel in any
such action, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized in writing by the indemnifying parties,
(ii) the indemnified party shall have reasonably concluded that there may be a
conflict of interest between the indemnifying parties and the indemnified party
in the conduct of the defense of such action (in which case the indemnifying
parties shall not have the right to direct the defense of such action on behalf
of the indemnified party) or (iii) the indemnifying parties shall not have
employed counsel to assume the defense of such action within a reasonable time
after notice of the commencement thereof, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying parties. An
indemnified party shall not be liable for any settlement of any action, suit,
proceeding or claim effected without its written consent.
(d) Contribution. In connection with each Registration
Statement relating to the disposition of Registrable Securities, if the
indemnification provided for in subsection (a) hereof is unavailable to an
indemnified party thereunder in respect to any losses, claims, damages or
liabilities referred to therein, then the indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in paragraph (a) or (b) of this
Section 6.5 in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and of the indemnified party on the
other in connection with the statements or omissions that
A-29
resulted in such losses, claims, damages or liabilities, or actions in respect
thereof, as well as any other relevant equitable considerations. Relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the indemnifying
party or the indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. Notwithstanding anything to the contrary in this Section
6.5(d), no selling Holder of Registrable Securities shall be required to
contribute any amount in excess of the net proceeds it received in connection
with its sale of Registrable Securities.
(e) Underwriting Agreement to Control. Notwithstanding the
foregoing provisions of this Section 6.5, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement entered
into in connection with the underwritten public offering of the Registrable
Securities are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall control.
(f) Specific Performance. The Company and the Holder
acknowledge that remedies at law for the enforcement of this Section 6.5 may be
inadequate and intend that this Section 6.5 shall be specifically enforceable.
(g) Survival of Obligations. The obligations of the Company
and the Holder under this Section 6.5 shall survive the completion of any
offering of Registrable Securities pursuant to a Registration Statement under
this Article 6, and otherwise.
6.6 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the SEC
that may at any time permit a Holder to sell securities of the Company to the
public without registration or pursuant to a registration on Form S-3, the
Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined us SEC Rule 144, at all times after 90 days after the
A-30
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after 90 days after the effective date of the first registration
statement filed by the Company), the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
ARTICLE 7
OTHER MATTERS
7.1 BINDING EFFECTS; BENEFITS
This Warrant shall inure to the benefit of and shall be binding upon
the Company and the Warrantholder and their respective heirs, legal
representatives, successors and assigns. Nothing in this Warrant, expressed or
implied, is intended to or shall confer on any person other than the Company and
the Warrantholder, or their respective heirs, legal representatives, successors
or assigns, any rights, remedies, obligations or liabilities under or by reason
of this Warrant.
A-31
7.2 NO INCONSISTENT AGREEMENTS
The Company will not on or after the date of this Warrant enter into
any agreement with respect to its securities which is inconsistent with the
rights granted to the Holders in this Warrant or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to holders of the
Company's securities under any other agreements.
7.3 ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES
The Company will not take any action outside the ordinary course of
business, or permit any change within its control to occur outside the ordinary
course of business, with respect to the Registrable Securities which is without
a bona fide business purpose, and which is intended to interfere with the
ability of the Holders of Registrable Securities to include such Registrable
Securities in a registration undertaken pursuant to this Agreement.
7.4 INTEGRATION/ENTIRE AGREEMENT
This Warrant is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Company with respect to the Warrants.
This Warrant supersedes all prior agreements and understandings between the
parties with respect to such subject matter (other than warrants previously
issued by the Company to the Warrantholder).
7.5 AMENDMENTS AND WAIVERS
The provisions of this Warrant, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given unless the Company has
obtained the written consent of holders of at least a majority of the
outstanding Registrable Securities. Holders shall be bound by any consent
authorized by this
A-32
Section whether or not certificates representing such Registrable Securities
have been marked to indicate such consent.
7.6 COUNTERPARTS
This Warrant may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
7.7 GOVERNING LAW
This Warrant shall be governed by and construed in accordance with the
laws of the State of New York.
7.8 SEVERABILITY
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provisions
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
7.9 ATTORNEYS' FEES
In any action or proceeding brought to enforce any provisions of this
Warrant, or where any provision hereof is validly asserted as a defense, the
successful party shall be entitled to recover reasonable attorneys' fees and
disbursements in addition to its costs and expenses and any other available
remedy.
7.10 COMPUTATIONS OF CONSENT
Whenever the consent or approval of Holders of a specified percentage
of Registrable Securities is required hereunder, Registrable Securities held by
the Company or its affiliates (other than the Warrantholder or subsequent
Holders if they are deemed to be such affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
A-33
7.11 NOTICE
Any notices or certificates by the Company to the Holder and by the
Holder to the Company shall be deemed delivered if in writing and delivered in
person or by registered mail (return receipt requested) to the Holder addressed
to him in care of [Oscar Gruss & Son Incorporated, 74 Broad Street, New York,
New York 10004] [Kaufman Bros., L.P., 800 Third Avenue, New York, New York
10022], or, if the Holder has designated, by notice in writing to the Company,
any other address, to such other address, and if to the Company, addressed to it
at: 375 West Street, West Bridgewater, massachusetts 02379, Attention:
Secretary, with a copy to Brown, Rudnick, Freed & Gesmer, P.C., One Financial
Center, Boston, Massachusetts 02111, Attention: Steven R. London, Esq. or if the
Company has designated, by notice in writing to the Holder, any other address,
to such other address.
7.12 TRANSFER
Notwithstanding anything to the contrary contained herein, the
Warrantholder will not sell, assign, pledge, or transfer this Warrant, except to
its officers or partners, or to the officers or partners of an underwriter of
the Offering for a period of one year from the date hereof.
The Company may change its address by written notice to the Holder and
the Holder may change its address by written notice to the Company.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of the ____ day of _______________, 1996.
BOSTON BIOMEDICA, INC.
By: ______________________________
Title: ___________________________
Attest: _______________________
A-34
Clerk
A-35
EXERCISE FORM
(To be executed upon exercise of Warrant)
Boston Biomedica, Inc.
375 West Street
West Bridgewater, Massachusetts 02379
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
_
|_| herewith tenders payment for ______________ of the Warrant
Shares to the order of Boston Biomedica, Inc. in the amount of
$______ in accordance with the terms of this Warrant; or
_
|_| herewith tenders this Warrant for ______________ Warrant
Shares pursuant to the net issuance exercise provisions of
Section 2.3(b) of this Warrant.
Please issue a certificate or certificates for such Warrant Shares in
the name of, and pay any cash for any fractional share to:
Name ______________________________________
______________________________________
______________________________________
______________________________________
(Please print Name, Address and Social
Security No.)
Signature____________________________
Note: The above signature should
correspond exactly with the
name on the first page of this
Warrant Certificate or with
the name of the
A-36
assignee appearing in the
assignment form below.
If said number of shares shall not be all the shares purchasable under
the within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder.
A-37
ASSIGNMENT
(To be executed only upon assignment of Warrant)
For value received, ___________________ hereby sells, assigns and
transfers unto __________________ the within Warrant, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
______________________ attorney, to transfer said Warrant on the books of the
within-named Company with respect to the number of Warrant Shares set forth
below, with full power of substitution in the premises:
Name(s) of No. of
Assignee(s) Address Warrant Shares
- ----------- ------- --------------
And if said number of Warrant Shares shall not be all the Warrant Shares
represented by the Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the Warrant Shares registered by said
Warrant.
Dated: ________________ Signature ______________________________
Note: The above signature should
correspond exactly with the
name on the face of this
Warrant
A-38
EXHIBIT B
FORM OF LOCK-UP AGREEMENT
__________________, 1996
Oscar Gruss & Son Incorporated
Kaufman Bros., L.P.
As Representative of the several Underwriters
c/o Oscar Gruss & Son Incorporated
74 Broad Street
New York, New York 10004
Ladies and Gentlemen:
The undersigned understands that you propose to enter into an
Underwriting Agreement (the "Underwriting Agreement") with Boston Biomedica,
Inc. (the "Company") providing for the purchase by you and certain other firms
(the "Underwriters") of shares (the "Shares") of Common Stock, par value $0.01
per share (the "Common Stock"), of the Company and that the Underwriters propose
to offer the Shares to the public. The undersigned further understands that the
proposed sale of such Shares is the subject of a Registration Statement on Form
S-1 which will be filed with the Securities and Exchange Commission and which
will include a form of preliminary prospectus to be used in offering such Shares
to the public.
In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that without the prior written consent of Oscar Gruss
& Son Incorporated, which consent may be withheld in the sole discretion of
Oscar Gruss & Son Incorporated, the undersigned will not (i) offer to sell,
contract to sell, sell, distribute, grant any option to purchase, pledge,
hypothecate, or otherwise dispose of, directly or indirectly, any shares of
Common Stock, or any securities convertible into, or exercisable or exchangeable
for, shares of Common Stock for a period of 180 days after the date of the final
prospectus relating to the offering
B-1
of the Shares to the public by the Underwriter except for the exercise by the
undersigned of outstanding options granted by the Company or pursuant to any
options granted or to be granted pursuant to employee stock option plans (but
not the sale, distribution, pledge, hypothecation or other disposition of Common
Stock received upon such exercise) or (ii) in connection with the offering of
the Shares to the public by the Underwriter and for 365 days after the date of
the final prospectus relating thereto exercise any registration rights, whether
held by the undersigned on the date hereof or hereafter acquired, with respect
to any shares of Common Stock, or any securities convertible into, or
exercisable or exchangeable for, shares of Common Stock. Prior to the expiration
of such periods, the undersigned will not announce or disclose any intention to
do anything after the expiration of such periods which the undersigned is
prohibited, as provided in the preceding sentence, from doing during such
periods. After such periods, all shares of Common Stock owned by the undersigned
may be sold or registered, as the case may be, without restriction hereunder,
subject to applicable securities laws and regulations.
The undersigned agrees that the provisions of this Agreement shall be
binding upon the successors, assigns, heirs and personal representatives of the
undersigned.
In furtherance of the foregoing, the undersigned agrees that the
Company and its transfer agent are hereby authorized to decline to make any
transfer of securities if such transfer would constitute a violation or breach
of this Agreement.
It is understood that, if the Underwriting Agreement does not become
effective prior to ________________, or if the Underwriting Agreement (other
than the provisions thereof which survive termination) shall terminate or be
terminated prior to payment for and delivery of the Shares, the undersigned's
obligations under this Agreement shall terminate.
Very truly yours,
By:____________________________
B-2
-------------------------------
Print name and title
(if applicable)
B-3
EXHIBIT 5.1
October 25, 1996
Boston Biomedica, Inc.
375 West Street
West Bridgewater, MA 02379
Re: Registration Statement on Form S-1
File No. 333-10759
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Boston Biomedica, Inc., a Massachusetts
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission of a Registration Statement on Form S-1
(the "Registration Statement") pursuant to which the Company is registering
under the Securities Act of 1933, as amended (the "Act"), 1,840,000 shares (the
"Shares") of common stock, $.01 par value (the "Common Stock"), warrants (the
"Underwriters' Warrants") to purchase an aggregate of 160,000 shares of Common
Stock and 160,000 shares of Common Stock (the "Warrant Shares") underlying the
Underwriters' Warrants. Pursuant to the Registration Statement and an
underwriting agreement (the "Underwriting Agreement") by and between the Company
and Oscar Gruss & Son Incorporated and Kaufman Bros., L.P. ( the "Underwriters")
in substantially the form filed as Exhibit 1.1 to the Registration Statement,
the Company proposes to sell to the Underwriters up to 1,840,000 shares of
Common Stock (the "Shares") and will issue the Underwriters' Warrants to the
Underwriters. This opinion is being rendered in connection with the filing of
the Registration Statement. Unless otherwise indicated, capitalized terms used
herein shall have the meanings ascribed thereto in the Underwriting Agreement.
For purposes of this opinion, we have assumed, without any
investigation, (i) the legal capacity of each natural person, (ii) the full
power and authority of each entity and person other than the Company to execute,
deliver and perform each document heretofore executed and delivered or hereafter
to be executed and delivered and to do each other act heretofore done or
hereafter to be done by such entity or person, (iii) the due authorization by
each entity or person other than the Company of each document heretofore
executed and delivered or hereafter to be executed and delivered and to do each
other act heretofore done or to be done by such entity or person, (iv) the due
execution and delivery by each entity or person other than the Company of each
document heretofore executed and delivered or hereafter to be executed and
delivered by such entity or person, (v) the legality, validity, binding effect
and enforceability as to each entity or person other than the Company of each
document heretofore executed and delivered or hereafter to be executed and
delivered and of each other act heretofore done or hereafter to be done by such
entity or person, (vi) the genuineness of each signature on, and the
completeness of each document submitted to us as an original, (vii) the
conformity to the original of each document submitted to us as a copy, (viii)
the authenticity of the original of each document
Boston Biomedica, Inc.
Page 2
October 25, 1996
submitted to us as a copy, (ix) the completeness, accuracy and proper indexing
of all governmental and judicial records searched and (x) no modification of any
provision of any document, no waiver of any right or remedy and no exercise of
any right or remedy other than in a commercially reasonable and conscionable
manner and in good faith.
In connection with this opinion, we have examined the following
(collectively, the "Documents"):
(i) the Amended and Restated Articles of Organization of the
Company which were filed with the Secretary of State of the
Commonwealth of Massachusetts on September 26, 1996;
(ii) the Restated Bylaws of the Company, as certified by the Clerk
of the Company on September 5, 1996;
(iii) the corporate minute books or other records of the Company
pertaining to the proceedings of the stockholders and
directors of the Company;
(iv) a certificate dated October 25, 1996 of the Secretary of State
of the Commonwealth of Massachusetts as to the good standing
of the Company; and
(v) the form of Underwriting Agreement, including the form of
Underwriters' Warrants attached thereto.
The opinions expressed herein are based solely upon (i) our review of
the Documents, (ii) discussions with Richard T. Schumacher, Chief Executive
Officer and President of the Company and Kevin W. Quinlan, the Company's Senior
Vice President - Finance, Chief Financial Officer and Treasurer, (iii) the
representations and warranties of the Company contained in the Underwriting
Agreement, (iv) discussions with those of our attorneys who have devoted
substantive attention to the matters contained herein, and (v) such review of
published sources of law as we have deemed necessary.
Our opinions contained herein are limited to the laws of the
Commonwealth of Massachusetts and the Federal law of the United States of
America.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing in the Commonwealth of Massachusetts.
2. The Shares to be sold by the Company under the circumstances
contemplated in the Registration Statement are duly authorized and, when
delivered pursuant to the Underwriting Agreement, will be validly issued, fully
paid and non-assessable.
Boston Biomedica, Inc.
Page 3
October 25, 1996
3. The Underwriters' Warrants, upon issuance under the circumstances
contemplated in the Registration Statement and the Underwriting Agreement, will
be duly authorized, executed and delivered. The Warrant Shares, upon issuance in
accordance with the terms of the Underwriters' Warrants, will be duly
authorized, validly issued, fully paid and non-assessable.
We understand that this opinion is to be used in connection with the
Registration Statement. We consent to the filing of this opinion as an Exhibit
to said Registration Statement and to the reference to our firm wherever it
appears in the Registration Statement, including the prospectus constituting a
part thereof and any amendments thereto. This opinion may be used in connection
with the offering of the Shares only while the Registration Statement, as it may
be amended from time to time, remains in effect.
Very truly yours,
BROWN, RUDNICK, FREED & GESMER
By: BROWN, RUDNICK, FREED &
GESMER, P.C.
/s/ Steve R. London
By: ________________________________
Steven R. London, A Member Duly
Authorized
EXHIBIT 10.3
STANDARD FORM 26 (REV. 4-85)
NSN 7540-01-152-8069
OMB No. 0990-0115
RFP 95-32
AWARD/CONTRACT
1. THIS CONTRACT IS A RATED ORDER UNDER DPAS (15 CFR 350)
RATING
PAGE 1 OF PAGES 20
2. CONTRACT (Proc. inst. ident.) No. ND1-AI-55273
3. EFFECTIVE DATE September 30, 1995
4. REQUISITION/PURCHASE REQUEST/PROJECT N-933
5. ISSUED BY CODE 2668-55273
National Institutes of Health
Contract Management Branch, NIAID
Solar Building, Room 3007
6003 Executive Boulevard MSC 7610
Bethesda, Maryland 20892-7610
6. ADMINISTERED BY (if other than item 5) CODE
7. NAME AND ADDRESS OF CONTRACTOR (No., street, city, country, State and Zip
Code)
BTRL Contracts and Services, Inc., dba/
Biotech Research Laboratories, Inc.
3 Taft Court
Rockville, Maryland 20850
8. DELIVERY
FOB ORIGIN
OTHER (See below Destination)
9. DISCOUNT FOR PROMPT PAYMENT N/A
10. SUBMIT INVOICES
(4 copies unless otherwise specified) TO THE ADDRESS SHOWN IN ITEM G.3
CODE
FACILITY CODE
11. SHIP TO/MARK FOR
See Article F.1.
12. PAYMENT WILL BE MADE BY
See Article G.3.
CODE
13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION N/A
10 U.S.C. 2304 (c)( )
41 U.S.C. 253 (c)( )
14. ACCOUNTING AND APPROPRIATION DATA CAN#5-8425674 DOC#300N1A155273 TIN#1-
043152484-A1
SOC#25.55
FY 95 $343,987
15A. ITEM NO.
15B. SUPPLIES/SERVICES
15C. QUANTITY
15D. UNIT
15E. UNIT PRICE
15F. AMOUNT
Research & Development Contract
Title: MAO/Detection of Antibodies & Proteins; Isolation of Virus (E)
Period: September 30, 1995 through September 29, 1997
Amount allotted: $343,987 Awarded under MA N01-AI-42602
Contract Type: Cost Reimbursement/Completion
FY 95 343,987
FY 96 778,668
15G. TOTAL AMOUNT OF CONTRACT $1,122,655
16. TABLE OF CONTENTS
( ) SEC. DESCRIPTION PAGE(S) ( ) SEC. DESCRIPTION PAGE(S)
PART I - THE SCHEDULE PART II - CONTRACT CLAUSES
X A SOLICITATION/CONTRACT FORM 1 X 1 CONTRACT CLAUSES 13
X B SUPPLIES OR SERVICES AND PRICES/COSTS 4 PART III - LIST OF DOCUMENTS,
EXHIBITS AND OTHER ATTACH.
X C DESCRIPTION/SPECS./WORK STATEMENT 8 X J LIST OF ATTACHMENTS 13
X D PACKAGING AND MARKING 8 PART IV- REPRESENTATIONS AND INSTRUCTIONS
X E INSPECTION AND ACCEPTANCE 9 X K REPRESENTATIONS, CERTIFICATIONS AND OTHER
STATEMENTS OF OFFERORS 13
X F DELIVERIES OR PERFORMANCE 10
X G CONTRACT ADMINISTRATION DATA 11 L INSTRS., CONDS., AND NOTICES TO OFFERORS
X H SPECIAL CONTRACT REQUIREMENTS 12 M EVALUATION FACTORS FOR AWARD
CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
17. X CONTRACTOR'S NEGOTIATED AGREEMENT (Contractor is required to sign this
document and return 3 copies to issuing office.) Contractor agrees to furnish
and deliver all items or perform all the services set forth or otherwise
identified above and on any continuation sheets for the consideration stated
herein. The rights and obligations of the parties to this contract shall be
subject to and governed by the following documents: (a) this award/contract, (b)
the solicitation, if any, and (c) such provisions, representations,
certifications, and specifications, as are attached or incorporated by reference
herein. (Attachments are listed herein.)
18. AWARD (Contractor is not required to sign this document.) Your offer on
Solicitation Number including the full additions or changes made by you which
additions or changes are set forth in full above, is hereby accepted as to the
items listed above and on any continuation sheets. This award consummates the
contract which consists of the following documents: (a) the Government's
solicitation and your offer, and (b) this award/contract. No further contractual
document is necessary.
19A. NAME AND TITLE OF SIGNER (Type or print)
Mark Manak, Senior Vice President
20A. NAME OF CONTRACTING OFFICER
Nancy Hershey, Contracting Officer
CMB, NIAID, HIH
19B. NAME OF CONTRACTOR
BY Mark Manak
(Signature of person authorized to sign)
19C. DATE SIGNED
9/21/95
20B. UNITED STATES OF AMERICA
BY Lawrence M. Butler
(Signature of Contracting Officer)
20C. DATE SIGNED
9/22/95
DETAILED TABLE OF MASTER AGREEMENT ORDER (MAO) CONTENTS
-------------------------------------------------------
PART I - THE SCHEDULE
SECTION A - SOLICITATION/MAO FORM............................................. 1
- ---------------------------------
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS............................. 4
- -------------------------------------------------
ARTICLE B.1. BRIEF DESCRIPTION OF SUPPLIES OR SERVICES........................ 4
ARTICLE B.2. ESTIMATED COST AND FIXED FEE..................................... 4
ARTICLE B.3. PROVISIONS APPLICABLE TO DIRECT COSTS............................ 5
ARTICLE B.4. ADVANCE UNDERSTANDINGS........................................... 6
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT......................... 8
- -----------------------------------------------------
ARTICLE C.1. STATEMENT OF WORK................................................ 8
ARTICLE C.2. REPORTING REQUIREMENTS........................................... 8
SECTION D - PACKAGING, MARKING AND SHIPPING................................... 8
- -------------------------------------------
SECTION E - INSPECTION AND ACCEPTANCE......................................... 9
- -------------------------------------
SECTION F - DELIVERIES OR PERFORMANCE........................................ 10
- -------------------------------------
ARTICLE F.1. DELIVERIES...................................................... 10
ARTICLE F.2. STOP WORK ORDER................................................. 10
SECTION G - MAO ADMINISTRATION DATA.......................................... 11
- -----------------------------------
ARTICLE G.1. PROJECT OFFICER................................................. 11
ARTICLE G.2. KEY PERSONNEL................................................... 11
ARTICLE G.3. INVOICE SUBMISSION . . . . . . . . . . ..........................11
ARTICLE G.4. GOVERNMENT PROPERTY............................................. 12
ARTICLE G.5. GOVERNMENT SUPPLY SOURCES........................................12
SECTION H - SPECIAL MASTER AGREEMENT ORDER REQUIREMENTS.......................12
- -------------------------------------------------------
ARTICLE H.1. HUMAN SUBJECTS . . . . ......................................... 12
ARTICLE H.2. SALARY RATE LIMITATION LEGISLATION PROVISIONS................... 12
PART II...................................................................... 13
SECTION I - MASTER AGREEMENT ORDER CLAUSES................................... 13
- ------------------------------------------
ARTICLE I.1. GENERAL CLAUSES FOR A NEGOTIATED COST-PLUS-A-FIXED FEE
MASTER AGREEMENT ORDER ...................................................... 13
ARTICLE I.2. AUTHORIZED SUBSTITUTIONS OF CLAUSES............................. 13
ARTICLE I.3. ADDITIONAL MAO CLAUSES.......................................... 13
ARTICLE I.4. ADDITIONAL FAR CLAUSES INCLUDED IN FULL TEXT.................... 13
2
PART III..................................................................... 13
SECTION J - LIST OF ATTACHMENTS.............................................. 13
Statement of Work.............................................................13
PART IV...................................................................... 13
SECTION K - REPRESENTATIONS AND CERTIFICATIONS............................... 13
Representations and Certifications........................................... 13
3
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
- -------------------------------------------------
[THIS MAO IS AWARDED UNDER MASTER AGREEMENT NO1-AI-42602 FOR HIV PRECLINICAL
VACCINE DEVELOPMENT].
ARTICLE B.1. BRIEF DESCRIPTION OF SUPPLIES OR SERVICES
The purpose of this master agreement order (MAO) is for the "Detection of
Antibodies and Proteins; Isolation of Virus; Section A: Immunization with HIV
Vaccines and Challenge with SHIV.
ARTICLE B.2. ESTIMATED COST AND FIXED FEE
a. The estimated cost of this MAO is $1,057,412.
b. The fixed fee for this MAO is $65,243. The fee shall be paid in
installments based on the percentage of completion of work, as
determined by the Contracting Officer, and subject to the withholding
provisions of the clauses ALLOWABLE COST AND PAYMENT and FIXED FEE
referenced in the General Clause Listing in Part II, ARTICLE I.1 of
this MAO. Payment of fixed fee shall not be made in less than monthly
increments.
c. The Government's obligation, represented by the sum of the estimated
cost plus the fixed fee, is $1,122,655.
d. Total funds currently available for payment and allotted to this MAO
are $343,987, of which $323,996 represents the estimated costs, and of
which $19,991 represents the fixed fee. For further provisions on
funding, see the LIMITATION OF FUNDS referenced in Part II, ARTICLE I.2
Authorized Substitutions of Clauses of the MA.
e. It is estimated that the amount currently allotted will cover
performance of the MAO through September 29, 1996.
f. Increments to be allotted to this contract are estimated as follows:
Estimated Fixed Total Estimated
FY Period Cost Fee Cost
-- ------ ---- --- ----
95 9/30/95 - 9/29/96 $ 323,996 $ 19,991 $ 343,987
96 9/30/96 - 9/29/97 $ 733,416 $ 45,252 $ 778,668
Total $1,057,412 $ 65,243 $1,122,655
g. The Contracting Officer may allot additional funds to the MAO without
the concurrence of the MA Holder.
4
ARTICLE B.3. PROVISIONS APPLICABLE TO DIRECT COSTS
- ---------------------------------------------------
a. Items Unallowable Unless Otherwise Provided
Notwithstanding the clause, ALLOWABLE COST AND PAYMENT, [and FIXED FEE]
incorporated into this MAO, unless authorized in writing by the
Contracting Officer, the costs of the following items or activities
shall be unallowable as direct costs:
(1) Acquisition, by purchase or lease, of any interest in real
property;
(2) Special rearrangement or alteration of facilities;
(3) Purchase or lease of any item of general purpose office
furniture or office equipment regardless of dollar value.
(General purpose equipment is defined as any items of personal
property which are usable for purposes other than research,
such as office equipment and furnishings, pocket calculators,
etc.);
(4) Travel to attend general scientific meetings (a general
scientific meeting is defined as an assemblage of
scientific/technical personnel held to exchange information
and ideas through a scheduled program of presentations;
includes conferences, congresses, seminars, symposia and
workshops; usually sponsored by a national organization);
(5) Foreign travel - See Paragraph b. below;
(6) Overtime premium;
(7) Consultant fees;
(8) Subcontracts;
(9) Accountable Government property (defined as both real and
personal property with an acquisition cost of $1,000 or more
and a life expectancy of more than two years) and "sensitive
items" (defined and listed in the Contractor's Guide for
Control of Government Property, 1990, regardless of
acquisition value.
b. Travel Costs
(1) Foreign Travel
Requests for foreign travel must be submitted at least six weeks in
advance and shall contain the following: (a) meeting(s) and place(s) to
be visited, with costs and dates; (b) name(s) and title(s) of MAO's
personnel to travel and their functions in the specific MAO project;
(c) the MAO purposes to be served by the travel; (d) how travel of MAO
personnel will benefit and contribute to accomplishing the specific MAO
project, or will otherwise justify the expenditure of NIH MAO funds;
(e) how such advantages justify the costs for travel and absence from
the project of more than one person if such are suggested; and (f) what
additional functions may be performed by the travelers to accomplish
other purposes of the specific MAO and thus further benefit the
project.
5
ARTICLE B.4. ADVANCE UNDERSTANDINGS
- ------------------------------------
a. The estimated level of effort set forth below is for guidance to serve
not as a measure of the MAO Holder's obligation but as a further
description of the required tasks. It will represent the basis of
direct labor agreed to in the MAO negotiations for the period from
September 30, 1995 through September 29, 1997, and will be used by both
the Government and the MAO Holder to monitor progress toward
achievement of the MAO objectives.
<TABLE>
<CAPTION>
Total Estimated Total Estimated Total Estimated
Labor Category Year 1 Hours Year 2 Hours Number of Hours
-------------- ------------ ------------ ---------------
<S> <C> <C> <C>
Principal Investigator 400 600 1,000
Co-PI 520 935 1,455
Technicians 3,472 7,415 10,887
TOTAL 4,392 8,950 13,342
</TABLE>
b. The MAO Holder agrees to abide by the terms of FAR 52.247-63,
Preference for U.S.-Flag Air Carriers. This provision states in part
that, in performing work under this MAO, the MAO Holder shall utilize
U.S. flag air carriers unless service by those carriers is not
available. If U.S. flag air carriers are not available the MAO Holder
shall so certify in writing and include that
certification/justification in the request for advance approval of
foreign travel. (Cost/lower fares are not acceptable reasons for
proposing to utilize foreign air carriers.)
c. The MAO Holder agrees to submit an annual and a final inventory of
Government property as required by the DHHS "Contractor's Guide for
Control of Government Property." Inventories shall be submitted to the
Contract Property Administrator identified in Article G.4. of this
contract, with a copy to the Contracting Officer. Annual inventories
shall be submitted by October 31 each year.
d. The MAO Holder agrees to immediately notify the Contracting Officer in
writing if there is a projected overrun (in any amount) or unexpended
balance (greater than 10%) in the overall budget at the end of any
funding period, and the reasons for the variance (see also the
requirements of the Limitation of Funds clause in the MAO).
e. If the MAO contains any specific limitations/ceilings on particular
costs, these shall always prevail until modified in the MAO.
f. The MAO Holder agrees that samples/products received from/through the
Government for utilization under this MAO shall be used only for
purposes required by this MAO.
g. Publication of Manuscripts or Abstracts
Because there is a likelihood that the MAO Holder will be evaluating
proprietary compounds provided to the Government by a third party, it
is essential to include provisions that will protect the rights of the
third party suppliers as follows:
The MAO Holder agrees that manuscripts/abstracts based on
data/information generated under this MAO will not be
submitted for publication until written Project Officer
clearance has been received. MAO support shall be acknowledged
in all such publications. A "publication" is defined as an
issue of printed material offered for distribution or any
communication or oral presentation of information.
6
The Project Officer will review all manuscripts/documents in a
period of time not to exceed 30 calendar days from receipt,
and will either grant clearance for publication/disclosure,
recommend changes or, as applicable, refer the document to the
Supplier of the compound for their review.
NIAID will use its best efforts to assist and expedite the
review process by the Supplier wherever possible.
h. Correspondence Procedures
To promote timely and effective administration, correspondence (except
for invoices/financial reports, technical progress reports/other
deliverables) submitted under this MAO shall be subject to the
following procedures:
1. Technical correspondence shall be addressed to the Project
Officer with an information copy of the basic correspondence
to the Contracting Officer. (As used herein, technical
correspondence excludes correspondence which proposes
deviations from or modifications of MAO requirements, terms or
conditions.)
2. Other correspondence shall be addressed to the Contracting
Officer, with an information copy of the basic correspondence
to the Project Officer.
3. Subject Line(s). All correspondence shall contain a subject
line commencing with the MAO number as illustrated below:
SUBJECT: MAO No. NO1-AI-55273
Request for Approval of
7
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
- -----------------------------------------------------
ARTICLE C.1. STATEMENT OF WORK
- -------------------------------
a. Independently and not as an agent of the Government, the MAO Holder
shall furnish all the necessary services, qualified personnel,
material, equipment, and facilities, not otherwise provided by the
Government as needed to perform the Statement of Work, SECTION J,
ATTACHMENT 1, dated September 30, 1995 attached hereto and incorporated
herein.
b. If there is any inconsistency between the MAO Holder's technical
proposals dated March 7, 1995, June 20, 1995 and August 7, 1995, and
the work described in this Article C.1., Paragraph a., the terms and
conditions of this Article C.1., Paragraph a, shall control.
ARTICLE C.2. REPORTING REQUIREMENTS
- ------------------------------------
a. Technical Reports
In addition to those reports required by the other terms of this MAO,
the MAO Holder shall prepare and submit the following reports in the
manner stated below and in accordance with ARTICLE F.1. DELIVERIES of
this MAO:
(1) Quarterly Progress Report
By the fifteenth calendar day of the month following the end
of each quarter, the MA Holder shall submit (5) copies of a
quarterly technical report. Four (4) copies shall be submitted
to the Project Officer and one (1) copy shall be submitted to
the Contracting Officer. This report shall include a
(description of the activities during the reporting period,
and the activities planned for the ensuing reporting period.
The first reporting period consists of the first full three
months of performance including any fractional part of the
initial month. Thereafter, the reporting period shall consist
of three full calendar months. A quarterly report shall not be
submitted when a final report is due.
(2) Final Report
The MAO Holder shall submit five (5) copies of the final
report documents. Four (4) copies shall be submitted to the
Project Officer and (1) copy shall be submitted to the
Contracting Officer. This report is to include a summation of
the work performed and results obtained for the entire MAO
period of performance. This report shall be in sufficient
detail to describe comprehensively the results achieved. The
Final Report shall be submitted no later than the completion
date of this MAO.
SECTION D - PACKAGING, MARKING AND SHIPPING
- -------------------------------------------
All deliverables required under this MAO shall be packaged, marked and shipped
in accordance with Government specifications. The MAO Holder shall guarantee
that all required materials shall be delivered in immediate usable and
acceptable condition.
8
SECTION E - INSPECTION AND ACCEPTANCE
- -------------------------------------
a. For the purpose of this ARTICLE, the designated Project Officer is the
authorized representative of the Contracting Officer, who shall perform
inspection and acceptance of materials and services to be provided.
b. Inspection and acceptance will be performed at the Project Officer's
address listed in the clause entitled "Deliveries" in Section F.
Acceptance may be presumed unless otherwise indicated in writing by the
Contracting Officer or the duly authorized representative within 30
days of receipt.
c. This MAO incorporates the following clause by reference, with the same
force and effect as if it were given in full text. Upon request, the
Contracting Officer will make its full text available.
FAR Clause 52.246-9, INSPECTION OF RESEARCH AND DEVELOPMENT - (SHORT
FORM)(APRIL 1984).
9
SECTION F - DELIVERIES OR PERFORMANCE
- -------------------------------------
ARTICLE F.1. DELIVERIES
- ------------------------
Satisfactory performance of this MAO shall be deemed to occur upon delivery and
acceptance by the Contracting Officer, or the duly authorized representative, of
the following items in accordance with the stated delivery schedule:
The items specified below as described in (SECTION C, ARTICLE C.2. shall be
delivered f.o.b. destination as set forth in FAR 52.247-35, F.O.B. DESTINATION,
WITHIN CONSIGNEES PREMISES (APRIL 1984), and in accordance with and by the
date(s) specified below [and any specifications stated in SECTION D, PACKAGING,
MARKING AND SHIPPING, of this MAO]:
Item Description QuantityDelivery Schedule
---- ----------- -------------------------
1. Quarterly 5 1/15/96, 97
4/15/96, 97
7/15/96, 97
10/15/96
2. Final 5 By completion date of this MAO
The above items shall be addressed and delivered to:
Addressee Deliverable Item No. Quantity
--------- -------------------- --------
Project Officer 1. 4
PRB, DAIDS 2. 4
Solar Bldg., Rm. 2A31
6003 Executive Blvd.
Bethesda, MD. 20892
Contracting Officer 1. 1
CMB, DEA, NIAID, NIH 2. 1
Solar Bldg., Rm. 3C07
6003 Executive Blvd.
Bethesda, MD. 20892
ARTICLE F.2. STOP WORK ORDER
- -----------------------------
This MAO incorporates the following clause by reference, with the same force and
effect as if it were given in full text. Upon request, the Contracting Officer
will make its full text available.
FEDERAL ACQUISITION REGULATION (48 CFR CHAPTER 1) CLAUSE:
52.212-13, STOP WORK ORDER (AUGUST 1989) with ALTERNATE I (APRIL 1984).
10
SECTION G - MAO ADMINISTRATION DATA
- -----------------------------------
ARTICLE G.1. PROJECT OFFICER
- -----------------------------
Pursuant to the Project Officer Article incorporated in the MA, the following
Project Officer will represent the Government for the purpose of this MAO:
MAO Project Officer: Marta J. Glass, M.S.
The Project Officer is responsible for: (1) monitoring the MAO Holder's
technical progress, including the surveillance and assessment of performance and
recommending to the Contracting Officer changes in requirements; (2)
interpreting the Statement of Work and any other technical performance
requirements; (3) performing technical evaluation as required; (4) performing
technical inspections and acceptances required by this MAO; and (5) assisting in
the resolution of technical problems encountered during performance.
The Contracting Officer is the only person with authority to act as agent of the
Government under this MAO. Only the Contracting Officer has authority to: (1)
direct or negotiate any changes in the Statement of Work; (2) modify or extend
the period of performance; (3) change the delivery schedule; (4) authorize
reimbursement to the MAO Holder any costs incurred during the performance of
this MAO; or (5) otherwise change any terms and conditions of this MAO.
The Government may unilaterally change its Project Officer designation.
ARTICLE G.2. KEY PERSONNEL
- ---------------------------
Pursuant to the Key Personnel clause incorporated in the MAO, the following
individuals are considered to be essential for the work being performed
hereunder:
NAME TITLE
---- -----
Chang Chih-Tai, Ph.D. Principal Investigator
Hanna Weissberger, Ph.D. Co-Principal Investigator
ARTICLE G.3. INVOICE SUBMISSION
- -------------------------------
The Invoice/Financing Request Instructions for NIH Cost-Reimbursement Type
Contracts, NIH(RC)-1, set forth in your Master Agreement are incoporated herein.
The invoice instructions and directions for the submission of invoice/financing
requests contained in the MA must be followed to meet the requirements of a
"proper" invoice, pursuant to FAR 32.9.
11
ARTICLE G.4. GOVERNMENT PROPERTY
- ---------------------------------
a. In addition to the requirements of the clause, GOVERNMENT PROPERTY,
incorporated in this Section I of this MAO, the MAO Holder shall comply
with the provisions of DHHS Publication, Contractor's Guide for Control
of Government Property, (1990), which is incorporated into this MAO by
reference. Among other issues, this publication provides a summary of
the MAO Holder's responsibilities regarding purchasing authorizations
and inventory and reporting requirements under the MAO. A copy of this
publication is available upon request to the Contract Property
Administrator at the following address:
Contracts Property Administrator
Research Contracts Property Administration, NIH
Building 13, Room 2E-65
9000 Rockville Pike
Bethesda, Maryland 20892
(301) 496-6466
ARTICLE G.5. GOVERNMENT SUPPLY SOURCES, is hereby incorporated into this MAO by
reference pursuant to the Master Agreement.
SECTION H - SPECIAL MASTER AGREEMENT ORDER REQUIREMENTS
- -------------------------------------------------------
The following Articles are incorporated into this MAO by reference pursuant to
the Master Agreement. [(Any MAO Articles which are not contained in the MA are
set forth below in full text)]:
a. ARTICLE H.1. HUMAN SUBJECTS
----------------------------
b. ARTICLE H.2. SALARY RATE LIMITATION LEGISLATION PROVISIONS
-----------------------------------------------------------
Paragraph b. of this ARTICLE is revised as follows:
b. Public Law No. Fiscal Year Salary Limitation
-------------- ----------- -----------------
103-333 1995 $125,000
12
PART II
- -------
SECTION I - MASTER AGREEMENT ORDER CLAUSES
- ------------------------------------------
The following Articles are incorporated into this MAO by reference pursuant to
the Master Agreement. [(Any MAO Articles which are not contained in the MA are
set forth below in full text)]:
a. ARTICLE I.1. GENERAL CLAUSES FOR A NEGOTIATED COST PLUS A FIXED FEE
MASTER AGREEMENT ORDER
b. ARTICLE I.2. AUTHORIZED SUBSTITUTIONS OF CLAUSES, [Cost-Reimbursement]
c. ARTICLE I.3. ADDITIONAL MASTER AGREEMENT CLAUSES, [Cost-Reimbursement]
d. ARTICLE I.4. ADDITIONAL FAR CLAUSES INCLUDED IN FULL TEXT
PART III
- --------
SECTION J - LIST OF ATTACHMENTS
- -------------------------------
Unless otherwise indicated below, the following documents are attached and
incorporated in this MAO:
1. Statement of Work, September 30, 1995, 7 pages.
2. Invoice/Financing Request Instructions for NIH Cost-Reimbursement Type
Contracts, NIH(RC)-1 6/18/92, 4 pages. [This attachment is part of the
Master Agreement document and is incorporated into this MAO by
reference].
3. Safety and Health, PHSAR clause 352.223-70, (4/84), 2 pages. [This
attachment is part of the Master Agreement document and is incorporated
into this MAO by reference.
4. Procurement of Certain Equipment, NIH(RC)-7, (4/1/84), 1 page. [This
attachment is part of the Master Agreement document and is incorporated
into this MAO by reference.
SECTION K - REPRESENTATIONS AND CERTIFICATIONS
- ----------------------------------------------
The following documents are incorporated by reference in this MAO:
1. Representations and Certifications, dated August 7, 1995.
END of the SCHEDULE
(MASTER AGREEMENT ORDER)
13
STATEMENT OF WORK
-----------------
SECTION A: IMMUNIZATION WITH HIV VACCINES AND CHALLENGE WITH SHIV
- ---------- ------------------------------------------------------
Independently, and not as an agent of the Government, the Master Agreement Order
holder shall provide the necessary services, qualified personnel, material,
equipment, and facilities, not otherwise provided by the Government, as needed
to perform the tasks of the Statement of Work below:
The MAO Holder shall:
1. Perform assays to assess the humoral immune responses of macaques that have
been immunized with HIVenv (or with a combination of HIVenv and SIV non-env)
vaccines. Specifically the MAO Holder shall:
a. Conduct assays (such as ELISA and western blots) to detect
antibodies to the envelope of HIV (and to non-envelope
proteins of SIV that are included in the immunization
protocol) in the sera or other fluids of immunized or
virus-infected monkeys for all vaccine studies assigned.
b. Develop assays to detect antibodies to the above proteins or
antigens if an assay system is not currently available to
detect those antibodies or if existing assays are not of
sufficient sensitivity or specificity to provide the
information required by NIAID.
MAO Statement of Work ATTACHMENT 1
(09/30/95) Page 1
2. Conduct assays to determine whether monkeys become infected after exposure to
SHIV:
a. Determine whether SHIV can be isolated from PBMC, lymph nodes,
or other tissue of monkeys after virus challenge by
co-cultivating the cells or tissue with primary simian and/or
human peripheral blood cells, other primary cells, and/or cell
lines. Evaluate the virus load in the PBMC of infected monkeys
by conducting limitingdilution virus isolations.
Confirm virus transmission to the target cells by
demonstration of the presence of virus or viral protein(s) in
the culture supernatant and/or the presence of viral protein
or nucleic acid in the cultured cells.
b. Conduct assays to detect HIV proteins and/or SIV proteins, or
SHIV nucleic acids (using HIV or SIV primers or probes, as
appropriate) in peripheral blood lymphocytes or other tissues
of animals after challenge with virus.
c. Conduct assays (such as antigen capture assays) to detect
viral antigens or conduct assays to detect viral nucleic acids
in the plasma of animals after challenge with virus.
MAO Statement of Work ATTACHMENT 1
(09/30/95) Page 2
3. Receive, catalog, track, and maintain an inventory of the specimens
that arrive for evaluation:
a) Advise sample suppliers (Category B MAO contractors) of the most
suitable manner for shipment of sera, whole blood, cells or other
specimens for evaluation and arrange for the transfer of these
specimens from primate laboratories to the MAO Holder. All shipments
must be coordinated so that activity/viability of specimens will not be
adversely affected.
b) When necessary, pick up or arrange for pick up of incoming specimen
shipments from a specified airport or other contact site in a timely
manner and assure maintenance of activity and/or viability of the
specimens by providing the appropriate temperature in transit from the
airport or other contact site to the MAO Holder's laboratory.
c) Receive and catalog specimens arriving for evaluation from the
primate laboratories. Maintain documentation on file for all incoming
specimens, including but not limited to:primate subject identification
number, trial site, protocol identification number, specimen collection
date and condition of sample upon arrival.
d) Store cataloged, aliquotted specimens under appropriate conditions
to retain maximum immunological activity.
e) Maintain specimen tracking and inventory system such that specimens
can be traced and located from receipt through processing and assay
analysis.
4. Maintain test result database and transfer data electronically:
a) Compile and maintain a computerized database of all assay and virus
isolation results, using a format compatible with the FOX-PRO data base
that NIAID plans to use to compile records and data from the vaccine
studies. Results are to be recorded with designations of study protocol
number, animal number, specimen collection date, and other information
requested by the Project Officer.
b) Transfer specified data electronically to the AIDS Vaccine
Evaluation Group (AVEG) Statistical and Coordinating Center (SCC) and
to the Project Officer at regular intervals as instructed by the
Project Officer (Format to be agreed upon betwen NIAID and the MAO
Holder).
MAO Statement of Work ATTACHMENT 1
(09/30/95) Page 3
c) Ensure protection against the loss of data by the duplication of
data base files and programs for storage; provide for the security and
safety of data on the specimen inventory and the test results database.
5. Provide facilities and resources:
a) Provide facilities and equipment for the work to be conducted,
including a biosafety level 2 or 3 laboratory for conducting work with
live HIV and SHIV as well as samples from infected monkeys.
b) Provide, maintain, and operate facilities for controlled storage of
sera, virus stocks, cell stocks, and other samples and reagents,
including storage at -10 to -20 degrees C, at -70 to - 90 degrees C,
and in liquid nitrogen conditions, with appropriate monitoring of
storage conditions to guarantee continuous proper storage. The
reliability of supply systems, electrical power, and backup support
systems shall be ensured by the MAO Holder.
c) Provide protective garments, equipment and sufficient monitoring to
assure safe handling of potentially hazardous materials, including
radioactive materials. Specifically, the MAO Holder shall comply with
all applicable health and safety regulations while conducting the work
set forth herein.
d) Conduct work under this MAO in accordance with all applicable
Federal, state, and local laws, codes, ordinances and regulations, and
with the following basic references and other related modifications by
the Public Health Service:
(1) Biosafety in Microbiological and Biomedical
Laboratories, U.S. Department of Health and Human
Services, Centers for Disease Control and National
Institutes of Health, HHS Pub. No. (NIH) 93-8395
published by the U.S. Government Printing Office,
third edition, May 1993, stock number 17-040-
00523-7.
(2) Recommendations for Prevention of HIV Transmission in
Health Care Settings, Morbidity and Mortality Weekly
Report, Vol. 36, No. 2-S.
(3) Agent Summary Statement for Human Immunodeficiency
Virus and Report on Laboratory-Acquired Infection
with Human Immunodeficiency Virus, Morbidity and
Mortality Weekly Report, Vol. 37, No.S-4, pp.1-22.
(4) "Guidelines to Prevent Simian Immunodeficiency Virus
Infection in Laboratory Workers and Animal Handlers,"
Morbidity and Mortality Weekly Report, Vol. 37, No.
45, pp. 693-704.
MAO Statement of Work ATTACHMENT 1
(09/30/95) Page 4
6. Designate a project coordinator to manage the day-to-day conduct of the
study, to interact with the Category B MAO laboratory or laboratories providing
non-human primate samples from the vaccine study or studies, and to provide
information on the status of the assay results to the Project Officer.
7. Report data and results to NIAID or to a designated NIAID contractor.
Printouts of data and verbal reports of the status of the study are to be
provided on an ongoing basis during the course of the study at the request of
the Project Officer, in addition to the required periodic (quarterly and final)
written reports describing the progress of the study, and in addition to the
periodic electronic transfer of data described in item (6) above.
MAO Statement of Work ATTACHMENT 1
(09/30/95) Page 5
SUMMARY OF VACCINE STUDIES FOR WHICH ASSAYS WILL BE REQUIRED
------------------------------------------------------------
(SECTION A: IMMUNIZATION WITH HIV VACCINES AND CHALLENGE
WITH SHIV)
VACCINE STUDY 4
- ---------------
Title: Testing of Recombinant Poxvirus/HIV Together with Recombinant
Poxvirus/SIV Vaccines in the SHIV Model
Description: Rhesus monkeys will be immunized with recombinant vaccina
expressing HIV-1 env, recombinant vaccina expressing SIV non-envelope genes or
with both; monkeys will be immunized with recombinant fowlpox expressing HIV-1
env, recombinant fowlpox expressing SIV non-envelope genes, or with both.
Immunized monkeys will be boosted with purified HIV-1 env protein and/or with
SIV proteins. Monkeys will be challenged with a SHIV. The experiment is designed
to evaluate the contribution of env versus non-env immune responses in providing
protection from infection and to compare the efficacy of vaccinia-based versus
fowlpox-based vaccines when followed by a protein boost.
Number of monkeys: 48 (8 groups of 6)
Length of study: 18 months
Number of inoculations per animal: 5 immunizations plus 1 virus challenge
Number of bleeds per animal: approximately 40
VACCINE STUDY 13
- ----------------
Title: Immunogenicity of a Soluble Oligomeric Form of the HIV-1 Envelope Protein
Description: Rhesus monkeys will be immunized with a purified oligomeric form of
the HIV-1 envelope protein to determine if monkeys will generate antibodies
(presumably to conformational epitopes of the oligomeric envelope) that are able
to neutralize genetically divergent strains of HIV- 1. Vaccines based on
monomeric forms of the HIV-1 envelope generate predominantly type-specific
antibodies that neutralize a limited range of HIV-1 isolates, but preliminary
studies with the oligomeric form of the envelope indicate that antibodies to it
may be more broadly reactive. Animals will be challenged with SHIV after
immunization to determine the ability of the immune response to the oligomeric
envelope to protect monkeys from infection.
MAO Statement of Work ATTACHMENT 1
(09/30/95) Page 6
Number of monkeys: 36 (6 groups of 6)
Length of study: 24 months
Number of inoculations per animal: 5 immunizations plus 1 virus challenge
VACCINE STUDY 16
- ----------------
Title: Evaluation of a Recombinant Semliki Forest Virus/HIV Vaccine
Description: Rhesus monkeys will be immunized with an avirulent recombinant
Semliki Forest virus expressing HIV-1 envelope and SIV gag proteins. The monkeys
will be infected with the virus, which has a broad tissue tropism, by either
intramuscular, intravenous, subcutaneous, or mucosal site administration.
Animals will be challenged with SHIV to determine the efficacy of this vaccine
in protecting from virus infection.
Number of monkeys: 10 (5 groups of 2)
Length of study: 18 months
Number of inoculations per animal: 8 immunizations plus l virus challenge
MAO Statement of Work ATTACHMENT 1
(09/30/95) Page 7
EXHIBIT 10.4
STANDARD FORM 26 (REV. 4-85)
NSN 7540-01-152-8069
OMB No. 0990-0115
RFP 95-3
AWARD/CONTRACT
1. THIS CONTRACT IS A RATED ORDER UNDER DPAS (15 CFR 350)
RATING
PAGE 1 OF PAGES 21
2. CONTRACT (Proc. inst. ident.) No. NO1-AI-55277
3. EFFECTIVE DATE September 30, 1995
4. REQUISITION/PURCHASE REQUEST/PROJECT N0. 000948
5. ISSUED BY CODE 2668-55277
National Institutes of Health
Contract Management Branch, NIAID
Solar Building, Room 3007
6003 Executive Boulevard MSC 7610
Bethesda, Maryland 20892-7610
6. ADMINISTERED BY (If other than item 5) CODE
7. NAME AND ADDRESS OF CONTRACTOR (No., street, city, country, State and Zip
Code)
BTRL Contracts and Services, Inc., dba/
Biotech Research Laboratories
3 Taft Court
Rockville, Maryland 20850
8. DELIVERY
FOB ORIGIN
OTHER (See below) DESTINATION
9. DISCOUNT FOR PROMPT PAYMENT N/A
10. SUBMIT INVOICES
(4 copies unless otherwise specified) TO THE ADDRESS SHOWN IN
ITEM G.3
CODE
FACILITY CODE
11. SHIP TO/MARK FOR
See Article F.1.
12. PAYMENT WILL BE MADE BY
See Article G.3.
CODE
13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION N/A
10 U.S.C. 2304 (c)( )41 U.S.C. 253(c)( )
14. ACCOUNTING AND APPROPRIATION DATA
CAN#58425674 (Amount Obligated - $387,353)
DOC#300N1A155277
EIN#1-043152484-A1
SOC#25.55
15A. ITEM NO.
15B. SUPPLIES/SERVICES
15C. QUANTITY
15D. UNIT
15E. UNIT PRICE
15F. AMOUNT
Research & Development Contract
Title: MAO/Assessment of Humoral Immune Responses (G)
Period: September 30, 1995 through September 29, 1997
Amount allotted: $387,353 Awarded under MA N01-AI-42602
Contract Type: Cost Reimbursement/Completion
FY 95 387,353
FY 96 226,739
15G. TOTAL AMOUNT OF CONTRACT $614,092
16. TABLE OF CONTENTS
( ) SEC. DESCRIPTION PAGE(S) ( ) SEC. DESCRIPTION PAGE(S)
PART I - THE SCHEDULE PART II - CONTRACT CLAUSES
X A SOLICITATION/CONTRACT FORM 1 X 1 CONTRACT CLAUSES 11
X B SUPPLIES OR SERVICES AND PRICES/COSTS 3 PART III - LIST OF DOCUMENTS,
EXHIBITS AND OTHER ATTACH.
X C DESCRIPTION/SPECS./WORK STATEMENT 7 X J LIST OF ATTACHMENTS 12
X D PACKAGING AND MARKING 7 PART IV- REPRESENTATIONS AND INSTRUCTIONS
X E INSPECTION AND ACCEPTANCE 7 X K REPRESENTATIONS, CERTIFICATIONS AND OTHER
STATEMENTS OF OFFERORS 13
X G CONTRACT ADMINISTRATION DATA 9
11 L INSTRS., CONDS., AND NOTICES TO OFFERORS
X H SPECIAL CONTRACT REQUIREMENTS 10 M EVALUATION FACTORS FOR AWARD
CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
17. X CONTRACTOR'S NEGOTIATED AGREEMENT (Contractor is required to sign this
document and return 3 copies to issuing office.) Contractor agrees to furnish
and deliver all items or perform all the services set forth or otherwise
identified above and on any continuation sheets for the consideration stated
herein. The rights and obligations of the parties to this contract shall be
subject to and governed by the following documents: (a) this award/contract, (b)
the solicitation, if any, and (c) such provisions, representations,
certifications, and specifications, as are attached or incorporated by reference
herein. (Attachments are listed herein.)
18. AWARD (Contractor is not required to sign this document.) Your offer on
Solicitation Number including the full additions or changes made by you which
additions or changes are set forth in full above, is hereby accepted as to the
items listed above and on any continuation sheets. This award consummates the
contract which consists of the following documents: (a) the Government's
solicitation and your offer, and (b) this award/contract. No further contractual
document is necessary.
19A. NAME AND TITLE OF SIGNER (Type or print)
Mark Manak, Senior Vice President
20A. NAME OF CONTRACTING OFFICER
Jacqueline C. Holden, Contracting Officer
AIDS Preclinical Research Contract Section, CMB, NIAID, HIH
19B. NAME OF CONTRACTOR
BY Mark Manak
(Signature of person authorized to sign)
19C. DATE SIGNED
9/25/95
20B. UNITED STATES OF AMERICA
BY Jacqueline C. Holden
(Signature of Contracting Officer)
20C. DATE SIGNED
9/27/95
DETAILED TABLE OF MASTER AGREEMENT ORDER (MAO) CONTENTS
-------------------------------------------------------
<TABLE>
<S> <C>
PART I - THE SCHEDULE
SECTION A - SOLICITATION/CONTRACT FORM........................................................................... 1
--------------------------------------
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS................................................................. 3
-------------------------------------------------
ARTICLE B.1. BRIEF DESCRIPTION OF SUPPLIES OR SERVICES..................................................... 3
ARTICLE B.2. ESTIMATED COST AND FIXED FEE.................................................................. 3
ARTICLE B.3. PROVISIONS APPLICABLE TO DIRECT COSTS......................................................... 3
ARTICLE B.4. ADVANCE UNDERSTANDINGS........................................................................ 5
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT............................................................. 7
-----------------------------------------------------
ARTICLE C.1. STATEMENT OF WORK............................................................................. 7
ARTICLE C.2. REPORTING REQUIREMENTS........................................................................ 7
SECTION D - PACKAGING, MARKING AND SHIPPING....................................................................... 7
-------------------------------------------
SECTION E - INSPECTION AND ACCEPTANCE............................................................................. 7
-------------------------------------
SECTION F - DELIVERIES OR PERFORMANCE............................................................................. 8
-------------------------------------
ARTICLE F.1. DELIVERIES.................................................................................... 8
ARTICLE F.2. STOP WORK ORDER............................................................................... 8
SECTION G - CONTRACT ADMINISTRATION DATA.......................................................................... 9
----------------------------------------
ARTICLE G.1. PROJECT OFFICER............................................................................... 9
ARTICLE G.2. KEY PERSONNEL................................................................................. 9
ARTICLE G.3. INVOICE SUBMISSION............................................................................ 9
ARTICLE G.4. GOVERNMENT PROPERTY.......................................................................... 9
ARTICLE G.5. GOVERNMENT SUPPLY SOURCES.......................................................................9
SECTION H - SPECIAL MASTER AGREEMENT ORDER REQUIREMENTS.......................................................... 10
-------------------------------------------------------
ARTICLE H.1. HUMAN SUBJECTS............................................................................... 10
ARTICLE H.2. SALARY RATE LIMITATION LEGISLATION PROVISIONS................................................ 10
PART II................................................................................................................. 11
SECTION I - MASTER AGREEMENT ORDER CLAUSES........................................................................ 11
------------------------------------------
ARTICLE I.1. GENERAL CLAUSES FOR A COST-REIMBURSEMENT RESEARCH AND
DEVELOPMENT MASTER AGREEMENT ORDER.................................................................... 11
ARTICLE I.2. AUTHORIZED SUBSTITUTIONS OF CLAUSES........................................................... 11
ARTICLE I.3. ADDITIONAL MAO CLAUSES........................................................................ 11
ARTICLE I.4. ADDITIONAL FAR CLAUSES INCLUDED IN FULL TEXT.................................................. 11
PART III................................................................................................................ 12
SECTION J - LIST OF ATTACHMENTS................................................................................... 12
-------------------------------
Statement of Work................................................................................................. 12
PART IV................................................................................................................. 13
SECTION K - REPRESENTATIONS AND CERTIFICATIONS.................................................................... 13
----------------------------------------------
Representations and Certifications.......................................................................... 13
</TABLE>
2
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
- -------------------------------------------------
[THIS MAO IS AWARDED UNDER MASTER AGREEMENT NO1-AI-42602 FOR HIV PRECLINICAL
VACCINE DEVELOPMENT]
ARTICLE B.1. BRIEF DESCRIPTION OF SUPPLIES OR SERVICES
- -------------------------------------------------------
The purpose of this master agreement order (MAO) is for the Assessment of
Humoral Immune Response.
ARTICLE B.2. ESTIMATED COST AND FIXED FEE
- ------------------------------------------
a. The estimated cost of this MAO is $573,918
b. The fixed fee for this MAO is $40,174. The fixed fee shall be paid in
installments based on the percentage of completion of work, as determined
by the Contracting Officer, and subject to withholding provisions of the
clauses ALLOWABLE COST AND PAYMENT AND FIXED FEE referenced in the General
Clause Listing in PART II, ARTICLE I.1. of this MAO.
Payment of fixed fee shall not be made in less than monthly installments.
c. The Government's obligation, represented by the sum of the estimated cost
plus fixed fee, is $614,092.
d. Total funds currently available for payment and allotted to this MAO are
$387,353 of which $362,012 represents the estimated costs, and of which
$25,341 represents the fixed fee. For further provisions on funding see
the LIMITATION OF FUNDS clause referenced in Part II, ARTICLE I.2.
Authorized Substitutions of Clauses of the Master Agreement (MA).
e. It is estimated that the amount currently allotted will cover performance
of the MAO through September 29, 1996.
f. Increments to be allotted to this contract are estimated as follows:
<TABLE>
<CAPTION>
Estimated Fixed Total Estimated
FY Period Cost Fee Cost Plus Fee
----- --------------------- ---------- -------- --------------
<S> <C> <C> <C> <C>
95 09/30/95 - 09/29/96 $362,012 $25,341 $387,353
96 09/30/96 - 09/29/97 $211,906 $14,833 $226,739
Totals $573,918 $40,174 $614,092
</TABLE>
g. The Contracting Officer may allot additional funds to the MAO without the
concurrence of the MAO Holder.
ARTICLE B.3. PROVISIONS APPLICABLE TO DIRECT COSTS
- ---------------------------------------------------
a. Items Unallowable Unless Otherwise Provided
Notwithstanding the clause(s), ALLOWABLE COST AND PAYMENT, [and FIXED
FEE,] incorporated in this MAO, unless authorized in writing by the
Contracting Officer, the costs of the following items or activities shall
be unallowable as direct costs:
(1) Acquisition, by purchase or lease, of any interest in real property;
(2) Special rearrangement or alteration of facilities;
(3) Purchase or lease of any item of general purpose office furniture or
office equipment regardless of dollar value. (General purpose
equipment is defined as any items of personal property which are
usable for purposes other than research, such as office equipment
and furnishings, pocket calculators, etc.);
3
(4) Travel to attend general scientific meetings (a general scientific
meeting is defined as an assemblage of scientific/technical
personnel held to exchange information and ideas through a scheduled
program of presentations; includes conferences, congresses,
seminars, symposia and workshops; usually sponsored by a national
organization);
(5) Foreign travel - See Paragraph b. below;
(6) Overtime premium;
(7) Consultant fees;
(8) Subcontracts;
(9) Accountable Government property (defined as both real and personal
property with an acquisition cost of $1,000 or more and a life
expectancy of more than two years) and "sensitive items" (defined
and listed in the Contractor's Guide for Control of Government
Property, 1990, regardless of acquisition value.
b. Travel Costs
(1) Domestic Travel
(a) Total expenditures for domestic travel (transportation, lodging,
subsistence, and incidental expenses) incurred in direct performance
of this MAO shall not exceed $-0- without the prior written approval
of the Contracting Officer.
(Domestic travel is defined as MA Holder travel directly applicable
to performance under this MAO; includes travel to discuss progress
under this MAO with the Project Officer or Contracting Officer or to
attend meetings, called by the NIAID, of collaborating program
investigators to discuss program progress and plans. The domestic
travel amount above does not include scientific meeting travel which
is defined in Article B.3.a. above and which shall be specifically
approved in writing by the Contracting Officer.)
(b) The cost of travel by privately-owned automobile shall be reimbursed
at the mileage rate prescribed by the MA Holder's established,
generally applicable travel policy in lieu of actual costs,
provided, however, that such reimbursement shall not exceed the
otherwise allowable comparative cost of travel by common carrier.
(c) Reasonable actual costs of lodging and subsistence, or per diem in
lieu of actual costs, shall be allowable to the extent that such
actual costs or per diem amounts do not exceed the amounts or per
diem rates prescribed by the MA Holder's established, generally
applicable travel policy.
(d) Any revision to the MA Holder's established, generally applicable
travel policy submitted to the cognizant audit agency during the
period of performance of this MAO shall be effective, without formal
modification to this MAO, upon delivery to the Contracting Officer
of notice describing such revised policy together with evidence of
submission thereof to the cognizant audit agency.
(2) Foreign Travel
Requests for foreign travel must be submitted at least six weeks in
advance and shall contain the following: (a) meeting(s) and place(s) to be
visited, with costs and dates; (b) name(s) and title(s) of Master
Agreement Holder's personnel to travel and their functions in the specific
Master Agreement Order project; (c) the Master Agreement Order purposes to
be served by the travel; (d) how travel of Master Agreement Order
personnel will benefit and contribute to accomplishing the specific Master
Agreement Order project, or will otherwise justify the expenditure of NIH
Master Agreement Order funds; (e) how such advantages justify the costs
for travel and absence from the project of more than one person if such
are suggested; and (f) what additional functions may be performed by the
travelers to accomplish other purposes of the specific Master Agreement
Order and thus further benefit the project.
4
ARTICLE B.4. ADVANCE UNDERSTANDINGS
- ------------------------------------
a. The estimated level of effort set forth below is for guidance to serve not
as a measure of the MAO Holder's obligation but as a further description
of the required tasks. It will represent the basis of direct labor agreed
to in the MAO negotiations for the period from September 30, 1995 through
September 29, 1997, and will be used by both the Government and the MAO
Holder to monitor progress toward achievement of the MAO objectives.
Total Estimated Total Estimated Total Estimated
Labor Category Year 1 Hours Year 2 Hours Number of Hours
-------------- ------------ ------------ ---------------
Principal Investigator 375 375 750
Co-Investigator 1,404 749 2,153
Technician 1,872 1,872 3,744
Technician 1,872 936 2,808
Technician 1,872 0 1,872
TOTAL 7,395 3,932 11,327
b. The total costs negotiated for this MAO only cover Vaccine Studies in
support of Section B of the Statement of Work. Section A of the Statement
of Work is also attached to this contract should it be necessary to
perform assays in support of Vaccine Studies for Section A. If it is
necessary to perform Section A assays, the costs for those assays shall be
offset against the cost negotiated for performance of Section B assays.
c. The MAO Holder agrees to abide by the terms of FAR 52.247-63, Preference
for U.S.-Flag Air Carriers. This provision states in part that, in
performing work under this MAO, the MAO Holder shall utilize U.S. flag air
carriers unless service by those carriers is not available. If U.S. flag
air carriers are not available the MAO Holder shall so certify in writing
and include that certification/justification in the request for advance
approval of foreign travel. (Cost/lower fares are not acceptable reasons
for proposing to utilize foreign air carriers.)
d. The MAO Holder agrees to submit an annual and a final inventory of
Government property as required by the DHHS "Contractor's Guide for
Control of Government Property." Inventories shall be submitted to the
Contract Property Administrator identified in Article G.4. of this
contract, with a copy to the Contracting Officer. Annual inventories shall
be submitted by October 31 each year.
e. The MAO Holder agrees to immediately notify the Contracting Officer in
writing if there is a projected overrun (in any amount) or unexpended
balance (greater than 10%) in the overall budget at the end of any funding
period, and the reasons for the variance (see also the requirements of the
Limitation of Funds clause in the MAO).
f. If the MAO contains any specific limitations/ceilings on particular costs,
these shall always prevail until modified in the MAO.
g. The MAO Holder agrees that samples/products received from/through the
Government for utilization under this contract shall be used only for
purposes required by this MAO.
h. Publication of Manuscripts or Abstracts
Because there is a possibility that the MAO Holder will be evaluating
proprietary compounds provided to the Government by a third party, it is
essential to include provisions that will protect the rights of the third
party suppliers as follows:
The MAO Holder agrees that manuscripts/abstracts based on
data/information generated under this MAO will not be submitted for
publication until written Project Officer clearance has been
received. MAO support shall be acknowledged in all such
publications. A "publication" is defined as an issue of printed
material offered for distribution or any communication or oral
presentation of information.
5
The Project Officer will review all manuscripts/documents in a
period of time not to exceed 30 calendar days from receipt, and will
either grant clearance for publication/disclosure, recommend changes
or, as applicable, refer the document to the Supplier of the
compound for their review. NIAID will use its best efforts to assist
and expedite the review process by the Supplier wherever possible.
i. Correspondence Procedures
To promote timely and effective administration, correspondence (except for
invoices/financial reports, technical progress reports/other deliverables)
submitted under this MAO shall be subject to the following procedures:
1. Technical correspondence shall be addressed to the Project Officer
with an information copy of the basic correspondence to the
Contracting Officer. (As used herein, technical correspondence
excludes correspondence which proposes deviations from or
modifications of MAO requirements, terms or conditions.)
2. Other correspondence shall be addressed to the Contracting Officer,
with an information copy of the basic correspondence to the Project
Officer.
3. Subject Line(s). All correspondence shall contain a subject line
commencing with the contract number as illustrated below:
SUBJECT: Contract No. NO1-AI-55277
Request for Approval of
6
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
- -----------------------------------------------------
ARTICLE C.1. STATEMENT OF WORK
- -------------------------------
a. Independently and not as an agent of the Government, the MAO Holder shall
furnish all the necessary services, qualified personnel, material,
equipment, and facilities, not otherwise provided by the Government as
needed to perform the Statement of Work, SECTION J, ATTACHMENT 1, dated
September 30, 1995, attached hereto and incorporated herein.
b. If there is any inconsistency between the MAO Holder's technical proposal
and the work described in this Article C.1., Paragraph a., the terms and
conditions of this Article C.1., Paragraph a, shall control.
ARTICLE C.2. REPORTING REQUIREMENTS
- ------------------------------------
a. Technical Reports
In addition to those reports required by the other terms of this MAO, the
MAO Holder shall prepare and submit the following reports in the manner
stated below and in accordance with ARTICLE F.1. DELIVERIES of this MAO:
(1) Quarterly Progress Report
By the fifteenth calendar day of the month following the end of each
quarter, the MAO Holder shall submit (5) copies of a quarterly
technical report. Four (4) copies shall be submitted to the Project
Officer and one (1) copy shall be submitted to the Contracting
Officer. This report shall include a description of the activities
during the reporting period, and the activities planned for the
ensuing reporting period. The first reporting period consists of the
first full three months of performance including any fractional part
of the initial month. Thereafter, the reporting period shall consist
of three full calendar months. A quarterly report shall not be
submitted when a final report is due.
(2) Final Report
The MAO Holder shall submit five (5) copies of the final report
documents. Four (4) copies shall be submitted to the Project Officer
and (1) copy shall be submitted to the Contracting Officer. This
report is to include a summation of the work performed and results
obtained for the entire MAO period of performance. This report shall
be in sufficient detail to describe comprehensively the results
achieved. The Final Report shall be submitted no later than the
completion date of this MAO.
SECTION D - PACKAGING, MARKING AND SHIPPING
- -------------------------------------------
All deliverables required under this MAO shall be packaged, marked and shipped
in accordance with Government specifications. The MAO Holder shall guarantee
that all required materials shall be delivered in immediate usable and
acceptable condition.
SECTION E - INSPECTION AND ACCEPTANCE
- -------------------------------------
a. For the purpose of this ARTICLE, the designated Project Officer is the
authorized representative of the Contracting Officer, who shall perform
inspection and acceptance of materials and services to be provided.
b. Inspection and acceptance will be performed at the Project Officer's
address listed in the clause entitled "Deliveries" in Section F.
Acceptance may be presumed unless otherwise indicated in writing by the
Contracting Officer or the duly authorized representative within 30 days
of receipt.
c. This MAO incorporates the following clause by reference, with the same
force and effect as if it were given in full text. Upon request, the
Contracting Officer will make its full text available.
FAR Clause 52.246-9, INSPECTION OF RESEARCH AND DEVELOPMENT - (SHORT
FORM)(APRIL 1984).
7
SECTION F - DELIVERIES OR PERFORMANCE
- -------------------------------------
ARTICLE F.1. DELIVERIES
- ------------------------
a. Satisfactory performance of this MAO shall be deemed to occur upon
delivery and acceptance by the Contracting Officer, or the duly authorized
representative, of the following items in accordance with the stated
delivery schedule:
The items specified below as described in (SECTION C, ARTICLE C.2. shall
be delivered f.o.b. destination as set forth in FAR 52.247-35, F.O.B.
DESTINATION, WITHIN CONSIGNEES PREMISES (APRIL 1984), and in accordance
with and by the date(s) specified below [and any specifications stated in
SECTION D, PACKAGING, MARKING AND SHIPPING, of this MAO]:
Item Description Quantity Delivery Schedule
---- ----------- -------- -----------------
1. Quarterly 5 01/15/96, 97,
04/15/96, 97,
07/15/96, 97,
10/15/96
2. Final 5 By completion date of this
contract
The above items shall be addressed and delivered to:
Addressee Deliverable Item No. Quantity
--------- -------------------- --------
Project Officer a.1. 4
PRB, DAIDS a.2. 4
Solar Bldg., Rm. 2A38
6003 Executive Blvd.
Bethesda, MD. 20892
Contracting Officer a.1. 1
CMB, DEA, NIAID, NIH a.2. 1
Solar Bldg., Rm. 3C07
6003 Executive Blvd.
Bethesda, MD. 20892
ARTICLE F.2. STOP WORK ORDER
- -----------------------------
This MAO incorporates the following clause by reference, with the same force and
effect as if it were given in full text. Upon request, the Contracting Officer
will make its full text available.
FEDERAL ACQUISITION REGULATION (48 CFR CHAPTER 1) CLAUSE:
52.212-13, STOP WORK ORDER (AUGUST 1989) with ALTERNATE I (APRIL 1984).
8
SECTION G - CONTRACT ADMINISTRATION DATA
- ----------------------------------------
ARTICLE G.1. PROJECT OFFICER
- -----------------------------
Pursuant to the Project Officer Article incorporated in the MA, the following
Project Officers will represent the Government for the purpose of this MAO:
MAO Project Officer: Nancy Miller, Ph.D.
ARTICLE G.2. KEY PERSONNEL
- ---------------------------
Pursuant to the Key Personnel clause incorporated in the MA, the following
individuals are considered to be essential to the work being performed
hereunder:
NAME TITLE
---- -----
Mark Cosentino, Ph.D. Principal Investigator
Hanna Weissberger, Ph.D. Co-Investigator
ARTICLE G.3. INVOICE SUBMISSION
- --------------------------------
a. INVOICE SUBMISSION - COST-REIMBURSEMENT MAOs
The Invoice/Financing Request Instructions for NIH Cost-Reimbursement Type
Contracts, NIH(RC)-1, set forth in your Master Agreement are incorporated
herein.
The invoice instructions and directions for the submission of
invoice/financing requests contained in the MA must be followed to meet
the requirements of a "proper" invoice, pursuant to FAR 32.9.
ARTICLE G.4. GOVERNMENT PROPERTY
- ---------------------------------
a. In addition to the requirements of the clause, GOVERNMENT PROPERTY,
incorporated in this Section I of this MAO, the MAO Holder shall comply
with the provisions of DHHS Publication, Contractor's Guide for Control of
Government Property, (1990), which is incorporated into this MAO by
reference. Among other issues, this publication provides a summary of the
MAO Holder's responsibilities regarding purchasing authorizations and
inventory and reporting requirements under the MAO. A copy of this
publication is available upon request to the Contract Property
Administrator at the following address:
Contracts Property Administrator
Research Contracts Property Administration, NIH
Building 13, Room 2E-65
9000 Rockville Pike
Bethesda, Maryland 20892
(301) 496-6466
ARTICLE G.5. GOVERNMENT SUPPLY SOURCES, is hereby incorporated into this MAO by
reference pursuant to the Master Agreement.
9
SECTION H - SPECIAL MASTER AGREEMENT ORDER REQUIREMENTS
- -------------------------------------------------------
The following Articles are incorporated into this MAO by reference pursuant to
the Master Agreement. [(Any MAO Articles which are not contained in the MA are
set forth below in full text)]:
a. ARTICLE H.1. HUMAN SUBJECTS
----------------------------
b. ARTICLE H.2. SALARY RATE LIMITATION LEGISLATION PROVISIONS
-----------------------------------------------------------
Paragraph b. of this ARTICLE is revised as follows:
b. Public Law No. Fiscal Year Salary Limitation
-------------- ----------- -----------------
103-333 1995 $125,000
10
PART II
- -------
SECTION I - MASTER AGREEMENT ORDER CLAUSES
- ------------------------------------------
The following Articles are incorporated into this MAO by reference pursuant to
the Master Agreement. [(Any MAO Articles which are not contained in the MA are
set forth below in full text)]:
a. ARTICLE I.1. GENERAL CLAUSES FOR A NEGOTIATED COST-REIMBURSEMENT MASTER
AGREEMENT ORDER
b. ARTICLE I.2. AUTHORIZED SUBSTITUTIONS OF CLAUSES]
For this Master Agreement Order (N01-AI-55277), FAR Clause 52.232-22,
LIMITATION OF FUNDS, (APRIL 1984) as contained in MA N01-AI-42602 is
deleted in its entirety and is replaced with FAR Clause 52.232-20,
LIMITATION OF COSTS.
c. ARTICLE I.3. ADDITIONAL MASTER AGREEMENT CLAUSES
d. ARTICLE I.4. ADDITIONAL FAR CLAUSES INCLUDED IN FULL TEXT
11
PART III
- --------
SECTION J - LIST OF ATTACHMENTS
- -------------------------------
Unless otherwise indicated below, the following documents are attached and
incorporated in this MAO:
1. Statement of Work, September 30, 1995; 8 pages.
2. Invoice/Financing Request Instructions for NIH Cost-Reimbursement Type
Contracts, NIH(RC)-1 (6/18/92), 4 pages. [This attachment is part of the
Master Agreement document and is incorporated into this MAO by reference.]
3. Safety and Health, PHSAR Clause 352.223-70, (4/84), 2 pages. [This
attachment is part of the Master Agreement document and is incorporated
into this MAO by reference.]
4. Procurement of Certain Equipment, NIH(RC)-7, (4/1/84), 1 page. [This
attachment is part of the Master Agreement document and is incorporated
into this MAO by reference.]
12
PART IV
- -------
SECTION K - REPRESENTATIONS AND CERTIFICATIONS
- ----------------------------------------------
The following documents are incorporated by reference in this MAO:
1. Representations and Certifications, dated September 15, 1995.
END of the SCHEDULE
(MASTER AGREEMENT ORDER)
13
MASTER AGREEMENT ORDER FOR CATEGORY G
STATEMENT OF WORK
ASSESSMENT OF HUMORAL IMMUNE RESPONSES
SECTION A: HUMORAL IMMUNE RESPONSES TO HIV VACCINES
Independently, and not as an agent of the Government, the Master Agreement Order
holder shall provide the necessary services, qualified personnel, material,
equipment, and facilities, not otherwise provided by the Government, as needed
to perform the tasks of the Statement of Work below:
The MAO Contractor shall perform assays to assess and characterize the humoral
immune responses of macaques that have been immunized with HIVenv or with a
combination of HIVenv and SIV non-env vaccines. Specifically the MAO Contractor
shall:
1. Conduct assays to determine the ability of sera or mucosal secretions from
monkeys immunized with HIV vaccines (or of sera from infected monkeys
after SHIV challenge) to neutralize infection of cell lines and/or primary
cells (PBMC) by the HIV strain used for the vaccine. Further characterize
the antibodies, including determining the neutralization titer against the
vaccine (homologous) HIV strain. If the appropriate SHIV virus stock is
available, determine the ability of the sera to neutralize the SHIV made
with the envelope gene of the homologous (vaccine) HIV.
2. For sera (or mucosal secretions) that were determined (above) to
neutralize the homologous strain of HIV, determine the neutralization
titer against infection of T cell lines and/or PBMC by heterologous
laboratory strains of HIV.
3. For sera (or mucosal secretions) that show the ability to neutralize
heterologous HIV isolates (above), determine the ability to neutralize
infection of T cell lines and/or primary PBMC and/or primary macrophages
by primary, "field" isolates of HIV grown only in primary cells.
4. Prior to conducting neutralization assays with the monkey sera from the
vaccine studies, grow appropriate HIV and SHIV virus stocks and
demonstrate that the viruses are able to be neutralized by sera from
HIV-infected people or SHIV-infected monkeys.
5. Receive, catalog, track, and maintain an inventory of the specimens that
arrive for evaluation:
a) Advise sample suppliers (Category B contractors) of the most
suitable manner for shipment of sera, whole blood, cells or other
specimens for evaluation and arrange for the transfer of these
specimens from primate laboratories to the Contractor. All shipments
must be coordinated so that activity/viability of specimens will not
be adversely affected.
b) When necessary, pick up or arrange for pick up of incoming specimen
shipments from a specified airport or other contact site in a timely
manner and assure maintenance of activity and/or viability of the
specimens by providing the appropriate temperature in transit from
the airport or other contact site to the Contractor's laboratory.
c) Receive and catalog specimens arriving for evaluation from the
primate laboratories. Maintain documentation on file for all
incoming specimens, including but not limited to:primate subject
identification number, trial site, protocol identification number,
specimen collection date and condition of sample upon arrival.
d) Store cataloged, aliquotted specimens under appropriate conditions
to retain maximum immunological activity.
e) Maintain specimen tracking and inventory system such that specimens
can be traced and located from receipt through processing and assay
analysis.
MAO Statement of Work ATTACHMENT 1
9/30/95
14
6. Maintain test result database and transfer data electronically:
a) Compile and maintain a computerized database of all neutralization
assays results, using a format compatible with the FOX-PRO data base
that NIAID plans to use to compile records and data from the vaccine
studies. Assay results are to be recorded with designations of study
protocol number, animal number, specimen collection date, and other
information requested by the Project Officer.
b) Transfer specified data electronically to the AIDS Vaccine
Evaluation Group (AVEG) Statistical and Coordinating Center (SCC)
and to the Project Officer at regular intervals as instructed by the
Project Officer (format to be agreed upon between NIAID and the
Contractor).
c) Ensure protection against the loss of data by the duplication of
data base files and programs for storage; provide for the security,
safety, and accuracy of data on the specimen inventory and the test
results database.
7. Provide facilities and resources
a) Provide facilities and equipment for the work to be conducted,
including a biosafety level 2 or 3 laboratory for conducting work
with live HIV and SHIV as well as samples from infected monkeys.
b) Provide, maintain, and operate facilities for controlled storage of
sera, virus stocks, cell stocks, and other samples and reagents,
including storage at -10 to -20 degrees C, at -70 to -90 degrees C,
and in liquid nitrogen conditions, with appropriate monitoring of
storage conditions to guarantee continuous proper storage. The
reliability of supply systems, electrical power, and backup support
systems shall be ensured by the contractor.
c) Provide protective garments, equipment and sufficient monitoring to
assure safe handling of potentially hazardous materials, including
radioactive materials. Specifically, the contractor shall comply
with all applicable health and safety regulations while conducting
the work set forth herein.
d) Conduct work under this contract in accordance with all applicable
Federal, state, and local laws, codes, ordinances and regulations,
and with the following basic references and other related
modifications by the Public Health Service:
(1) Biosafety in Microbiological and Biomedical Laboratories, U.S.
Department of Health and Human Services, Centers for Disease
Control and National Institutes of Health, HHS Pub. No. (NIH)
93-8395 published by the U.S. Government Printing Office,
third edition, May 1993, stock number 17-040-00523-7.
(2) Recommendations for Prevention of HIV Transmission in Health
Care Settings, Morbidity and Mortality Weekly Report, Vol. 36,
No. 2-S.
(3) Agent Summary Statement for Human Immunodeficiency Virus and
Report on Laboratory-Acquired Infection with Human
Immunodeficiency Virus, Morbidity and Mortality Weekly Report,
Vol. 37, No.S-4, pp.1-22.
(4) "Guidelines to Prevent Simian Immunodeficiency Virus Infection
in Laboratory Workers and Animal Handlers", Morbidity and
Mortality Weekly Report, Vol. 37, No. 45, pp. 693-704.
8. Designate a project coordinator to manage the day-to-day conduct of the
study, to interact with the Category B MAO laboratory or laboratories
providing non-human primate samples from the vaccine study or studies, and
to provide information on the status of the assay results to the Project
Officer.
9. Report data and results to NIAID or to a designated NIAID contractor.
Printouts of data and verbal reports of the status of the study are to be
provided on an ongoing basis during the course of the study at the request
of the Project Officer, in addition to the required periodic (quarterly
and final) written reports describing the progress of the study, and in
addition to the periodic electronic transfer of data described in item (6)
above.
MAO Statement of Work ATTACHMENT 1
9/30/95
15
SUMMARY OF VACCINE STUDIES FOR WHICH ASSAYS MAY BE REQUIRED
-----------------------------------------------------------
(SECTION A: HUMORAL IMMUNE RESPONSES TO HIV VACCINES)
VACCINE STUDY 7
- ---------------
Title: Evaluation of HIV DNA Vaccines in Monkeys Using the SHIV Model
Description: To compare routes of administration, rhesus monkeys will be
immunized by either intramuscular injection or by "gene gun" inoculation with
DNA constructs which express HIV-1 env proteins, together with DNA constructs
expressing SIV proteins. The animals will be challenged with SHIV to determine
if a protective response is induced and, if so, how soon it is induced and how
long it persists.
Number of monkeys: 24 (6 groups of 3; 3 groups of 2)
Length of study: 30 months
Number of inoculations per animal: 4 immunizations plus 1 virus challenge
VACCINE STUDY 8
- ---------------
Title: Evaluation of the Contribution of SIV Regulatory Genes to the Efficacy of
an HIV/SIV DNA Vaccine.
Description: Rhesus monkeys will be immunized intramuscularly with DNA
constructs encoding HIV envelope, DNA constructs expressing SIV proteins, and
DNA constructs expressing SIV regulatory gene products to determine if
theregulatory proteins elicit immune responses (particularly CTL responses) that
enhance the ability of the monkeys to resist infection with SHIV.
Number of monkeys: 20 (5 groups of 4)
Length of study: 24 months
Number of inoculations per animal: 4 immunizations plus 1 virus challenge
VACCINE STUDY 13
- ----------------
Title: Immunogenicity of a Soluble Oligomeric Form of the HIV-1 Envelope Protein
Description: Rhesus monkeys will be immunized with a purified oligomeric form of
the HIV-1 envelope protein to determine if monkeys will generate antibodies
(presumably to conformational epitopes of the oligomeric envelope) that are able
to neutralize genetically divergent strains of HIV-1. Vaccines based on
monomeric forms of the HIV-1 envelope generate predominantly type- specific
antibodies that neutralize a limited range of HIV-1 isolates, but preliminary
studies with the oligomeric form of the envelope indicate that antibodies to it
may be more broadly reactive. Animals will be challenged with SHIV after
immunization to determine the ability of the immune response to the oligomeric
envelope to protect monkeys from infection.
Number of monkeys: 18 (6 groups of 3)
Length of study: 24 months
Number of inoculations per animal: 5 immunizations plus 1 virus challenge
MAO Statement of Work ATTACHMENT 1
9/30/95
16
VACCINE STUDY 16
- ----------------
Title: Evaluation of a Recombinant Semliki Forest Virus/HIV Vaccine
Description: Rhesus monkeys will be immunized with an avirulent recombinant
Semliki Forest virus expressing HIV-1 envelope and SIV gag proteins. The monkeys
will be infected with the virus, which has a broad tissue tropism, by either
intramuscular, intravenous, subcutaneous, or mucosal site administration.
Animals will be challenged with SHIV to determine the efficacy of this vaccine
in protecting from virus infection.
Number of monkeys: 10 (5 groups of 2)
Length of study: 18 months
Number of inoculations per animal: 8 immunizations plus 1 virus challenge
MAO Statement of Work ATTACHMENT 1
9/30/95
17
SECTION B: HUMORAL IMMUNE RESPONSES TO SIV VACCINES
- ----------------------------------------------------
Independently, and not as an agent of the Government, the Master Agreement Order
holder shall provide the necessary services, qualified personnel, material,
equipment, and facilities, not otherwise provided by the Government, as needed
to perform the tasks of the Statement of Work below.
The MAO Contractor shall perform assays to assess the humoral immune responses
of macaques that have been immunized with an SIV vaccine. Specifically the MAO
Contractor shall:
1. Determine the capability of sera or mucosal secretions from monkeys
immunized with SIV vaccines to neutralize infection of cell lines and/or
primary cells (PBMC) by the SIV strain used for the vaccine. Further
characterize these antibodies, including determining the neutralization
titer against the vaccine (homologous) SIV strain.
2. For sera (or mucosal secretions) that were determined (above) to
neutralize the homologous strain of SIV, determine the neutralization
titer against infection of T cell lines and/or PBMC by a heterologous
strain or strains of SIV.
3. Prior to conducting neutralization assays with the monkey sera (or mucosla
secretions) from the vaccine studies, grow appropriate SIV virus stocks
and demonstrate that the viruses are able to be neutralized by sera from
SIV-infected monkeys.
4. Receive, catalog, track, and maintain an inventory of the specimens that
arrive for evaluation:
a) Advise sample suppliers (Category B contractors) of the most
suitable manner for shipment of sera, whole blood, cells or other
specimens for evaluation and arrange for the transfer of these
specimens from primate laboratories to the Contractor. All shipments
must be coordinated so that activity/viability of specimens will not
be adversely affected.
b) When necessary, pick up or arrange for pick up of incoming specimen
shipments from a specified airport or other contact site in a timely
manner and assure maintenance of activity and/or viability of the
specimens by providing the appropriate temperature in transit from
the airport or other contact site to the Contractor's laboratory.
c) Receive and catalog specimens arriving for evaluation from the
primate laboratories. Maintain documentation on file for all
incoming specimens, including but not limited to: primate subject
identification number, trial site, protocol identification number,
specimen collection date and condition of sample upon arrival.
d) Store cataloged, aliquotted specimens under appropriate conditions
to retain maximum immunological activity.
e) Maintain specimen tracking and inventory system such that specimens
can be traced and located from receipt through processing and assay
analysis.
5. Maintain test result database and transfer data electronically:
a) Compile and maintain a computerized database of all neutralization
assays results, using a format compatible with the FOX-PRO data base
that NIAID plans to use to compile records and data from the vaccine
studies. Assay results are to be recorded with designations of study
protocol number, animal number, specimen collection date, and other
information requested by the Project Officer.
b) Transfer specified data electronically to the AIDS Vaccine
Evaluation Group (AVEG) Statistical and Coordinating Center (SCC)
and to the Project Officer at regular intervals as instructed by the
Project Officer (format to be agreed upon between NIAID and the
Contractor).
MAO Statement of Work ATTACHMENT 1
9/30/95
18
c) Ensure protection against the loss of data by the duplication of
data base files and programs for storage; provide for the security
and safety of data on the specimen inventory and the test results
database.
6. Provide facilities and resources:
a) Provide facilities and equipment for the work to be conducted,
including a biosafety level 2 or 3 laboratory for conducting work
with live HIV and SHIV as well as samples from infected monkeys.
b) Provide, maintain, and operate facilities for controlled storage of
sera, virus stocks, cell stocks, and other samples and reagents,
including storage at -10 to -20 degrees C, at -70 to -90 degrees C,
and in liquid nitrogen conditions, with appropriate monitoring of
storage conditions to guarantee continuous proper storage. The
reliability of supply systems, electrical power, and backup support
systems shall be ensured by the contractor.
c) Provide protective garments, equipment and sufficient monitoring to
assure safe handling of potentially hazardous materials, including
radioactive materials. Specifically, the contractor shall comply
with all applicable health and safety regulations while conducting
the work set forth herein.
d) The Contractor shall conduct work under this contract in accordance
with all applicable Federal, state, and local laws, codes,
ordinances and regulations, and with the following basic references
and other related modifications by the Public Health Service:
(1) Biosafety in Microbiological and Biomedical Laboratories, U.S.
Department of Health and Human Services, Centers for Disease
Control and National Institutes of Health, HHS Pub. No. (NIH)
93-8395 published by the U.S. Government Printing Office,
third edition, May 1993, stock number 17-040-00523-7.
(2) Recommendations for Prevention of HIV Transmission in Health
Care Settings, Morbidity and Mortality Weekly Report, Vol. 36,
No. 2-S.
(3) Agent Summary Statement for Human Immunodeficiency Virus and
Report on Laboratory-Acquired Infection with Human
Immunodeficiency Virus, Morbidity and Mortality Weekly Report,
Vol. 37, No.S-4, pp.1-22.
(4) "Guidelines to Prevent Simian Immunodeficiency Virus Infection
in Laboratory Workers and Animal Handlers," Morbidity and
Mortality Weekly Report, Vol. 37, No. 45, pp. 693-704.
7. Designate a project coordinator to manage the day-to-day conduct of the
study, to interact with the Category B MAO laboratory or laboratories
providing non-human primate samples from the vaccine study or studies, and
to provide information on the status of the assay results to the Project
Officer.
8. Report data and results to NIAID or to a designated NIAID contractor.
Printouts of data and verbal reports of the status of the study are to be
provided on an ongoing basis during the course of the study at the request
of the Project Officer, in addition to the required periodic (quarterly
and final) written reports describing the progress of the study, and in
addition to the periodic electronic transfer of data described in item (6)
above.
MAO Statement of Work ATTACHMENT 1
9/30/95
19
SUMMARY OF VACCINE STUDIES FOR WHICH ASSAYS MAY BE REQUIRED:
- ------------------------------------------------------------
(SECTION B: HUMORAL IMMUNE RESPONSES TO SIV VACCINES)
VACCINE STUDY 1
- ---------------
Title: Comparison of Different Routes of Immunization with ALVAC/SIV
Description: Rhesus monkeys will be immunized by three different routes with
recombinant avipox (ALVAC) expressing SIV genes. Intramuscular and two mucosal
routes are planned. Animals will be challenged with SIV administered
intravenously or at a mucosal surface to determine if there is a difference in
efficacy of the vaccine when administered by different routes and to determine
if mucosal routes of immunization are more effective at blocking infection at
mucosal surfaces than intramuscular immunizations. Monkeys will be followed
after challenge to determine whether infection has occurred and whether
immunization affects disease progression in any infected animals.
Number of monkeys: 48 (8 groups of 6)
Length of study: 32 months
Number of inoculations per animal: 5 immunizations plus 1 virus challenge
VACCINE STUDY 2
- ---------------
Title: Comparison of Different Routes of Immunization with NYVAC/SIV
Description: Rhesus monkeys will be immunized by three different routes with
recombinant attenuated vaccinia virus (NYVAC) expressing SIV proteins.
Intramuscular and two different mucosal routes are planned. Animals will be
challenged with SIV administered intravenously or at a mucosal surface to
determine if there is a difference in efficacy of the vaccine when administered
by different routes and to determine if mucosal routes of immunization are more
effective at blocking infection at mucosal surfaces than intramuscular
immunizations. Monkeys will be followed after challenge to determine whether
infection has occurred and whether immunization affects disease progression in
infected animals.
Number of monkeys: 48 (8 groups of 6)
Length of study: 32 months
Number of inoculations per animal: 5 immunizations plus 1 virus challenge
VACCINE STUDY 5
- ---------------
Title: Evaluation of Immunization with Recombinant Vaccinia/SIV Vaccine Followed
by Immunization with SIV Proteins
Description: Rhesus monkeys will be immunized with recombinant vaccinia
expressing SIV genes by intradermal, subcutaneous, intramuscular or oral routes,
followed by immunizations with SIV proteins. Animals will be challenged WITH SIV
to determine whether the efficacy of the vaccine is affected by the route of
administration.
Number of monkeys: 24 (4 groups of 6)
Length of study: 24 months
Number of inoculations per animal: 6 immunizations plus 1 virus challenge
MAO Statement of Work ATTACHMENT 1
9/30/95
20
VACCINE STUDY 14
- ----------------
Title: Evaluation of recombinant BCG/SIV vaccines
Description: Rhesus monkeys will be immunized orally with a live recombinant BCG
expressing SIV proteins, followed by immunization with a mixture of SIV
peptides. The monkeys will be challenged with SIV administered intravenously or
at a mucosal site different from the site of immunization to determine if the
live recombinant BCG vaccine administered by a mucosal route confers protection
from infection.
Number of monkeys: 16 (4 groups of 4)
Length of study: 30 months
Number of inoculations per animal: 4 immunizations plus 1 virus challenge
VACCINE STUDY 15
- ----------------
Title: Evaluation of a Recombinant Polio/SIV Vaccine
Description: Pig-tailed macaques will be immunized at two mucosal sites with
live recombinant poliovirus replicons expressing SIV proteins. This will be
followed by immunization with purified SIV proteins. The animals will be
challenged with SIV either intravenously or at a mucosal site used for
immunization or at a mucosal site different from the one used for immunization.
Number of monkeys: 30 (for immunizations: 6 groups of 4; for titration of
challenge virus stock: 6)
Length of study: 24 months
Number of inoculations per animal: 3 immunizations plus 1 virus challenge
MAO Statement of Work ATTACHMENT 1
9/30/95
21
EXHIBIT 10.6
AGREEMENT
WHEREAS, Ajinomoto Co., Inc. ("Ajinomoto") of Tokyo, Japan desires to
sponsor and fund a research and development program and BTRL Contracts and
Services, Inc., doing business as Biotech Research Laboratories (BTRL) a wholly
owned subsidiary company of Boston Biomedica, Inc., desires to provide the
necessary services to perform such research (The Project), this Contract
Agreement is made this 1st day of October 1995 by Ajinomoto and BTRL. In
consideration of the mutual promises set forth herein, the parties hereto state
and agree as follows:
1. BTRL agrees, that in return for the payments to be made thereunder, it
shall provide services including labor, materials and supplies,
facilities and administrative support necessary to perform the Project as
described in Attachment I, using its best efforts therein. This work will
be performed under the direction of the Project Officer (Ajinomoto) and
facilitated by a Principal Investigator (BTRL).
2. In consideration of the services to be performed by BTRL during the
Project, Ajinomoto will pay BTRL in accordance with the budget specified
in Attachment II.
a. The Labor, Materials and Supplies and Other Direct Charges will
reflect the actual usage on the Contract, and will be burdened
with a [Language Deleted Due To Confidential Treatment Request.]
Fringe Benefit Rate, an [Language Deleted Due To Confidential
Treatment Request.] G&A Rate and a [Language Deleted Due To
Confidential Treatment Request.] Fee as indicated. Fringe benefits
will include: long-term disability, life insurance, earned time,
tuition reimbursement, usually ten paid holidays, 401K plan and
short term disability. No health insurance coverage will be
offered to this class of employee ( "Project At-Will").
b. The Rental and Other Fixed Overhead Costs will remain fixed in the
course of the Project as indicated.
c. Any required equipment purchases which are not billed directly to
this contract, but which come from a Supplementary Budget, will
not be burdened with G&A or Fee.
The payments on each year's budget shall be payable in two equal
semi-annual installments, the first of which shall be due as of the
effective date of this Agreement and the remaining installments due at
six month intervals thereafter. BTRL will provide Ajinomoto with monthly
statements indicating the actual expenditures incurred on this Project.
In the event that substantial changes in the proposed budget are
requested by Ajinomoto, (such as hiring additional personnel or requiring
substantial increases in the cost of Materials or Services), and such
changes will exceed the proposed
-Page 1-
budget for the year, BTRL will request a Supplementary Budget and await
Ajinomoto's approval prior to incurring these costs. Approved payments
relating to the Supplementary Budget will be made in accordance with the
manner detailed in a., b., c., above.
3. BTRL agrees that in the performance of the Project, it shall provide the
personnel identified and required by Ajinomoto. Initially, this personnel
shall consist of a Principal Investigator (10% effort), two full-time
Technicians and one full-time Administrative Assistant. If requested by
Ajinomoto, a full-time Senior Scientist or other personnel may be added
at a subsequent time. Personnel hired by BTRL for the Project, other than
the P.I., will be "Project At-Will" employees directly reimbursed by the
Project. The scientific personnel working on the Project shall have the
necessary scientific training and experience to perform the Project.
4. In further consideration of the payments to be made in Paragraph 2 above,
BTRL shall provide two carpeted offices (designated as Room I and Ia on
BTRL's floor plan), one for Dr Aoki, the on-site Project Officer employed
by Ajinomoto, and another for the Administrative Assistant and scientific
personnel. The offices will come equipped with a telephone extension
connecting to the Company switchboard for internal and local use and a
computer network connection. Private telephone line(s) will be provided
by the Project as will any additional office improvements. BTRL also
agrees to provide to the Project, laboratory space designated as
Laboratory X and Xa on BTRL's floor plan. Laboratory Xa comes equipped
with laboratory casework and cabinets. Laboratory X does not come
equipped with laboratory casework or cabinets. Any additional casework ,
cabinets or laboratory renovations will be provided by the Project.
5. Ajinomoto agrees and shall require the Project Officer and any other
Ajinomoto representative entering BTRL's premises to agree to the
following:
a. The presence of such person(s) in BTRL's premises is for the
benefit of Ajinomoto and though BTRL will use reasonable efforts
to maintain its premises in a safe condition, BTRL shall not be
liable for any illness or injury suffered by such person(s) while
in, on or around BTRL's premises, including its laboratories where
infectious biological materials are or may be used.
b. In the event of any illness or injury to such person(s) occurring
on, in or around BTRL's premises, BTRL shall be released from any
and all responsibility or liability for such illness or injury
except to the extent such illness or injury occurred as a result
of any intentional misconduct by BTRL. Ajinomoto shall defend BTRL
against any such claims by such persons and indemnify BTRL from
any liability arising from such claims.
-Page 2-
c. Ajinomoto shall have the responsibility of providing statutory
workers compensation insurance and any other insurance coverage
that may apply to such person(s).
d. BTRL shall have no obligation to provide any insurance coverage
whatsoever for the benefit of Ajinomoto or such person(s).
e. Such person(s) shall abide by all BTRL policies and procedures,
including those concerning health, security and safety, and any
violation of such policies and procedures shall entitle BTRL to
refuse to allow such person(s) on its premises and/or to require
Ajinomoto to substitute other representatives for those who
violate such policies and procedures.
f. Any non-public information learned about any aspect of the
business of BTRL and/or its affiliated companies (other than
information concerning the Project) shall be held in full and
complete confidence and shall not be used, or disclosed to any
person or entity whatsoever, without the prior written consent of
BTRL. The foregoing restriction shall apply to technical
information, and financial and non-financial information including
but not limited to know-how, formulae, patents, processes,
procedures, sales information, manufacturing data and names of
customers or vendors.
6. This Agreement and the Project shall extend for an initial term of three
(3) years, which may be extended by mutual agreement for additional terms
of one year each.
Ajinomoto shall have the right to terminate this Agreement prior to
September 30, 1998 by giving three (3) months prior written notice to
BTRL. If however, Ajinomoto terminates this Agreement without cause for
its own convenience BTRL shall be due the balance of all Fee as specified
in the Project Budget (Attachment II). Except as otherwise provided above
or unless explicitly agreed otherwise between the parties, neither party
shall have the right to terminate this Agreement on or before October 30,
1998, except that either party may terminate this Agreement forthwith:
a. in the event the other party shall breach any of its obligations
under this Agreement and fails to remedy such breach within sixty
(60) days from receipt of notice of such breach by the party not
in default:
b. in case of the other party's liquidation, bankruptcy or state of
insolvency; or
c. in the event the other party assigns this Agreement without the
written consent of the terminating party.
Upon expiration or termination of this agreement for any reason
whatsoever, all claims each party may have against the other party shall
become due. The parties
-Page 3-
shall make up a list of such claims of each against the other. Such
claims shall be offset and the net amount arrived at shall be settled
within sixty (60) days from the termination of this agreement.
7. In order to protect the confidentiality of all confidential subject
matter, the parties agree not to disclose or release such confidential
subject matter to any person, laboratory, institution, corporation or
other entity that is not directly participating in this Project; and, to
not use or permit the use of said confidential subject matter for any
purpose other than for the Project without first obtaining the express
written permission of the other party, except under the following
circumstances:
a. Subject matter that, as of the signing of this agreement, is in
the public domain;
b. Subject matter that, as of the date of the signing of this
agreement, can be shown by written evidence to have been known to
either party;
c. Subject matter that, at any time is received in good faith by
either party from a third party who was lawfully in possession of
the same and had the right to disclose the same; and
d. Subject matter that the parties mutually agree in writing to
release from the terms of this agreement.
8. Any and all discoveries and/or inventions arising from performance of the
Project shall belong to Ajinomoto. BTRL shall, however, be entitled to a
royalty of [Language Deleted Due To Confidential Treatment Request.] of
the net sales of those products which are covered by a product patent
arising out of the Project; and BTRL shall be entitled to a royalty of
[Language Deleted Due To Confidential Treatment Request.] of the net
sales of products covered by only a process patent arising from the
Project. In the event a product is covered by both a product patent and a
process patent, BTRL shall receive a royalty of [Language Deleted Due To
Confidential Treatment Request.]. Royalty payments on products covered by
patents shall continue for the life of the applicable patent. BTRL shall
be entitled to a [Language Deleted Due To Confidential Treatment
Request.] royalty on net sales of products utilizing technology developed
under the Project if there is no patent on either the product or the
process utilized therein. Royalty payments applicable to unpatented
products or processes shall continue for a period of ten years from the
date of the first commercial sale of a product utilizing the unpatented
technology.
9. BTRL shall have a right of first refusal on an exclusive or
semi-exclusive (with Ajinomoto) basis in the event Ajinomoto decides to
license any patented technology arising from the Project. BTRL shall have
the right to use unpatented technology in exchange for payment of a sum
to be agreed upon by both parties during the term of its use; however,
after ten years of royalty payments BTRL shall be deemed to have a paid
up license to use such technology.
-Page 4-
10. In the event that either of the parties hereto, at any time during the
term of this Agreement, commits a breach of any provision thereunder, and
fails to rectify such breach within sixty (60) days from the receipt of
written notice thereof from the other party, such other party may be
entailed to terminate this Agreement.
11. In the event of any dispute, the parties shall use their best efforts to
resolve such dispute. If such dispute is not resolved within sixty (60)
days of the first written notice thereof, either party may request
arbitration, with such arbitration to take place in Rockville, Maryland,
in accordance with the Commercial Mediation rules of the American
Arbitration Association. The parties agree that they will be represented
at the oral proceedings of such mediation by at least one of their
authorized officers who may be assisted by one or more advisors. The cost
of such mediation shall be shared equally by the parties, and each party
shall bear its own expenses in connection with such mediation. The
parties shall endeavor and shall instruct the mediator to have the
mediation proceedings completed and a final resolution reached within 60
days of the date the mediator is appointed.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland. In the event of an unsettled dispute, the
parties mutually agree to the use of any federal or state court in the
State of Maryland having jurisdiction over the subject matter thereof,
and the parties hereby waive any and all rights to object to the laying
of venue in any such court and to the right to claim that any such court
may be an inconvenient forum. The parties hereby submit themselves to the
jurisdiction of each such court and agree that service of process on them
in any such action may be effected by notice in writing to the officials
or their replacements who have signed this Agreement.
12. In the event of termination of or at the end of the Agreement Ajinomoto
agrees to reimburse BTRL for those expenses incurred by the Project after
the winding down of the Project. Sixty days prior to the end of the
agreement BTRL will submit to the on-site Project Officer a list of
expenses to be approved that will be incurred as a result of the end of
the project
13. Attachment I is a description of the Project.
14. Attachment II is the Project Budget.
15. Attachment III is the List of Equipment.
16. Attachment IV is a Building Floor Plan designating office and laboratory
space to be assigned to the Project.
-Page 5-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
AJINOMOTO CO., INC. BTRL CONTRACTS AND SERVICES, INC.
BY BY
---------------------------- ------------------------------------------
Masakatsu Nakamura Richard T. Schumacher
TITLE TITLE
------------------------- ---------------------------------------
Managing Director President
-Page 6-
ATTACHMENT 1
Research Objectives
a. Relationship between immunodeficiency and plasma levels of
L-cystine
There is evidence to support the idea that persons with
immunodeficiencies, such as Low Natural Killer Syndrome (LNKS),
advanced and terminal stage cancers, HIV-1 infections, etc., have
significantly lower plasma levels of certain essential amino
acids, i.e., L-cystine and L-glutamine compared to those of
healthy individuals. Since current assays for immunodeficiencies,
specifically NK activity assays, require the use of radioisotopes
and viable biological samples, a chemical assay to measure amino
acids would be both simpler and easier. Our group is developing a
colorimetric assay to determine plasma levels of L-cystine. This
assay can be used in place of the more time-consuming NK activity
assay to determine a person's immune status. The results we have
obtained thus far using this colorimetric assay lend further
support to the above hypothesis.
The ultimate goal of this project is to develop a diagnostic kit
that makes use of plasma levels of L-cystine as a marker for
immunodeficiency.
b. Support of clinical trials of Low NK Syndrome patients by
treatment with Lentinan.
The University of Pittsburgh School of Medicine, in cooperation
with Ajinomoto Company, is planning clinical trials to gain FDA
approval to administer Lentinan, a polysaccharide extracted from
an edible Japanese mushroom, to patients with Chronic Fatigue
Syndrome (CFS) with or without LNKS. Use of Lentinan in Japan has
proven to be an effective immunopotentiator for the treatment of
CFS and LNKS.
c. Examination of etiology of Low NK Syndrome
Our group will also be collaborating with the University of
Pittsburgh School of Medicine to determine the etiology of LNKS.
As of now, there are three hypotheses as to the cause of LNKS: (1)
an undetermined virus, (2) a defective metabolic pathway and/or
(3) a genetic factor. Once the mechanism(s) that leads to LNKS has
been defined, a quantitative assay, e.g., PCR in the case of a
viral infection, can be utilized to further characterize the
etiologic agent(s).
ATTACHMENT II
YEARLY COST BREAKDOWN
SUMMARY OF ANNUAL COSTS
AJINOMOTO CONTRACT
3 YEAR
YEAR 1 YEAR 2 YEAR 3 TOTAL
DIRECT LABOR
Technician B. Thompson [Language Deleted Due To Confidential Treatment Request.]
Technician H. Tissue
Admin Asst. R.L. East [Language Deleted Due To Confidential Treatment Request.]
P.I. Manak
TOTAL DIRECT
LABOR [Language Deleted Due To Confidential Treatment Request.]
FRINGE BENEFITS
FACILITIES
OFFICE 272 SQUARE FT. [Language Deleted Due To Confidential Treatment Request.]
LABS 892 SQUARE FT.
OTHER FIXED OVERHEAD COSTS
MATERIALS [Language Deleted Due To Confidential Treatment Request.]
OTHER DIRECT
(HEALTH INSURANCE, POSTAGE, TRAVEL, PRIVATE TELEPHONE)
SUBTOTAL
G & A [Language Deleted Due To Confidential Treatment Request.]
TOTAL COSTS
[Language Deleted Due To Confidential Treatment Request.]
FEE
TOTAL COSTS PLUS
FIXED FEE [Language Deleted Due To Confidential Treatment Request.]
EQUIPMENT
DIRECT LABOR BASED ON 1856 PERON HOURS PER YEAR
ATTACHMENT III
FURNITURE/COMPUTER EQUIPMENT:
Ajinomoto owns desks, chairs, and file cabinets for Dr. Aoki and his staff; 2
IBM compatible computers, 1 laser printer, and 1 laserjet fax.
EQUIPMENT:
Ajinomoto owns the following equipment:
Miscellaneous equipment, supplies, disposable labware, chemicals, etc.
Locker
Scotsman Ice Maker
LKB Ultraspec Plus (Spectrophotometer)
Perkin Elmer Thermal Cycler (Gene Amp PCR System 9600)
Sorvall RT6000B Refrigerated Centrifuge
Ohaus balance
3x Forma Scientific Water-Jacketed Incubator
2x Olympus CK2 Microscopes
Olympus CK2 Microscope with Camera
Zeiss Axiophot Fluorescence Microscope
Skatron A/S Plate Washer
HPLC equipment
Branson 8200 Sonifier
Orion Research pH meter
Sartorius Balance
Ohaus GT480 Balance
2x Refrigerator/Freezers
Beckman 18-70M Ultracentrifuge
Revco (-70%C) freezer (Deep Freezer)
Napco 201 and 202 water baths
Beckman Microfuge 12
Power Supply
Fischer Biotech UV Box
HP Quiet Jet Printer
Titertek Multiskan Mcc/340 Plate Reader
Mistral 3000E Centrifuge
Beckman J2-M1 Centrifuge
Fire Safety Cabinet
Hoeffer Transfor
Packard Liquid Scintillation Analyzer
Branson Sonifier 250
LKB-HPLC Variable Monitor
LKB-HPLC Superac
LKB-HPLC LC Controller
LKB-HPLC HPLC Pump
Attachment IV
[FLOOR PLAN -- UPPER LEVEL]
Attachment IV
[FLOOR PLAN -- LOWER LEVEL]
EXHIBIT 10.7
LEASE AGREEMENT
THIS LEASE is made as of this 30th day of June, 1992, by and between (i)
Cambridge Biotech Corporation, a Delaware corporation qualified to do business
in the State of Maryland (the "Landlord"), with a business and mailing address
of 1500 East Gude Drive, Rockville, MD 20850, and (ii) BTRL Contracts and
Services Inc., a Massachusetts corporation qualified to do business in the State
of Maryland (the "Tenant"), with a business and mailing address of c/o Boston
Biomedica, Inc., 375 West Street, West Bridgewater, Massachusetts 02379.
WITNESSETH:
For and in consideration of the covenants herein contained and upon the
terms and conditions herein set forth, the parties agree as follows:
1. Introductory Provisions.
(a) Fundamental Lease Provisions. Certain Fundamental Lease
provisions are presented in this Section in summary form solely to facilitate
convenient reference by the parties hereto:
<TABLE>
<S> <C> <C> <C> <C>
(1) Leased Premises 3 Taft Court [See Section 2(a)
Rockville, MD 20850 and Exhibit A]
(2) Floor Space of Leased 20,680 square feet [See Section 2(a)]
Premises (more or less)
(3) Gross Leasable Area of 22,680 square feet [See Section 2(b))
Property
(4) A. Proportionate Share 91% [See Section 2(c)]
B. R.E. Proportionate 67%
Share
C. Insurance Propor- 67%
tionate Share
(5) Rent Commencement Date July 1, 1992 [See Section 3(a)]
(6) Expiration Data June 30, 1997 [See Section 3(a)]
(7) Minimum Annual Rent Lease Year Minimum Annual Rent [See Section 4(a)]
1 $19,200.00
2 $144,760.00
3 $206,800.00
4 $248,160.00
5 $289,520.00
(8) Basic Monthly Rent Lease Year Basic Monthly Rent [See Section 4(a)]
1 $1,600.00
2 $12,063.33
3 $17,233.33
4 $20,680.00
5 $24,126.66
(9) Tenant's Use Clause General office,
research/development, [See Section 6]
and manufacturing
(as allowed by
zoning code) in
biotechnology and
biomedical fields
(10) Security Deposit $12,063.00 [See Section 5]
(11) Leasing Broker None [See Section 35]
</TABLE>
(b) References and Conflicts. References appearing in Section
1(a) are intended to designate some of the other places in the Lease where
additional provisions applicable to the particular fundamental Lease provisions
appear. These references are for convenience only and shall not be deemed all
inclusive. Each reference in this Lease to any of the fundamental Lease
provisions contained in Section 1(a) shall be construed to incorporate all of
the terms provided for under such provisions, and such provisions shall be read
in conjunction with all other provisions of this Lease applicable thereto. If
there is any conflict between any of the fundamental Lease provisions set forth
in Section 1(a) and any other provisions of the Lease, the latter shall control.
-2-
(c) Exhibits. The following drawings and special provisions are
attached hereto as exhibits and hereby made a part of this Lease:
Exhibit A. Site Plan of Property including the Leased Premises and Adjacent
Laboratory Building
Exhibit B. List of Landlord Repairs After Rent Commencement Date
Exhibit C. Rules and Regulations
2. Premises.
(a) Leased Premises. Landlord hereby leases to Tenant, and Tenant
hereby rents from Landlord, that certain building (the "Leased Premises") which
is located at 3 Taft Court, Rockville, MD 20850 and is outlined in blue on
Exhibit A, together with the non-exclusive right to use the common areas of the
Property as more fully described in Section 7 hereof. The Leased Premises shall
consist of the agreed square footage of floor space as specified in Section
l(a)(2).
(b) The Property. The Leased Premises is a part of a parcel of
improved real property owned by Landlord which is more fully described as "Lot
5, Block A, in the Redgate Industrial Park Subdivision as shown on a plat
thereof recorded in Plat Book 102, Plat 11503 among the Land Records of
Montgomery County, Maryland" (the "Property"). Landlord represents and warrants
to Tenant that it is the owner in fee simple of the Property, subject to certain
encumbrances, rights of way, easements, and other matters of record. Located on
the Property is the Leased Premises, a laboratory building known as 3 1/2 Taft
Court, Rockville, Maryland 20850 (the "Adjacent Laboratory Building"), and
certain common areas as hereinafter defined in Section 7. Landlord and Tenant
acknowledge that the gross leasable area of both the Leased Premises and the
Adjacent Laboratory Building is specified in Section l(a)(3) ("Gross Leasable
Area" or "GLA"), and shall hereafter be referred to as the GLA of the Property.
The GLA of the Property shall be used hereinafter for purposes of computing
Tenant's "Proportionate Share" (as hereinafter defined) of certain expenses
payable to Landlord as "Additional Rent" (as hereinafter defined). Landlord
reserves the right to modify the GLA of the Property, and shall modify the GLA
of the Property, from time to time during the Lease Term as a result of
construction of new leasable improvements or the demolition of existing leasable
improvements on the Property. Landlord's right to modify the GLA of the Property
shall not be construed to provide Landlord with any right to modify the GLA of
the Leased Premises, or to deprive Tenant of the reasonable use of any portion
of the parking areas allocated to it.
(c) Tenant's Proportionate Share. Tenant's Proportionate Share of
certain expenses hereinafter made payable to Landlord as Additional Rent is
specified in Section l(a)(4). Said computation is based upon the ratio of the
total area of floor space in the Leased Premises to the GLA of the Property. The
Proportionate Share shall be modified during the Lease Term in the event that
the GLA of the Property is modified as described in Section 2(b) above.
3. Term and Acceptance by Tenant.
(a) Lease Term. The term of this Lease (sometimes herein called
the "Lease Term") shall begin as of the date specified in Section 1(a) (5)
("Rent Commencement Date") and, unless sooner terminated as herein provided,
continue thereafter through the date specified in Section l(a)(6) ("Expiration
Date"). The period commencing with the Rent Commencement Date and ending on the
last day of the twelfth (12th) full calendar month thereafter shall constitute
the first "Lease Year" as such
-3-
term is used herein. Each successive full twelve (12) month period during the
Lease Term shall constitute a "Lease Year".
(b) Acceptance of Leased Premises. Tenant accepts possession of
the Leased Premises in "as is" condition, except that Landlord shall be
obligated to complete, or cause to be completed, repairs to the Leased Premises
which are identified in Exhibit B, in a good and workmanlike manner using first
quality materials, on or before the ninetieth (90th) day following the date of
execution of this Lease by both parties hereto. Landlord shall use all
reasonable efforts to cause said repair work to be completed by such independent
contractors in a diligent manner. Tenant expressly acknowledges and agrees that
Landlord has made no representations or warranties with respect to the Leased
Premises, and that no promises to alter, repair or improve the Leased Premises
or the Property have been made by Landlord or its agents or employees, unless
specifically set forth herein.
(c) Permits. Tenant shall be responsible for obtaining the
occupancy permit (if and to the extent required by law) and all other permits or
licenses necessary for its lawful occupancy of the Leased Premises. This
requirement shall not relieve Tenant of its liability for the payment of Minimum
Annual Rent and Additional Rent, and the performance of all other obligations
contained herein, from and after the Rent Commencement Date, in the event that
all of said approvals, permits and licenses have not been acquired prior
thereto.
4. Rent.
(a) Minimum Annual Rent. The Minimum Annual Rent reserved
hereunder in Section 1(a)(7) shall be payable by Tenant to Landlord during each
Lease Year of the Lease Term in equal monthly installments of Basic Monthly Rent
in the amounts set forth in Section 1(a)(8), due in advance, without notice or
demand, and without set-off, deduction, recoupment or abatement of any kind, on
the Rent Commencement Date and the first (1st) day of each and every calendar
month thereafter during the Lease Term. In the event that the Rent Commencement
Date occurs on a day other than the first day of a calendar month or the Lease
Term ends on a day other than the last day of a calendar month, then the Basic
Monthly Rent or Additional Rent for such partial month(s) shall be computed on a
per diem basis by dividing the Basic Monthly Rent or Additional Rent by thirty
(30) and multiplying it by the number of days in the partial calendar month.
Rent shall be paid to Landlord, or to such other person(s), or at such other
address as Landlord may designate to Tenant from time to time.
(b) Additional Rent.
(i) General. Whenever it is provided by the terms of this
Lease that Tenant is required to make any payment to Landlord other than a
payment of Minimum Annual Rent, such payment shall be deemed to be a payment of
additional rent ("Additional Rent"). Unless otherwise expressly specified
herein, Additional Rent shall be paid by Tenant with the next installment of
Basic Monthly Rent thereafter falling due. Additional Rent shall include, but
not be limited to:
(ii) Real Estate Taxes. On or before September 1, 1992,
Tenant shall pay to Landlord its R.E. Proportionate Share of the Real Estate
Taxes to be incurred by Landlord on the Property during the 1992-1993 tax year,
based upon a copy of the 1992-1993 tax bill for the Property delivered to Tenant
by Landlord prior thereto (or if a copy of said tax bill is not delivered to
Tenant until after September 1, 1992, then within five (5) business days of the
receipt thereof). Commencing upon the 1st day of October, 1992, and thereafter
on the first day of each calendar month throughout the Lease Term, Tenant shall
pay to Landlord, without
-4-
notice or demand therefor (other than the annual notice of Landlord's estimate
of Tenant's R.E. Proportionate Share of the Real Estate Taxes and a copy of the
tax bill as described in the following paragraph of this Section), and without
any deduction whatsoever, one-twelfth (1/12) of its R.E. Proportionate Share of
Landlord's good faith estimate of the Real Estate Taxes to be incurred by
Landlord on the Property during the following tax year (prorated, if necessary,
if the remainder of the Lease Term constitutes less than the full tax year).
Tenant's obligation to pay its R.E. Proportionate Share of the Real Estate Taxes
incurred during the Lease Term shall survive the expiration or other termination
of the Lease.
The term "Real Estate Taxes" shall mean all taxes and assessments,
general and special, ordinary and extraordinary, foreseen and unforeseen, now or
hereafter assessed, levied or imposed upon the Property, including both the land
and the improvements which are built thereon, including, without limitation,
front foot benefit charges and adequate public facility costs and assessments,
together with (i) any tax, assessment, or other imposition in the nature of a
real estate tax, (ii) any ad valorem tax on rent or any tax on income if imposed
in lieu of or in addition to real estate taxes and assessments, and (iii) any
taxes and assessments which may hereafter be substituted for real estate taxes,
including by way of illustration only, any tax, assessment or other imposition
(whether a business rental or other tax) now or hereafter levied upon Landlord
for a tenant's use or occupancy of or conduct of business on the Property, or a
tenant's improvements to or furniture, fixtures or equipment on the Property.
Real Estate Taxes shall also include all reasonable costs incurred by Landlord
in contesting the validity or amount of any such taxes. Real Estate Taxes shall
not include transfer, inheritance, capital stock or income taxes or other
similar personal tax of Landlord, nor any late charges, penalties or interest,
incurred due to untimely payments by Landlord in connection with said tax.
Within fifteen (15) days after Landlord's receipt from the taxing
authority of the Real Estate Tax bill for the 1993-1994 tax year and for each
tax year thereafter during the Lease Term, Landlord shall deliver to Tenant a
copy of such tax bill, together with a statement showing Tenant's R.E.
Proportionate Share of the actual Real Estate Taxes due for said tax year and
the amount of payments made by Tenant based upon the estimate thereof. Tenant
shall pay Landlord, within thirty (30) days of Tenant's receipt of such
statement, Tenant's R.E. Proportionate Share of the excess, if any, of the Real
Estate Taxes for such tax year over the estimated costs thereof. If the amount
paid by Tenant as Tenant's R.E. Proportionate Share of the estimated Real Estate
Taxes for such tax year exceeded Tenant's R.E. Proportionate Share of actual
Real Estate Taxes for such tax year, the excess shall be credited toward payment
of the next installment of Basic Monthly Rent to be paid by Tenant after Tenant
receives said statement from Landlord. If the amount paid by Tenant for the last
tax year of the Lease Term exceeds Tenant's R.E. Proportionate Share of actual
Real Estate Taxes for such tax year, Landlord shall pay Tenant the excess amount
within thirty (30) days after Landlord's submission to Tenant of the aforesaid
statement for such tax year.
In the event that the Adjacent Laboratory Building is demolished
during the Lease Term, then, commencing upon the effective date of the
reassessment of the Property and the modification of Real Estate Taxes resulting
from such demolition, and for so long as the Leased Premises constitutes one
hundred percent (100%) of the leasable improvements located on the Property,
Tenant shall be obligated to pay Tenant's R.E. Proportionate Share of the Real
Estate Taxes assessed against the Property land and one hundred percent (100%)
of the Real Estate Taxes assessed against the Property improvements.
-5-
Upon Tenant's written request, Landlord will contest, at Tenant's
expense, the validity or amount of any such Real Estate Tax. Tenant shall be
entitled to its R.E. Proportionate Share of any refund.
Landlord shall deposit and thereafter hold in escrow, until
disbursement, the funds received from Tenant pursuant to this section in an
interest bearing, federally insured account. All interest earned on said account
shall be credited to Tenant and shall be used in the adjustments to Tenant's
payments made hereunder from time to time during the Lease Term so that Landlord
collects only such monies as are necessary to pay Tenant's R.E. Proportionate
Share of said Real Estate Taxes.
In addition to Tenant's obligation for the payment of its R.E.
Proportionate Share of the Real Estate Taxes, Tenant shall be liable for, and
shall pay before delinquency, all taxes levied against any personal property or
trade fixtures placed by Tenant in or about the Leased Premises.
(iii) Insurance. Commencing upon the Rent Commencement Date and
thereafter throughout the Lease Term, Tenant shall pay to Landlord without
notice or demand therefor and without any deduction whatsoever, its Insurance
Proportionate Share of the premium cost of the casualty insurance, liability
insurance, rent loss insurance, and other reasonable and necessary form of
insurance carried by Landlord with respect to the Property ("Insurance Cost")
during any policy year; provided, however, that if the Adjacent Laboratory
Building is demolished during the Lease Term, then commencing upon such
demolition and for so long as the Leased Premises constitutes one hundred
percent (100%) of the leasable improvements on the Property, Tenant shall be
obligated to pay one hundred percent (100%) of the Insurance Cost.
Not less than ten (10) days before the Rent Commencement Date, Landlord
shall deliver to Tenant a written statement of Landlord's estimate of the amount
of the Insurance Cost for the then-current policy year, and Tenant's Insurance
Proportionate Share of such Insurance Cost. On the Rent Commencement Date, and
on the first day of each month thereafter throughout the Lease Term, Tenant
shall pay one-twelfth (1/12) of Tenant's Insurance Proportionate Share of
Landlord's estimate of the Insurance Cost for the then-current policy year, as
shown on Landlord's estimate. Landlord shall submit its estimate of the
Insurance Cost for the forthcoming policy year and Tenant's Insurance
Proportionate Share thereof at the commencement of each such policy year, and
Tenant's monthly payments made after its receipt of such estimate shall be in
the amount of one-twelfth (1/12) of the amount of Tenant's Insurance
Proportionate Share of Insurance Cost as shown on such estimate. Landlord may
revise its estimate of the Insurance Cost at any time during a policy year by
notice to Tenant, setting forth such revised estimate and Tenant's Insurance
Proportionate Share thereof. In such event, all monthly payments made by Tenant
after such notice shall be in an amount calculated on the basis of such revised
estimate. Tenant shall, in all cases, continue to make monthly payments of
Insurance Cost based on the last estimate received from Landlord until it
receives a revised or updated estimate.
After the end of each policy year, Landlord will as soon as practicable
submit to Tenant a statement of the actual Insurance Cost for such policy year
and Tenant's Insurance Proportionate Share thereof. Landlord shall cause its
insurance carrier, whenever practical, to issue policies of insurance covering
the Leased Premises which are separate and apart from the Adjacent Laboratory
Building and all other properties owned by Landlord, in which event Tenant's
Proportionate Share of Insurance Cost shall be the full cost payable pursuant to
said
-6-
separate policy. Where such separate policies cannot be issued practically,
Landlord shall cause its insurance carrier to provide a written statement
identifying the manner in which all premiums paid by Landlord are allocated to
reflect the portion thereof attributable to the insurance carried on the Leased
Premises and the portion thereof attributable to the insurance carried on the
Adjacent Laboratory Building and other properties owned by Landlord. Tenant
shall pay Landlord, within thirty (30) days of Tenant's receipt of such
statement, Tenant's Insurance Proportionate Share of the excess, if any, of
Insurance Cost for such policy year over the projected Insurance Cost. If the
amount paid by Tenant as Tenant's Insurance Proportionate Share of the estimated
Insurance Cost for such policy year exceeded Tenant's Insurance Proportionate
Share of actual Insurance Cost for such policy year, the excess shall be
credited toward payment of the next installment of Basic Monthly Rent to be paid
by Tenant after Tenant receives said statement from Landlord. If the amount paid
by Tenant for the last policy year of the Lease Term exceeds Tenant's Insurance
Proportionate Share of actual Insurance Cost for such year, Landlord shall pay
Tenant the excess amount within thirty (30) days after Landlord's submission to
Tenant of the aforesaid Insurance Cost statement for such policy year.
Landlord shall deposit and thereafter hold in escrow, until
disbursement, the funds received from Tenant pursuant to this section in an
interest bearing, federally insured account. All interest earned on said account
shall be credited to Tenant and shall be used in the adjustments to Tenant's
payments made hereunder from time to time during the Lease Term so that Landlord
collects only such monies as are necessary to pay Tenant's Insurance
Proportionate Share of said Insurance Cost.
Landlord agrees that, at all times during the Lease Term, it shall carry
casualty insurance and liability insurance in such form and in such amounts
which are consistent with and comparable to the coverage of casualty insurance
policies and liability insurance policies carried by landlord's owning
commercial buildings located in Montgomery County, Maryland that are similar to
the Leased Premises.
(iv) Utility Expenses Not Separately Metered.
(aa) Throughout the Lease Term, Tenant agrees to pay to
Landlord, as Additional Rent, Tenant's Proportionate Share of all water usage
charges, exterior electric lighting charges, and any other utility charges
("Shared Charges") not separately metered (and only for so long as each is not
separately metered) for each of the Leased Premises, the Adjacent Laboratory
Building, and the common areas of the Property.
(bb) Upon receipt of each billing for Shared Charges,
Landlord will as soon as practicable submit to Tenant a statement of Shared
Charges incurred for the preceding billing period. Tenant shall pay Landlord,
within thirty (30) days of Tenant's receipt of such statement, Tenant's
Proportionate Share of Shared Charges.
(v) Landlord's Enforcement Costs. Additional Rent shall
include any and all expenses incurred by Landlord, including reasonable
attorneys' fees, for the collection of monies due from Tenant and the
enforcement of Tenant's obligations under the provisions of this Lease. In the
event Minimum Annual Rent or Additional Rent is not paid within fifteen (15)
business days of its due date, Landlord, at its sole option, may assess a late
charge equal to five percent (5%) of the amount of the delinquent Basic Monthly
Rent and Additional Rent as compensation for the additional administrative costs
incurred by Landlord as a result of such late payment.
-7-
(c) Payment of Rent. Any Minimum Annual Rent or
Additional Rent which is not paid within five (5) business days after the same
is due shall bear interest ("Penalty Rate") at one percentage (1%) point above
the prime rate of interest by NationsBank/Maryland existing from time to time
and adjusted each day the prime rate is redetermined to reflect the change in
said prime rate of interest, from the due date until the date received by
Landlord. Any payments of Minimum Annual Rent or Additional Rent by Tenant or
acceptance by Landlord of a lesser amount than shall be due from Tenant to
Landlord shall be treated as a payment on account. The acceptance by Landlord of
a check for a lesser amount with an endorsement or statement thereon, or upon
any letter accompanying such check, that such lesser amount is payment in full,
shall be given no effect, and Landlord may accept such check without prejudice
to any other rights or remedies which Landlord may have against Tenant. If
Landlord receives from Tenant two (2) returned or "bounced" checks in any one
Lease Year, Landlord may require all future Rent by cashier's or certified
check.
5. Security Deposit.
(a) Contemporaneously with the execution of this Lease,
Tenant has deposited with Landlord the sum specified in Section 1(a)(10) as the
security deposit ("Security Deposit"), the receipt of which is hereby
acknowledged. Said Security Deposit shall serve as security for the faithful
performance by Tenant of all the terms, covenants and conditions of this Lease
to be kept and performed by Tenant during the Lease Term. If, at any time during
the Lease Term, any payment of Minimum Annual Rent or Additional Rent herein
reserved shall be overdue and unpaid, then Landlord may, at its option,
appropriate and apply any portion of said Security Deposit to the payment of any
such overdue rent or other sum.
(b) In the event of the failure of Tenant to keep and
perform any of the terms, covenants and conditions of this Lease to be kept and
performed by Tenant, then Landlord, at its option, may appropriate and apply the
entire Security Deposit, or so much thereof as may be necessary, to compensate
Landlord for loss or damage sustained or suffered by Landlord due to such breach
on the part of Tenant. Should the entire Security Deposit, or any portion
thereof, be appropriated and applied by Landlord for the payment of overdue rent
or other sums due and payable to Landlord by Tenant hereunder, then Tenant
shall, upon the written demand of Landlord, forthwith remit to Landlord a
sufficient amount in cash to restore the Security Deposit to the original sum.
Tenant's failure to do so within five (5) days after receipt of such demand
shall constitute a breach of this Lease. Should Tenant comply with all of said
terms, covenants and conditions of this Lease and promptly pay all Minimum
Annual Rent and Additional Rent herein provided as it falls due, then the
Security Deposit (and all accrued interest) shall be returned in full to Tenant
within forty-five (45) days of the Expiration Date or earlier termination of the
Lease Term.
(c) Landlord shall deliver the funds deposited
hereunder by Tenant as a Security Deposit to the purchaser of Landlord's
interest in the Property and/or the Leased Premises in the event that such
interest is sold, and thereupon Landlord shall be discharged from any further
liability with respect to such Security Deposit.
(d) If the Tenant fails to take possession of the
Leased Premises as required by this Lease, the Security Deposit shall not be
deemed liquidated damages, and Landlord's use of the Security Deposit pursuant
to this Section 5 shall not preclude Landlord from recovering from Tenant all
additional damages incurred by Landlord.
-8-
(e) Landlord shall deposit the funds delivered by
Tenant as a Security Deposit in an interest bearing, federally insured account,
and shall hold the Security Deposit in such an account(s) during the entire
Lease Term. For so long as Signet Bank/Maryland holds a first lien security
interest in the Property, the Security Deposit shall be held in an account at
Signet Bank/Maryland which identifies Landlord as the escrow agent or custodian
of the proceeds constituting the Security Deposit for the benefit of Tenant. All
interest earned on said account shall be credited to Tenant, and, so long as
Tenant is not in default of its obligations under this Lease, Landlord shall pay
to Tenant all accrued interest (and shall deliver to Tenant an appropriate
statement showing the accrual of such interest on said account) on or before the
31st day of January of each calendar year during the Lease Term. Tenant
acknowledges that its tax identification number is #04-3152484 for purposes of
reporting to the Internal Revenue Service interest earned on said account.
6. Use.
(a) Use. Tenant shall use the Leased Premises for the
purposes specified in Section 1(a)(9), and for no other purpose.
(b) Compliance With Laws, Fire Insurance, Condition of
Leased Premises. Tenant shall not do, or permit anything to be done in the
Leased Premises or on the Property, or bring or keep anything therein, which
will in any way invalidate or conflict with fire insurance policies on the
Property, including, but not limited to all improvements, the Property's
fixtures and personal property kept therein, or obstruct or interfere with the
rights of the Landlord or of other tenants of the Property, or in any other way
injure or annoy Landlord or such other tenants, or subject Landlord to any
liability for injury to persons or damage to property, or interfere with the
good order of the Property, as determined by Landlord in its sole reasonable
discretion. Tenant shall refrain or discontinue said use immediately upon
receipt of written notice from Landlord requiring such action. Tenant, at its
expense, shall comply with all present and future laws, rules or regulations of
any federal, state or municipal authority, or the Maryland Fire Underwriters
Rating Bureau, or with any notice from any public officer pursuant to law
pertaining to Tenant's occupancy or use of the Leased Premises, whether such
notice shall be served on Landlord or Tenant (including, where necessary, the
construction of capital improvements to the Leased Premises). Tenant agrees to
indemnify, defend, and hold Landlord harmless from all liability, damage, cost,
and expense (including, without limitation, court costs and reasonable attorneys
fees) resulting from any injury to persons or damage to property occurring in or
around the Leased Premises, whether occasioned by any act or omission of Tenant,
Tenant's agents, contractors, servants, employees, invitees or licensees. Tenant
agrees that any increases of fire insurance premiums on the Leased Premises or
contents caused by the occupancy of Tenant and any expenses or costs incurred in
consequence of negligence or carelessness or the willful action of Tenant,
Tenant's employees, agents, contractors, servants, invitees, or licensees shall
be deemed Additional Rent and paid by Tenant to Landlord as they accrue.
7. Common Areas.
(a) Common Areas Defined. In this Lease, "common areas"
means all areas, facilities and improvements provided, from time to time, on the
Property for the mutual convenience and use of all tenants or other occupants of
the Leased Premises and the Adjacent Laboratory Building, their respective
agents, employees, and invitees, and shall include, if provided, but are not
limited to, parking areas and facilities, access roads,
-9-
driveways, retaining walls, sidewalks, walkways, landscaped areas, and exterior
lighting facilities.
(b) Landlord's Control. Landlord shall, as between Landlord and
Tenant, at all times during the Lease Term have the sole and exclusive control,
management and direction of the common areas, and may, at any time and from time
to time during the Lease Term, exclude and restrain any person from use or
occupancy thereof, excepting, however, Tenant and other tenants of Landlord and
bona fide invitees of either who make use of said areas in accordance with the
rules and regulations established by Landlord from time to time with respect
thereto. The rights of Tenant in and to the common areas shall at all times be
subject to the rights of others to use the same in common with Tenant, and it
shall be the duty of Tenant to keep all of said areas free and clear of any
obstructions created or permitted by Tenant or resulting from Tenant's
operation. Landlord may at any time and from time to time (i) close all or any
portion of the common areas to make repairs or changes, (ii) close all or any
portion of the common areas to such extent as may, in the opinion of Landlord,
be necessary to prevent a dedication thereof or the accrual of any rights to any
person or to the public therein, and (iii) do and perform such other acts in and
to said areas as, in the exercise of good business judgment, Landlord shall
determine to be advisable with a view to the improvement of the convenience and
use thereof by tenants, their employees, agents, and invitees. Landlord shall at
all times have the right and privilege of determining the nature and extent of
the common areas, and of making such changes, rearrangements, additions or
reductions therein and thereto from time to time which in its opinion are deemed
to be desirable and for the best interest of all persons using the common areas
or which are as a result of any federal, state or local environmental protection
or other law, rule, regulation, guideline or order. The purpose of the site plan
attached hereto as Exhibit A is to show the approximate locational relationship
of the Leased Premises to the Adjacent Laboratory Building and to the common
areas as of the Rent Commencement Date. Nothing described in Exhibit A shall
limit or prevent Landlord from effecting any change or alteration to the
Property as described in this paragraph. Nothing contained in this Section shall
give Landlord the right to impose restrictions on the use and enjoyment of the
common areas by Tenant, or to make modifications to the common areas, in a way
to cause Tenant to be unable to use the Leased Premises and the common areas in
a reasonable manner for the purposes originally contemplated by this Lease.
(c) Parking Spaces. During the Lease Term, Tenant shall
have the exclusive right to the use of all parking spaces in the common areas of
the Property, except for the six (6) parking spaces which are marked in red on
Exhibit A and are reserved by Landlord for its use.
8. Rules and Regulations. Tenant agrees to comply with and observe any
reasonable rules and regulations promulgated by Landlord as set forth in Exhibit
C, which may be supplemented or amended from time to time by Landlord. Tenant's
failure to keep and observe said rules and regulations shall constitute a breach
of the terms of this Lease in the same manner as if the same were contained
herein as covenants.
9. Utilities. Tenant shall be solely responsible for and shall promptly
pay any and all utility charges including but not limited to electricity, fuel,
gas, and telephone (including equipment and installation charges) used in,
consumed at, or supplied to the Leased Premises. Tenant shall immediately
transfer all separately metered utility accounts for the Leased Premises into
its own name on the Rent Commencement Date. Tenant shall pay to Landlord, as
Additional Rent, its Proportionate Share of any and all bills for utility
charges which are not
-10-
separately metered in the manner described in Section 4(b)(iv) hereof.
10. Landlord's Right of Entry. Landlord, and its agents, shall have the
right, upon prior notice to Tenant and during reasonable business hours during
the Lease Term (except in the case of an emergency involving damage to person or
property), to enter upon the Leased Premises to examine the same, or to make
such repairs, alterations or improvements, as Landlord may deem necessary or
proper, or to remove any alteration or improvement which is in violation of the
provisions of this Lease, provided, however, Landlord shall not adversely
interfere with Tenant's business operations in a material manner. Landlord
reserves the right to show the Leased Premises to prospective tenants or brokers
during the last ninety (90) days of the Lease Term, and to show the Leased
Premises to prospective purchasers at all reasonable times, provided that prior
verbal notice is given to Tenant in each case and that Tenant's use and
occupancy of the Leased Premises shall not be materially inconvenienced by any
such action of Landlord.
11. Condition - Maintenance and Repair.
(a) Tenant's Responsibility. Tenant shall maintain the
Leased Premises in substantially the same good order and condition as it is on
the commencement of the Lease Term and shall return the Leased Premises to
Landlord in such condition at the Expiration Date or at the earlier termination
of this Lease, ordinary wear and tear excepted. Except as obligations to repair
are expressly delegated to Landlord as described in Section 11(b) below, Tenant
shall be responsible for the full cost of all maintenance and repair of (i) the
Leased Premises, including but not limited to the doors, door jambs, windows,
window casings and sills, screens, floor coverings, walls (excluding load
bearing structures), and ceilings located in the Leased Premises, and all pipes,
gutters, downspouts, wires, conduits and other equipment and fixtures located in
the Leased Premises, and (ii) the common areas of the Property (including all
landscaping thereon, except for the landscaping immediately surrounding the
Adjacent Laboratory Building). Tenant, at its expense, shall perform routine
maintenance, repair, and replacement of the plumbing, electrical, heating,
ventilating and air-conditioning systems, and all other systems and equipment,
serving the Leased Premises. Tenant will throughout the Lease Term obtain and
keep in force a maintenance contract with a qualified service company to
regularly inspect and perform maintenance services to the heating, ventilating
and air-conditioning system serving the Leased Premises. Tenant, at its expense,
shall furnish Landlord with a copy of said maintenance contract, and of renewals
or replacements thereof, promptly after the effective date thereof. All repairs
and maintenance required to be performed by Tenant at the Leased Premises shall
be made or performed within a reasonable period of time upon the occurrence of
the necessity therefor, and shall be made or performed in a workmanlike manner,
using first class materials, by a contractor duly licensed in the State of
Maryland, and shall be made or performed in accordance with (i) all applicable
federal, state and county governmental codes and regulations, and (ii) insurance
requirements. Tenant shall also be responsible for keeping all sidewalks and
parking areas on the Property free and clear of dirt, trash, debris, ice, snow,
and any other obstructions; provided, however, that Landlord shall upon request
promptly reimburse Tenant for nine percent (9%) of the cost of any such
services. Tenant shall keep its trash and garbage in enclosed containers in a
trash holding area within the Leased Premises, and shall perform regular trash
removal from such trash holding area. Tenant shall also be responsible for the
performance of regular, periodic pest control services at the Leased Premises.
All glass, both exterior and interior, shall be maintained in the Leased
Premises at the sole
-11-
risk of Tenant, and Tenant agrees to replace any glass promptly at its sole
expense in the event of breakage.
(b) Landlord's Responsibility. Except for any
structural alterations or improvements made by Tenant, Landlord shall maintain
in good order and repair the roof and the structural portions of the foundation,
floors, stairwells, exterior walls, columns and other load bearing elements of
the Leased Premises, and shall perform all non-routine repair and replacement of
the heating, ventilating and air-conditioning system at the Leased Premises,
provided, in each case, that Tenant shall give Landlord notice of the necessity
therefor, whereupon Landlord shall have a reasonable period of time within which
to make such repairs, and provided, further, that any such repairs necessitated
by the acts or omissions of Tenant, its agents, employees, contractors or
invitees, shall be performed at Tenant's expense, and the cost thereof shall be
paid by Tenant to Landlord, as Additional Rent, within twenty (20) days after
Landlord's submission of a bill therefor.
12. Alterations or Improvements by Tenant. Except for incidental
painting and decoration of the interior of the Leased Premises and other minor
alterations and improvements which do not affect the structure or utility
systems of the Leased Premises, Tenant shall not make any alterations,
additions, or improvements, structural or otherwise (collectively,
"Alterations") in, on or to the Leased Premises, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. In connection with Landlord's review of such proposed alterations or
improvements prior to giving its consent thereto, Landlord shall have the right
to require that Tenant supply plans, specifications, working drawings and
similar documents in reasonable detail which show the scope of work to be
performed within the Leased Premises. Landlord's approval of the plans,
specifications and working drawings for Tenant's alterations and improvements
shall create no liability on the part of Landlord for their completeness, design
sufficiency, or compliance with all laws, rules, regulations of governmental
agencies or authorities. Landlord acknowledges that Tenant desires to build a P3
laboratory in the Leased Premises during the Lease Term, and that Landlord shall
not unreasonably withhold or delay its consent to the construction thereof. Any
contractors employed by Tenant to perform Tenant's work (i) shall be qualified
to perform such work and licensed in the State of Maryland and (ii) shall
maintain any insurance which may be reasonably required by Landlord, and (iii)
shall be bonded or otherwise reasonably satisfactory to Landlord. Tenant will
defend, indemnify and hold Landlord harmless from and against any and all
expenses, liens, claims or damages, including attorneys' fees, for injury to
person or property which may or might arise, directly or indirectly, by reason
of the making of any Alterations. If any Alterations are effected without the
prior written consent of Landlord, Landlord may remove or correct the same and
Tenant shall be liable for any and all expenses of this work. All rights given
to Landlord herein shall be in addition to any other right or remedy of Landlord
contained in this Lease. Tenant shall be obligated to make any and all
Alterations and other improvements to the Leased Premises required by applicable
federal, state, and local law, in connection with the use of the Leased Premises
by Tenant during the Leased Term. Tenant hereby agrees that all Alterations made
in, to, or on the Leased Premises shall, unless otherwise provided by written
agreement or by the provisions of Section 13 below, be the property of Landlord
and shall remain upon and be surrendered with the Leased Premises on the
Expiration Date or other termination of this Lease.
13. Surrender. Upon the Expiration Date or other termination of the
Lease Term, Tenant shall quit and surrender the Leased Premises to the Landlord
in good order and condition,
-12-
ordinary wear and tear excepted, and Tenant shall remove all of its personal
property from the Leased Premises on or before the Expiration Date or other
termination of this Lease. Tenant's obligation to observe or perform the
covenants described in this Section 13 shall survive the expiration or other
termination of this Lease. If Tenant does not remove Tenant's furniture, trade
fixtures and all other items of personal property of every kind and description
from the Leased Premises as specified herein, then Landlord shall be permitted
to remove, dispose or otherwise discard such property without further payment or
credit by Landlord to Tenant. Notwithstanding anything to the contrary contained
in this Lease, Tenant shall have the right and the obligation , at the end of
the Lease Term, to remove all built-in desks, cabinets, basins, emergency
showers and other pieces of equipment which are affixed to the Leased Premises
by Tenant. In connection with the removal of said equipment, Tenant shall be
obligated to stub pipes; bundle and cap wires; close ducts; repair and replace
(as appropriate) flooring coverings; repair, replace, finish and repaint (as
appropriate) walls, and perform all other acts which are necessary for the
Leased Premises to be returned to Landlord in same good order and condition as
exists of the Rent Commencement Date.
14. Tenant Holding Over. If Tenant holds possession of the Leased
Premises after the Expiration Date or other termination of this Lease, Landlord
shall have the option, exercisable in writing within thirty (30) days after the
date of termination as aforesaid, to treat Tenant as a trespasser, or as a
tenant by the month. If the Landlord fails to make such election then the Tenant
shall be deemed a tenant by the month, commencing with the first day after the
termination of the Lease at one hundred fifty percent (150%) of the Basic
Monthly Rent paid during the last month of the Lease Term, and upon all the
other terms of this Lease, including the provisions of this Section. Said
holdover term shall terminate upon thirty (30) days notice from one party to the
other. Nothing contained herein shall be construed within said thirty (30) days
after the date of Lease termination as aforesaid as a consent by Landlord to the
occupancy or possession of the Leased Premises by Tenant after the termination
of the Lease, and Landlord, upon said termination, if Landlord elects to treat
Tenant as a trespasser, shall be entitled to the benefit of all general or
public laws relating to the speedy recovery of the possession of land and
tenements held over by Tenant, whether now or hereafter in force and effect. If
Tenant fails to surrender the Leased Premises upon the expiration or other
termination of this Lease despite demand to do so by Landlord, Tenant shall
indemnify, defend, and hold Landlord harmless from all injury, loss, claims,
expenses and liability, including without limitation, any claim made by any
succeeding tenant and any attorneys' fees, founded on or resulting from such
failure to surrender.
15. Assignment and Subletting.
(a) Assignment by Tenant. Tenant shall not assign,
mortgage or encumber this Lease, or any right hereunder, nor sublet the Leased
Premises or any part thereof, nor permit the Leased Premises to be used by
others without the prior written consent of Landlord, which consent shall be at
Landlord's sole discretion. If Tenant is a corporation, unincorporated
association or partnership, then the transfer, assignment or hypothecation of
any stock or interest in such corporation, association or partnership so as to
result in a change of fifty percent (50%) or more in the ownership thereof by
the person, persons or entities owning said entity as of the date of this Lease,
without the prior written consent of Landlord (which consent shall not be
unreasonably withheld or delayed), shall be deemed an assignment made in breach
of this covenant. Landlord's consent in any specific instance to any assignment,
mortgage, encumbrance, subletting or use of the Leased Premises and its
-13-
collection and acceptance of rent from any such approved assignee, subtenant or
other occupant shall neither constitute a waiver of the provisions of this
paragraph, nor be construed as permission of any subsequent assignment,
mortgage, encumbrance, subletting or use without compliance with this paragraph.
Without the prior written consent of Landlord, this Lease and the interest of
Tenant, or any assignee of Tenant, shall not pass by operation of law, nor shall
it be subject to garnishment or sale under execution in any suit or proceeding
which may be brought against or by Tenant, or any assignee of Tenant. No
assignment of this Lease, sublease of all or any portion of the Leased Premises,
or collection of rent from an assignee or subtenant (whether or not permitted by
Landlord) shall relieve Tenant of its obligations hereunder. In the event that
Landlord gives Tenant its written consent to assign, transfer, or sublet all or
a portion of the Leased Premises to a third party which is unrelated to Tenant,
any monthly rent or other payment accruing to Tenant as the result of any such
assignment, transfer or sublease, including any lump sum or periodic payment in
any manner relating to such assignment, transfer or sublease, which is in excess
of the Minimum Annual Rent and Additional Rent then payable by Tenant under the
Lease shall be paid by Tenant to Landlord monthly as Additional Rent, excluding
any reasonable expenses incurred by Tenant in connection with such assignment or
subletting, e.g. legal fees and brokers' commissions. Landlord may require a
certificate from Tenant specifying the full amount of any such payment of
whatsoever nature. Any reasonable costs and expenses, including reasonable
attorneys' fees incurred by Landlord in connection with any proposed or
purported assignment, transfer or sublease shall be borne by Tenant and shall be
payable to Landlord as Additional Rent within five (5) days of demand therefor.
Notwithstanding anything herein to the contrary, Tenant shall have
the right, without Landlord's prior written consent, to assign this Lease or
sublet the Leased Premises to any parent corporation of Tenant, or to any
subsidiary of any parent corporation of Tenant, subject to the following express
conditions:
(i) No such assignment or sublease shall be deemed to release
Tenant from continuing liability for all of Tenant's
covenants and obligations under this Lease, or Boston
Biomedica, Inc. ("Tenant's Guarantor") from its obligations
under its Guaranty; and
(ii)Any assignee or subtenant must expressly assume in writing
all of the covenants and obligations of Tenant under this
Lease, joint and severally with Tenant.
Further, Landlord agrees not to unreasonably withhold its consent
to an assignment of this Lease (or to a sale or transfer of Tenant's stock)
resulting from a merger, consolidation, corporate reorganization (other than
pursuant to the bankruptcy laws), sale of the assets or other transfer of stock
of Tenant, subject to the following conditions:
(i) Such assignee or transferee, as the case may be, shall have a
net worth at least equal to that of Tenant, as of the date
hereof, or the date of such request for consent to an
assignment or transfer, whichever is greater;
(ii) No such assignment shall be deemed to release Tenant's
Guarantor from its obligations under its Guaranty; and
(iii)Such assignee or transferee, as the case may be, must
expressly assume in writing all of the
-14-
covenants and obligations of Tenant under this Lease, jointly
and severally with Tenant.
Further, any issuance by Tenant of its capital stock in a public
offering which is effected in compliance with the registration requirements of
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, shall not be deemed to be a change in control or an assignment of
this Lease requiring Landlord's consent.
(b) Assignment by Landlord. It is expressly understood and
agreed that this Lease and all rights of Landlord hereunder shall be fully and
freely assignable by Landlord without notice to, or consent of, Tenant. In the
event of the transfer and assignment by Landlord of its interest in this Lease,
Landlord shall thereby be released from any responsibility for the performance
of obligations thereafter accruing hereunder, and Tenant agrees to look solely
to such successor in interest of the Landlord for performance of such
obligations. Nothing contained herein shall prevent Tenant from looking to
Landlord for the performance of obligations of which Landlord has actual
knowledge and which predate the effective date of the transfer and assignment by
Landlord of its interest in this Lease. The term "Landlord" as used in this
Lease shall mean the owner of the Leased Premises, at the time in question. In
the event of a transfer (whether voluntary or involuntary) by such owner of its
interest in the Leased Premises, such owner shall thereupon be released and
discharged from all covenants and obligations of the Lease thereafter accruing,
but such covenants and obligations shall be binding during the Lease Term upon
each new owner for the duration of such owner's ownership.
16. Bankruptcy.
(a) The following shall be Events of Bankruptcy under this
Lease: (1) Tenant or any guarantor of Tenant's obligations under this Lease
("Tenant's Guarantor") becoming insolvent, as that term is defined in Title 11
of the United States Code (the "Bankruptcy Code"), or under the insolvency laws
of any state, district, commonwealth or territory of the United States (the
"Insolvency Laws"); (2) the appointment of a receiver or custodian for any or
all of Tenant's or Tenant's Guarantor's property or assets, or the institution
of a foreclosure action upon any of Tenant's or Tenant's Guarantor's real or
personal property; (3) the filing of a voluntary petition under the provisions
of the Bankruptcy Code or Insolvency Laws by Tenant or Tenant's Guarantor; (4)
the filing of an involuntary petition against Tenant or Tenant's Guarantor as
the subject debtor under the Bankruptcy Code or Insolvency Laws, which either
(A) is not dismissed within one hundred twenty (120) days of the date of filing,
or (B) results in the issuance of an order for relief against the debtor; or (5)
Tenant's or Tenant's Guarantor's making or consenting to an assignment for the
benefit of creditors or a common law composition of creditors.
(b) Upon occurrence of an Event of Bankruptcy, Landlord shall
have all rights and remedies available to Landlord pursuant to Section 18;
provided, however, that while a case in which Tenant is the subject debtor under
the Bankruptcy Code is pending, Landlord shall not exercise its rights and
remedies pursuant to Section 20 so long as (1) the Bankruptcy Code prohibits the
exercise of such rights and remedies, and (2) Tenant or its Trustee in
Bankruptcy (hereinafter referred to as "Trustee") (i) cures all defaults under
this Lease, (ii) compensates Landlord for monetary damages incurred as a result
of such defaults, (iii) provides adequate assurance of future performance on the
part of Tenant as debtor in possession or on the part of the assignee tenant,
and (iv) complies with all other requirements of the Bankruptcy Code and this
Lease.
-15-
17. Default. Each of the following shall be deemed a default by Tenant
and a material breach of this Lease:
(a) An Event of Bankruptcy as defined in Section 16;
(b) An assignment or encumbrance of Tenant's interest
in this Lease or the Leased Premises or a
subletting of any part of the Leased Premises in
violation of Section 15;
(c) A failure by Tenant to make any payment of
Minimum Annual Rent or Additional Rent within
five (5) days of receipt of written notice that
such payment was not received on its due date
(provided that Landlord shall not be obligated to
provide Tenant with such written notice more than
twice during any twelve month period during the
Lease Term, and after receipt of such second
notice, Tenant shall be deemed in default,
without further notice, if any such payment is
not received by Landlord on its due date);
(d) Abandonment of the Leased Premises; and
(e) A failure by Tenant in the performance of any
other term, covenant, agreement or condition of
this Lease on the part of Tenant to be performed
after fifteen (15) days notice, or if such
default cannot reasonably be cured within said
fifteen (15) day period and Tenant does not
commence to diligently pursue the same within
said fifteen (15) day period and to continue to
diligently pursue the same until remedied.
Landlord agrees that it shall not exercise any rights or remedies, which are
available to it pursuant to the terms of Section 18, as a result of an event of
default described in Section 17 (b) or (d) above, unless and until Landlord has
provided Tenant with a period of fifteen (15) days after receipt of written
notice thereof within which to cure such default.
18. Landlord's Rights Upon Tenant's Default. Upon default by Tenant of
any of the terms or covenants of this Lease, Landlord shall be entitled to
remedy such default as follows:
(a) Landlord shall have the right, immediately or at any time
after said default, without further notice to Tenant
(unless otherwise provided herein), to enter the Leased
Premises, without terminating this Lease or being guilty of
trespass, and do any and all acts as Landlord may deem
necessary, proper or convenient to cure such default, for
the account and at the expense of Tenant, and Tenant agrees
to pay to Landlord as Additional Rent all damage and/or
expense incurred by Landlord in so doing, including
interest at the Penalty Rate from the due date until the
date payment is received by Landlord. The making of such
payment or the taking of such action by Landlord shall not
be deemed to cure the default or to stop Landlord from the
pursuit of any remedy to which Landlord would otherwise be
entitled.
(b) Landlord shall, following said default, have the right to
terminate this Lease and/or Tenant's right to possession of
the Leased Premises and, with or without legal process,
take possession of the Leased Premises and remove Tenant,
any occupant and any property therefrom, without being
guilty of trespass and without relinquishing any rights of
Landlord against Tenant. Landlord shall be entitled to
recover
-16-
damages from Tenant in an amount equal to the amount herein covenanted to be
paid as Minimum Annual Rent during the remainder of the Lease Term, said Minimum
Annual Rent for the full term then remaining having been fully accelerated at
the option of Landlord, together with (i) all reasonable expenses of any
proceedings (including, but not limited to, legal expenses and attorney's fees)
which may be necessary in order for Landlord to recover possession of the Leased
Premises, (ii) the reasonable expenses of the re-renting of the Leased Premises
(including, but not limited to, any commissions paid to any real estate agent,
advertising expense and the costs of such alterations, repairs, replacements and
decoration or re-decoration as Landlord, in its sole judgment reasonably
exercised, considers advisable and necessary for the purpose of re-renting the
Leased Premises), and (iii) interest computed at the Penalty Rate from the due
date until paid; provided, however, that said damages shall be discounted to
present value using a discount factor of 5%, and further that there shall be
credited against the amount of such damages all amounts received by Landlord
from such re-renting of the Leased Premises and such amounts shall be refunded
to Tenant. No act or thing done by Landlord shall be deemed to be an acceptance
of a surrender of the Leased Premises, unless Landlord shall execute a written
agreement of surrender with Tenant. Tenant's liability hereunder shall not be
terminated by the execution of a new lease of the Leased Premises by Landlord.
In the event Landlord does not exercise its option to accelerate the payment of
Minimum Annual Rent as provided hereinabove, then Tenant agrees to pay to
Landlord, upon demand, the amount of damages herein provided after the amount of
such damages for any month shall have been ascertained; provided, however, that
any expenses incurred by Landlord shall be deemed to be a part of the damages
for the month in which they were incurred. Separate actions may be maintained
each month or at other times by Landlord against Tenant to recover the damages
then due, without waiting until the end of the term of this Lease to determine
the aggregate amount of such damages.
(c) Upon any default by Tenant to pay Minimum Annual Rent or
Additional Rent, Landlord shall have a lien upon the property of Tenant in the
Leased Premises for the amount of any unpaid Minimum Annual Rent or Additional
Rent. In such event, Tenant shall not remove any of Tenant's property from the
Leased Premises except with the prior written consent of Landlord, which consent
shall be granted at Landlord's sole and absolute discretion.
(d) All rights and remedies provided to either Landlord or Tenant
herein as a result of a default by the other party shall be cumulative, and none
shall exclude any other right or remedy allowed by law. For the purposes of any
suit brought or based hereon, this Lease shall be construed to be a divisible
contract, to the end that successive actions may be maintained on this Lease as
successive periodic sums mature hereunder.
19. Lender Requirements.
(a) Subordination. Tenant agrees that this Lease is subject and
subordinate to the lien of any existing mortgage or deed of trust which is a
lien upon the Property or any part thereof on the Rent Commencement Date, and to
all renewals, modifications, consolidations, replacements and extensions
thereof, and to all advances made or hereafter to be made upon the security
thereof. Landlord agrees that it shall use reasonable efforts to acquire from
any such existing mortgagee or holder of an existing deed of trust a
non-disturbance agreement in such lender's usual form for the benefit of Tenant.
Tenant agrees that this Lease is and shall be subject and subordinate to the
lien of any future mortgages or deeds of trust which at any time during the
Lease Term may be made a lien upon the Property or any part thereof, and to all
advances made or hereafter to be
-17-
made upon the security thereof; provided that such subordination shall be
effective only upon the delivery to Tenant of a non-disturbance agreement in
such lender's usual form for the benefit of Tenant by such future mortgagee or
holder of a deed of trust. These subordination provisions shall be
self-operative and no further instrument of subordination shall be required.
Tenant agrees to execute and deliver, upon request, such further instrument or
instruments confirming this subordination as shall be desired by Landlord or by
any mortgagee or proposed mortgagee; and Tenant hereby constitutes and appoints
Landlord as Tenant's attorney-in-fact to execute any such instrument or
instruments. Tenant further agrees that, at the option of the holder of any
mortgage or of the trustee under any deed of trust, this Lease may be made
superior to said mortgage or deed of trust by the insertion therein of a
declaration that this Lease is superior thereto, and to all renewals,
modifications, consolidations, replacements and extensions thereof.
(b) Attornment. In the event any proceedings are brought for the
foreclosure of, or in the event of exercise of the power of sale under, any deed
to secure a debt given by Landlord and covering the Leased Premises, Tenant
shall execute such attornment agreement as shall be reasonably required by said
purchaser, pursuant to the terms of which Tenant recognizes such purchaser as
the owner and landlord under this Lease, and the purchaser recognizes Tenant as
the tenant under this Lease.
(c) Notice to Mortgagee Upon Landlord Default. Tenant agrees to
give any mortgagee by certified mail, return receipt requested, a copy of any
notice of default served upon Landlord, provided that before such notice Tenant
has been notified in writing of the address of such mortgagee. Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then mortgagee shall have an additional fifteen (15)
days within which to cure such default; provided, however, that if such default
cannot be reasonably cured within that time, then such mortgagee shall have such
additional time as may be necessary to cure such default so long as mortgagee
has commenced and is diligently pursuing the remedies necessary to cure such
default (including, without limitation, the commencement of foreclosure
proceedings, if necessary), in which event this Lease shall not be terminated
while such remedies are being so diligently pursued. In the event of the sale of
the Property or the Leased Premises, by foreclosure or deed in lieu thereof, the
mortgagee or purchaser at such sale shall be responsible for the return of the
security deposit only to the extent that such mortgagee or purchaser actually
received the security deposit. In addition, Tenant shall not pay any rental
hereunder for more than one (1) month in advance.
20. Estoppel Certificates. Tenant agrees, at any time and from time to
time, upon not less than five (5) business days prior notice by Landlord, to
execute, acknowledge and deliver to Landlord a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications the nature of same), (ii) stating the dates to
which the Minimum Annual Rent and Additional Rent have been paid by Tenant,
(iii) stating whether or not to the best knowledge of Tenant, Landlord is in
default in the performance of any covenant, agreement or condition contained in
this Lease, and, if so, specifying each such default of which Tenant may have
knowledge, (iv) stating the address to which notices to Tenant should be sent,
and (v) certifying such other matters as may be requested by Landlord. Any such
statement delivered pursuant hereto may be relied upon by an owner of the
Property, any prospective purchaser of the Property, any mortgagee or
prospective mortgagee of the Property, or of Landlord's interest therein, or any
prospective assignee of any such mortgage.
-18-
21. Damage by Fire or Other Casualty.
(a) Restoration. If the Leased Premises shall be damaged by fire
or other casualty but such damage does not render the Leased Premises wholly
unfit for Tenant's business operations as shall be determined by Landlord and
Tenant in their reasonable business judgment, Landlord, at Landlord's expense,
shall promptly restore the Leased Premises, and Tenant, at Tenant's sole
expense, shall promptly restore all leasehold improvements installed in the
Leased Premises by Tenant or at Tenant's request and its own furniture,
furnishings, trade fixtures and equipment. No penalty shall accrue for
reasonable delay which may arise by reason of adjustment of insurance on the
part of Landlord, or on account of labor problems, or any other cause beyond
Landlord's reasonable control. Minimum Annual Rent and Additional Rent shall
abate proportionately (based on the proportion of the number of square feet
rendered untenantable to the total number of square feet of the Leased
Premises), from the date of the damage or destruction until the date the
Landlord has substantially completed such restoration. Notwithstanding anything
stated to the contrary herein, in the event that such damage shall occur during
the last year of the Lease Term, Landlord shall not be required to restore the
Leased Premises.
(b) Termination. If the Leased Premises are substantially damaged
or are rendered substantially untenantable by fire or other casualty during the
Lease Term to such an extent that it is rendered substantially unusable by
Tenant for the purposes originally contemplated by this Lease, Landlord shall
restore or repair the same unless expressly not required to do so under Section
21(c). If such damage occurs, however, at any time during the Lease Term, and
(i) Landlord's architect certifies that the Leased Premises cannot be repaired
within one hundred twenty (120) working days of normal working hours, said
period commencing on the casualty date, or (ii) Landlord shall decide to
demolish the Leased Premises or not to rebuild it, then Landlord may, within
ninety (90) days after such fire or other casualty, terminate this Lease by
giving Tenant notice of such decision, and thereupon the Lease Term shall expire
by lapse of time upon the third day after such notice is given, and Tenant shall
thereupon vacate the Leased Premises and surrender the same to Landlord. In the
event that damage to the Leased Premises cannot be repaired sufficiently within
one hundred twenty (120) days after such fire or other casualty so that Tenant
can commence to refixture the Leased Premises for the use thereof as originally
contemplated by this Lease, then Tenant shall have the right to terminate this
Lease by giving Landlord written notice thereof within said one hundred twenty
(120) day period, and thereupon the Lease Term shall expire by lapse of time
upon the third day after such notice is given, and Tenant shall thereupon vacate
the Leased Premises and surrender the same to Landlord. Upon the termination of
this Lease under the conditions hereinbefore provided, Tenant's liability for
Minimum Annual Rent and Additional Rent shall cease as of the day following the
casualty.
(c) Lender's Approval. Notwithstanding anything to the contrary in
this Section or in any other provision of this Lease, any obligation (under this
Lease or otherwise) of Landlord to restore all or any portion of the Leased
Premises shall be subject to Landlord's receipt of approval of the same by the
mortgagee(s) of Landlord (and any other approvals required by applicable laws),
as well as receipt from any such mortgagee(s) of such fire and other hazard
insurance policy proceeds as may have been assigned to any such mortgagee; it
being agreed that if Landlord has not received such approval(s) and proceeds
within one hundred and eighty (180) days after any such casualty, then Landlord
shall have the option to terminate this Lease, at any time thereafter, by notice
to Tenant. Landlord shall diligently
-19-
pursue the receipt of all approvals and insurance policy proceeds which are
described in this Section 21(c).
22. Condemnation. In the event the whole or a "substantial part" (as
hereinafter defined) of the Leased Premises shall be taken for any public or
quasi-public purpose by any lawful power or authority by exercise of the right
of appropriation, condemnation or eminent domain, or sold to said authority to
prevent such taking (collectively referred to herein as a "taking"), this Lease
shall terminate effective as of the date possession is required to be
surrendered to said authority, and the Minimum Annual Rent and Additional Rent
shall be apportioned as of the date. For purposes of this Section, a
"substantial part" of the Leased Premises shall be considered to have been taken
if fifty percent (50%) or more of the Leased Premises is taken or condemned.
Tenant shall not assert any claim against Landlord or the taking authority for
any compensation arising out of or related to such taking and Landlord shall be
entitled to receive the entire amount of any award without deduction for any
estate or interest of Tenant; provided, however, that nothing contained in this
section shall be deemed to give Landlord any interest in any award made to
Tenant for the taking of personal property and fixtures belonging to Tenant or
for Tenant's moving expenses, as long as such award is made in addition to and
separately stated from any award made to Landlord for the Leased Premises and
the Property. If less than fifty percent (50%) of the Leased Premises is so
taken, the Lease shall continue to be in full force and effect, and the Minimum
Annual Rent and Additional Rent shall be adjusted (based on the ratio that the
number of square feet of rentable area taken from the Leased Premises bears to
the number of rentable square feet in the Leased Premises immediately prior to
such taking) as of the date possession is required to be surrendered to said
authority; provided, however, Landlord shall have the right to determine that
the Leased Premises should be demolished and not rebuilt, in which event
Landlord may, within ninety (90) days after such taking, terminate this Lease by
giving Tenant notice of such decision, and thereupon the Lease Term shall expire
by lapse of time upon the third day after such notice is given, and Tenant shall
thereupon vacate the Leased Premises and surrender the same to Landlord. In the
event that the Lease remains in full force and effect in accordance with the
terms described above, Landlord shall be obligated to repair and restore the
Leased Premises to usable condition by Tenant, and such repair shall be a
condition precedent to the continued effectiveness of this Lease. Landlord shall
have no obligation to contest any taking.
23. Landlord's Liability. Landlord, or its agents, shall not be liable
for any injury or damage to persons or property resulting from fire, explosion,
falling plaster, steam, gas, electricity, water, rain, or leaks from any part of
the Leased Premises, or from the pipes, conduits, appliances or plumbing works,
or by dampness or by any other cause of whatsoever nature, unless caused by or
due to the gross negligence of Landlord, its agents, servants, or employees. All
personal property and equipment located in the Leased Premises shall be at the
risk of Tenant.
24. Tenant's and Landlord's Liability. Tenant shall reimburse Landlord
for all expense, damages or fines, incurred or suffered by Landlord by reason of
any breach, violation or nonperformance by Tenant, or its agents, servants, or
employees, of any covenant or provision of this Lease or the Rules and
Regulations promulgated by Landlord hereunder from time to time, or by reason of
damage to persons or property caused by moving property of or for Tenant in or
out of the Property, or by the installation or removal of furniture or other
property of or for Tenant, by reason of or arising out of the carelessness,
negligence or improper conduct of Tenant, or its agents, servants, employees,
invitees or licensees in the use or
-20-
occupancy of the Leased Premises or the common areas of the Property. Landlord
shall reimburse Tenant for all expense, damages or fines, incurred or suffered
by Tenant by reason of any breach, violation or nonperformance by Landlord, or
its agents, servants, or employees, of any covenant or provision of this Lease,
by reason of or arising out of the gross negligence of Landlord, or its agents,
servants, employees, invitees or licensees.
25. Indemnity.
(a) By Tenant. Tenant shall indemnify and defend Landlord and
its agents and employees and save them harmless from and against any and all
claims, actions, damages, liabilities and expense in connection with loss of
life, personal injury and/or damage to property arising from or out of any
occurrence in, upon or at the Leased Premises, or the occupancy or use by Tenant
of the Leased Premises or any part thereof, or occasioned wholly or in part by
any act or omission of the Tenant, its agents, contractors, employees, servants,
invitees or licensees, whether inside the Leased Premises or elsewhere in the
Property.
(b) By Landlord. Landlord shall indemnify and defend Tenant and
its agents and employees and save them harmless from and against any and all
claims, actions, damages, liabilities and expense in connection with loss of
life, personal injury and/or damage to property occasioned wholly or in part by
any act or omission of the Landlord, its agents, contractors, employees,
servants, invitees or licensees, whether inside the Leased Premises or elsewhere
in the Property.
26. Tenant's Insurance.
(a) Coverages. Tenant shall have issued, pay the premiums
therefor, and maintain in full force and effect during the Lease Term and any
option period:
(i) Comprehensive Liability. A
commercial general liability
insurance policy or policies in
which the Landlord and Landlord's
mortgagee(s) (and such additional
persons and/or entities as Landlord
may request) and Tenant shall be the
insured, protecting the Landlord and
Landlord's mortgagee(s) (and such
additional persons and/or entities
as Landlord may request) and Tenant
in the amount of at least Three
Million and No/100 Dollars
($3,000,000.00) combined, single
limit coverage for bodily injury,
including death, or property damage,
which amount may be increased from
time to time by Landlord in its
reasonable determination;
(ii) All-Risk Casualty. All-risk casualty
insurance, naming Landlord (and such
additional persons and/or entities
as Landlord may request) and Tenant
as insureds (as their interests may
appear), written at replacement cost
value and with replacement cost
endorsement, covering all leasehold
improvements installed in the Leased
Premises by Tenant or at Tenant's
request and all of Tenant's personal
property in the Leased Premises
(including, without limitation,
inventory, trade fixtures, floor
coverings, furniture and other
property removable by Tenant under
the provisions of this Lease).
-21-
(iii) Workers' Compensation. If and to the
extent required by law, workers'
compensation and employer's
liability or similar insurance in
form and amounts required by law.
(b) Policy Requirements. Tenant's failure to provide such
insurance or failure to pay the premiums when due, shall be deemed a default
hereunder. Any monies expended by Landlord to cure said default shall be deemed
Additional Rent and shall be due and owing with Tenant's next payment of Basic
Monthly Rent. All such policies shall contain only such reasonable deductible
amounts as may be approved in advance by Landlord and shall contain a provision
that Landlord shall receive not less than thirty (30) days advance notice in
writing from the insurance company of any intention of the insurance company to
cancel such policy or policies. Tenant shall provide written evidence to
Landlord of its acquisition of such policies prior to the commencement of this
Lease and prior to any renewal date of such policies. All policies shall be
carried with a reputable insurance company qualified to do business in the State
of Maryland and rated not lower than A-XII in the A.M. Best Rating Guide.
(c) No Limitation of Liability. Neither the issuance of any
insurance policy required under this Lease nor the minimum limits specified
herein shall be deemed to limit or restrict in any way Tenant's liability
arising under or out of this Lease.
27. Waiver of Subrogation. Landlord and Tenant mutually covenant and
agree that each party, in connection with insurance policies required to be
furnished in accordance with the terms and conditions of this Lease, or in
connection with insurance policies which they obtain insuring such insurable
interest as Landlord or Tenant may have in its own properties, whether personal
or real, shall expressly waive any right of subrogation on the part of the
insurer against the Landlord (and any mortgagee requested by Landlord) or Tenant
as the same may be applicable, which right to the extent not prohibited or
violative of any such policy is hereby expressly waived, and Landlord and Tenant
each mutually waive all right of recovery against each other, their agents, or
employees for any loss, damage or injury of any nature whatsoever to property or
person for which either party carries insurance or is required by this Lease to
carry insurance.
28. No Liens Permitted; Discharged. Tenant will not permit to be created
or to remain undischarged any lien, encumbrance or charge (arising out of any
work done or materials or supplies furnished, or claimed to have been done or
furnished, by any contractor, mechanic, laborer or materialman or any mortgage,
conditional sale, security agreement or chattel mortgage, or otherwise by or for
Tenant) which might be or become a lien or encumbrance or charge upon the
Property or any part thereof or the income therefrom. If any lien, or notice of
lien on account of an alleged debt of Tenant or any notice of contract by a
party engaged by Tenant or Tenant's contractor to work on the Leased Premises
shall be filed against the Property or any part thereof, Tenant, within fifteen
(15) days after notice of the filing thereof, will cause the same to be
discharged of record by payment, deposit, bond, order of a court of competent
jurisdiction or otherwise. If Tenant shall fail to cause such lien or notice of
lien to be discharged within the period aforesaid, then, in addition to any
other right or remedy, Landlord may, but shall not be obligated to, discharge
the same either by paying the amounts claimed to be due or by procuring the
discharge of such lien by deposit or by bonding proceedings and in any such
event Landlord shall be entitled, if Landlord so elects, to compel the
prosecution of an action for the
-22-
foreclosure of such lien by the lienor and to pay the amount of the judgment in
favor of the lienor with interest, costs and allowances. Any amount so paid by
Landlord and all reasonable costs and expenses, including attorneys' fees,
incurred by Landlord in connection therewith, shall constitute Additional Rent
payable by Tenant under this Lease and shall be paid by Tenant to Landlord on
demand. Nothing herein contained shall obligate Tenant to pay or discharge any
lien created by Landlord.
29. Signs, Awnings and Canopies. Tenant will not place or suffer to be
placed or maintained on the exterior of the Leased Premises any sign, awning or
canopy, or other written matter of any kind, without first obtaining Landlord's
written approval which shall not be unreasonably withheld or delayed, provided
that any such sign, awning, canopy or written matter is in compliance with the
applicable federal, state and/or county regulations. Tenant further agrees to
maintain in good condition and repair at all times such sign, awning, canopy,
decoration, lettering, or written matter as may be approved. Any of said items
so installed without such written approval and consent may be removed by
Landlord at Tenant's expense.
30. Environmental Protection. Tenant and Tenant's employees and agents
shall not dispose of any oil, petroleum or chemical liquids or solids, liquid or
gaseous products or any hazardous waste or hazardous substance including,
without limitation, asbestos (hereinafter collectively referred to as "hazardous
waste"), as those terms are used in the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, or in any other federal, state or local
law governing hazardous substances, as such laws may be amended from time to
time (hereinafter collectively referred to as the "Act"), at, upon, under or
within the Leased Premises or the Property, or into the plumbing or sewer or
water system servicing the Leased Premises and/or the Property, nor shall
Tenant, its agents or employees cause or permit the discharge, spillage,
uncontrolled loss, seepage or filtration of any hazardous waste at, upon, under
or within the Leased Premises or the Property or into the plumbing or sewer or
water system servicing the same. Notwithstanding the foregoing, Landlord
acknowledges that the use which Tenant contemplates for the Leased Premises
involves the use, storage, and disposal of materials which are defined herein as
hazardous waste, and Tenant shall have the right to maintain such materials on
the Leased Premises so long as they are used, stored and disposed of in
accordance with the Act. Tenant shall comply in all respects with the
requirements of the Act and related regulations, and shall notify Landlord
immediately in the event of its discovery of any hazardous waste at, upon, under
or within the Leased Premises or the Property which has not been used, stored or
disposed of in accordance with the Act. Tenant shall advise Landlord, in
writing, of the identities of hazardous wastes being used and stored in the
Leased Premises promptly upon written request from Landlord, but in no event
less frequently than once every twelve (12) months. Tenant shall indemnify
Landlord against all costs, expenses, liabilities, losses, damages, injunctions,
suits, fines, penalties, claims, and demands, including reasonable attorneys'
fees, arising out of any violation of or default by Tenant, and its employees
and agents, in the covenants of this Section. The provisions of this Section
shall survive the expiration of the Lease Term.
31. Notices. All notices to be given under this Lease shall be in
writing and either (i) hand-delivered, (ii) sent by Federal Express (or other
nationally recognized, overnight mail courier service), (iii) or mailed by
United States Certified or Registered Mail, return receipt requested, postage
prepaid. Notices should be delivered as follows:
(a) To Landlord to the attention of the "General Manager"
at the business and mailing address
-23-
stated on page 1 of this Lease, with a copy to
Shulman, Rogers, Gandal, Pordy & Ecker, P.A., 11921
Rockville Pike, Suite 300, Rockville, Maryland 20852,
attn: Karl L. Ecker, Esquire. Pursuant to the terms of
Section 19(a) hereof, for so long as Signet
Bank/Maryland holds a first lien security interest in
the Property, a copy of any notice of default served
on Landlord shall be delivered to Signet Bank/Maryland
at 7700 Wisconsin Avenue, Suite 400, Bethesda,
Maryland 20814, attn: Ms. Susan Benninghoff, Vice
President.
(b) To Tenant to the attention of Richard T. Schumacher,
President, at the business and mailing address stated
on page 1 of this Lease, with a copy to Brown Rudnick
Freed & Gesmer, One Financial Center, Boston,
Massachusetts 02111, attn: Howard L. Levin, Esquire.
Any such notice shall be deemed to be received on the date it is hand-delivered
or delivered by Federal Express (or other nationally recognized, overnight mail
courier service), or on the third day after the date on which it is deposited in
the U.S. mails. Landlord, Tenant and Signet Bank/Maryland shall each have the
right to change the person and/or address to which notices shall be delivered
upon notice thereof to the other parties sent pursuant to the provisions of this
paragraph.
32. Time. Landlord and Tenant acknowledge that time is of the essence in
the performance of any and all obligations, terms, and provisions of this Lease.
33. Postponement of Performance. In the event that either party hereto
shall be delayed or hindered in or prevented from the performance of any act
required hereunder by reason of strikes, labor troubles, inability to procure
labor or materials, failure of power, restrictive governmental laws or
regulations, riots, insurrection, war, acts of God, fire or other casualty or
other reason of a similar or dissimilar nature beyond the reasonable control of
the party delayed in performing work or doing acts required under the terms of
this Lease, then performance of such act shall be excused for the period of the
delay and the period for the performance of any such act shall be extended for a
period equivalent to the period of such delay; provided, however that nothing in
this section shall excuse any delay in the payment of Minimum Annual Rent or
Additional Rent; and provided, further, that delays or failures to perform
resulting from lack of funds shall not be deemed delays beyond the reasonable
control of a party. Nothing contained herein shall be construed to limit the
provisions concerning the abatement of Minimum Annual Rent and Additional Rent
resulting from fire and casualty damage or from condemnation damage to the
Leased Premises as more fully described in Sections 21 and 22 hereof.
34. Brokers. Landlord and Tenant represent and warrant each to the
other that neither has authorized any broker, agent or finder purporting to act
on either's behalf in respect to this Lease transaction except the Leasing
Broker specified in Section l(a)(11), and each hereby agree to indemnify and
hold harmless one from the other from and against any cost, expense, claims,
liability or damage resulting from a breach of the representation and warranty
herein contained.
35. No Waiver. No waiver by Landlord or Tenant of any breach of any of
the terms, covenants, agreements, or conditions of this Lease shall be deemed to
constitute a waiver of any succeeding breach thereof, or a waiver of any breach
of any of the other terms, covenants, agreements, and conditions herein
-24-
contained. No provision of this Lease shall be deemed to have been waived by
Landlord or Tenant, unless such waiver be in writing signed by such party. No
employee of Landlord or of Landlord's agents shall have any authority to accept
the keys of the Leased Premises prior to termination of the Lease, and the
delivery of keys to any employee of Landlord or Landlord's agents shall not
operate as a termination of the Lease or a surrender of the Leased Premises. The
receipt by Landlord of any payment of Minimum Annual Rent or Additional Rent
with knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the Rules and
Regulations made a part of this Lease, or hereafter adopted, against Tenant or
any other tenant in the Property shall not be deemed a waiver of any such Rules
and Regulations.
36. Amendments. This Lease and the Exhibits attached hereto, together
with the terms and conditions of that certain Assets for Cash Purchase
Agreement, of even date, entered into by and between Landlord, Tenant and
Tenant's Guarantor, which describe the sale and purchase of certain assets by
Landlord to Tenant and Tenant's Guarantor, contain the entire agreement between
the parties, and any agreement hereafter made shall be ineffective to change,
modify, discharge or effect an abandonment in whole or in part unless such
agreement is in writing and signed by the party against whom enforcement of the
change, modification, discharge or abandonment is sought.
37. Applicable Law. The laws of the State of Maryland shall govern the
validity, performance and enforcement of this Lease.
38. Transfer of the Property. In the event of the sale or other transfer
of Landlord's right, title and interest in the Leased Premises or the Property
(except in the case of a sale- leaseback financing transaction in which Landlord
is the lessee), Landlord shall transfer and assign to such purchaser or
transferee all amounts of pre-paid Minimum Annual Rent and Additional Rent, and
provided that the purchaser or transferee shall assume all of the surviving
liabilities and obligations of Landlord hereunder accruing after the
consummation of such sale or transfer, Landlord thereupon shall be released from
all liability and obligations hereunder derived from this Lease arising out of
any act, occurrence or omission relating to the Leased Premises or this Lease
occurring after the consummation of such sale or transfer. Tenant shall have no
right to terminate this Lease, to abate Minimum Annual Rent or Additional Rent,
nor to deduct from, nor set-off, nor counterclaim against Minimum Annual Rent or
Additional Rent because of any sale or transfer (including, without limitation,
any sale-leaseback) by Landlord or its successors or assigns.
39. Extension Option. Provided (i) that this Lease shall be in full
force and effect; (ii) that BTRL Contracts and Services, Inc. (or a permitted
assignee of Tenant [which is a related party to Tenant] pursuant to the
provisions of Section 15 hereof) shall be the tenant hereunder; and (iii) that
Tenant shall not be in default under any of the terms, provisions, covenants or
condition of this Lease, then, and only in such event, Tenant shall have the
right, at Tenant's sole option, to extend the term of this Lease for two (2)
additional periods of five (5) years each ("Extension Terms"). Each such
extension option shall be exercisable by Tenant giving written notice of the
exercise of such extension option to Landlord no sooner than three hundred
sixty-five (365) days and no later than one hundred eighty (180) days prior to
the expiration date of the then-current term; provided, however, in the event
Tenant fails to exercise any option to extend during the aforesaid period such
extension option shall become null and void and all rights with respect thereto
and with respect to any subsequent extension option shall become null and void
and all rights with respect
-25-
thereto and with respect to any subsequent extension option shall automatically
terminate and expire. Each Extension Term shall be upon the same terms,
covenants and conditions as set forth herein with respect to the Lease Term,
except that Minimum Annual Rent payable during each Lease Year of each Extension
Term shall be computed in the following manner. On the first day of the first
Lease Year of the first Extension Term, and on the first day of each Lease Year
thereafter during the remainder of the first Extension Term and during the
Second Extension Term, the Minimum Annual Rent (then in effect) shall be
adjusted by one hundred percent (100%) of any change in the Index now known as
"United States Bureau of Labor Statistics, Consumer Price Index for All Urban
Consumers, All Items (1982-1984=100)" ("Index"), provided, however, that the
amount of Minimum Annual Rent payable by Tenant during any Lease Year of an
Extension Term pursuant to this provision shall not be less than one hundred
three percent (103%) of the Minimum Annual Rent paid during the previous Lease
Year. Subject to the foregoing, each such adjustment shall be accomplished (and
shall be effective for the entire then- operative Lease Year) by adding to the
Minimum Annual Rent (then in effect) the amount created by multiplying the
Minimum Annual Rent then in effect by the amount created by subtracting one (1)
from a fraction, the numerator of which shall be the most recently published
monthly Index figure prior to the date of the adjustment, and the denominator of
which shall be the published monthly Index figure for the same month of the
previous year. Landlord shall give Tenant written notice of each such adjustment
and the amount of Minimum Annual Rent payable during the forthcoming Lease Year.
Should said Index cease to be published, then the closest similar published
Index by an agency of the United States Government shall be substituted. Should
there be no such substitute, then the parties hereto shall, under rules of the
American Arbitration Association, agree to a substitute formula, or source,
designed to accomplish the same original purpose of this provision. This
extension option is personal to Tenant, and shall not be available to any other
subtenant or assignee of the Lease (other than a party which is related to
Tenant), regardless of whether such sublease or assignment was approved by
Landlord in the manner described herein.
40. Right of First Offer. In the event that, during the Lease Term,
Landlord determines to sell the Property to any party which is unrelated to
Landlord, then, provided that (i) this Lease shall be in full force and effect;
(ii) that BTRL Contracts and Services, Inc. (or a permitted assignee of Tenant
[which is a related party to Tenant] pursuant to the provisions of Section 15
hereof) shall be the tenant hereunder; and (iii) Tenant shall not be in default
under any of the terms, provisions, covenants or conditions of this Lease, then,
and only in such event, Tenant shall have the first right to purchase the
Property upon the following terms and conditions. Promptly after determining the
terms and conditions upon which the Property shall be sold to a third party,
Landlord shall give Tenant written notice of its opportunity to purchase same,
by presenting Tenant with an execution copy of a Contract of Sale for the
Property containing all material terms and conditions as determined by Landlord
to be appropriate for the sale of the Property. Tenant shall exercise its right
of first offer by executing the copy of the Contract of Sale tendered by
Landlord and returning it to Landlord (together with any required earnest money
deposit) within thirty (30) calendar days of the date on which Landlord
delivered the proposed Contract of Sale to Tenant. The failure of Tenant to
execute and deliver the Contract of Sale (and required earnest money deposit) to
Landlord within the aforesaid thirty (30) calendar day period shall
automatically extinguish Tenant's right to exercise such right of first offer
with regard to the Property, and further shall relieve Landlord of any and all
liability with respect to same; provided that such right of first offer shall be
reinstated, without further act required by any party, in the event that
Landlord has not settled on the sale of the Property within three hundred
sixty-five (365) days of the expiration date of Tenant's right of first offer as
described
-26-
herein. Notwithstanding the foregoing, Landlord shall not thereafter offer to
sell the Property to any third party for a purchase price which is less than
that offered to Tenant or upon such other material terms and conditions which
are substantially less advantageous to the purchaser, without first renewing its
offer to Tenant to purchase same at the lesser amount of purchase price (and
affording Tenant the right to exercise its first right of offer in the manner
described herein). Should Tenant fail to exercise properly its right of first
offer as described above, Landlord shall be free to proceed with the sale of the
Property to any third party, free and clear of all rights of Tenant; provided
that such right of first offer shall be reinstated, without further act required
by any party, in the event that Landlord has not settled on the sale of the
Property within three hundred sixty-five (365) days of the expiration date of
Tenant's right of first offer as described herein. In the event that Tenant
exercises its right of first offer as provided herein, then Landlord and Tenant
shall proceed to settlement thereunder in accordance with the terms and
conditions of the Contract of Sale. In the event that Tenant thereafter fails to
settle on its purchase of the Property in accordance with the terms and
conditions of the Contract of Sale, then Landlord shall have the right (but not
the obligation), as determined in its sole and absolute discretion, to terminate
this Lease, in addition to exercising any and all rights available to it
pursuant to the terms and conditions of the Contract of Sale. Landlord shall
exercise its right to terminate this Lease by giving written notice thereof to
Tenant, in which event this Lease shall terminate on the third day after the
giving of such notice, and Tenant shall deliver possession of the Leased
Premises to Landlord. This right of first offer is personal to Tenant, and shall
not be available to any other subtenant or assignee of the Lease (other than a
party which is related to Tenant), regardless of whether such sublease or
assignment was approved by Landlord in the manner described herein.
41. Right of First Refusal. Provided (i) that Landlord has not
offered Tenant the right to purchase the Property for a purchase price which is
equal to or less than the offer described below and is upon such material terms
and conditions which are substantially the same or more advantageous to the
purchaser than are contained in the offer described below, and that Tenant's
right of first offer has not expired (and Tenant's right under Section 40 has
not been reinstated), all pursuant to the terms and conditions of Section 40
hereof; (ii) that this Lease shall be in full force and effect; (iii) that BTRL
Contracts and Services, Inc. (or a permitted assignee of Tenant [which is a
related party to Tenant] pursuant to the provisions of Section 15 hereof) shall
be the tenant hereunder; and (iv) that Tenant shall not be in default under any
of the terms, provisions, covenants or condition of this Lease, then, and only
in such event, Tenant shall have the right of first refusal to purchase the
Property (the "Right of First Refusal") upon the following terms: If at any time
during the Lease Term, Landlord shall receive a bona fide offer from a third
party for the purchase of the Property, which offer Landlord desires to accept,
Landlord promptly shall deliver to Tenant a copy of such offer. Tenant may,
within thirty (30) days after receipt of such offer, elect to purchase the
Property on the same terms and conditions as set forth in such offer, by
delivering to Landlord written notice of said exercise within the aforesaid
thirty (30) day period. In the event that Landlord shall receive an offer for
the purchase of the Property which is not consummated by delivering a deed to
the offeror, Tenant's Right of First Refusal as set forth herein shall remain
applicable to subsequent offers made to Landlord. In the event that Landlord
shall sell the Property after Tenant fails to exercise its Right of First
Refusal, such sale shall be subject to the terms of this Lease, provided,
however, the Right of First Offer and the Right of First Refusal as set forth in
this Lease shall expire upon the date of conveyance of the Property to said
third party, and said rights shall not continue in force or effect, nor shall
they be applicable to any
-27-
subsequent sale or ownership of the Property by successive parties. In the event
that any mortgagee or holder of a deed of trust or other security interest in
the Property shall foreclose on the Property or accept a deed in lieu of
foreclosure as a result of the failure of Landlord to pay any debt secured by
the Property, the Right of First Offer and the Right of First Refusal as set
forth in this Lease shall expire automatically upon the date of conveyance of
the Property to said mortgagee or holder of a security interest therein (or to
any third party assignee of said mortgagee or holder of a security interest
therein), and said Right of First Offer and the Right of First Refusal shall not
continue in force or effect, nor shall they be applicable to any subsequent sale
or ownership of the Property by successive parties.
42. Waiver of Counterclaim and Trial by Jury/Attorneys Fees. Landlord
and Tenant waive their right to trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against the other (except
for personal injury or property damage) on any matters whatsoever arising out of
or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use of or occupancy of the Leased Premises, and any emergency
statutory or any other statutory remedy. Tenant shall not interpose any
counterclaim(s) or claim(s) for set-off, recoupment or deduction of Minimum
Annual Rent or Additional Rent in a summary proceeding for nonpayment of Minimum
Annual Rent or Additional Rent, unless such counterclaim is mandatory in nature
and must be interposed in such summary proceeding initiated by Landlord or
otherwise be deemed waived. In the event either Landlord or Tenant institute an
action or proceeding against the other to enforce the terms and conditions of
this Lease, the prevailing party shall be entitled to recover all reasonable
attorneys fees and costs incurred as a result thereof.
43. Separability. If any term or provision of this Lease or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby and each other term
and provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
44. Corporate Authority. Concurrently with the execution of this Lease,
Tenant has delivered to Landlord a certified copy of a resolution of Tenant's
Board of Directors (or other evidence reasonably satisfactory to Landlord)
approving the leasing of the Leased Premises by Tenant pursuant to the terms and
conditions contained herein, stating that this Lease is fully binding upon
Tenant, and authorizing the execution of this Lease by each person signing this
Lease on behalf of Tenant.
45. Interpretation.
(a) Captions. The captions, marginal references, General
Information sheet, and table of contents appearing in this Lease are inserted
only as a matter of convenience and in no way amplify, define, limit, construe,
or described the scope or intent of this Lease nor in any way affect this Lease.
(b) Gender. The neuter, feminine or masculine pronoun when used
herein shall each include each of the other genders and the use of the singular
shall include the plural.
(c) Covenants. The parties hereto agree that all the provisions of
this Lease are to be construed as covenants and agreements as though the words
importing such covenants and agreements were used in each separate provision
hereof.
(d) Interpretation. Although the printed provisions of this Lease
were drawn by Landlord, this Lease shall
-28-
not be construed for or against Landlord or Tenant, but this Lease shall be
interpreted in accordance with the general tenor of the language in an effort to
reach the intended result.
46. Landlord's Agreement re: Contract of Sale of the Property. Landlord
agrees that, during the Lease Term and prior to its execution of any contract
for the sale of the Property to a prospective purchaser, it shall give written
notice of the existence of this Lease and Tenant's occupancy rights in and to
the Leased Premises (together with a copy of this Lease), to any such
prospective purchaser of the Property.
47. Reasonableness of Expenses. Wherever it is required by the terms of
this Lease that one party reimburse the other party for costs and expenses
incurred in connection with the performance of an obligation or the exercise of
a right described herein, unless expressly stated otherwise, all costs and
expenses for which such reimbursement is sought shall be reasonable in amount
and nature, as determined in accordance with local standards of commercial
reasonableness in the District of Columbia metropolitan area.
48. Limits of Landlord's Liability. In the event that any mortgagee or
holder of a deed of trust or other security interest in the Property shall
foreclose on the Property or accept a deed in lieu of foreclosure as a result of
the failure of Landlord to pay any debt secured by the Property, then,
thereafter, neither the owner of the Property, as Landlord, nor its agents,
employees or officers, whether disclosed or undisclosed, shall have any personal
liability under any provision of this Lease, and if such a subsequent owner of
the Property, as Landlord, defaults in the performance of any of its obligations
hereunder or otherwise, Tenant shall look solely to Landlord's equity, interest
and rights in the Property for satisfaction of Tenant's remedies on account
thereof.
49. Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto, and the heirs, personal representatives,
successors and assigns of said parties.
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed, and
delivered this Lease, or have caused same to be executed, sealed and delivered
by their duly authorized attorney-in-fact, as of the day and year above written.
WITNESS LANDLORD:
Cambridge Biotech Corporation,
a Delaware corporation
By: /s/ signature unreadable (SEAL)
- --------------------------- ---------------------------------
/s/ signature unreadable
---------------------------------
Date of Execution: July 14, 1992
---------
WITNESS/ATTEST: TENANT:
BTRL Contracts and Services, Inc.,
a Massachusetts corporation
/s/ signature unreadable By: /s/ signature unreadable (SEAL)
---------------------------------
/s/ signature unreadable , President
--------------------------
Date of Execution: July 14, 1992
--------
EXHIBIT C
RULES AND REGULATIONS
Tenant agrees as follows:
1. Tenant will keep the Leased Premises and approaches thereto clean
and free from rubbish; will remove snow, ice and debris from the adjacent
sidewalks; will keep all windows and any sign neat, clean and in good order;
will not erect any screen or fence; and will not perform any acts or carry on
any practices which may damage the Leased Premises or the Property or be a
nuisance or menace to other tenants.
2. Tenant shall not obstruct or interfere with the rights of others to
use any Property driveways, parking facilities, sidewalks, exits, entrances, if
any.
3. Tenant shall not store any material, supplies, equipment, wooden
pallets, vehicles or anything whatsoever outside of the Leased Premises. If any
such items are not removed within forty-eight (48) hours Landlord shall have the
right to remove the same, with prior notice to Tenant, and with no
responsibility to Tenant for loss or damage to such items, and the cost to
Landlord of such removal shall be deemed to be Additional Rent under the Lease
and will be immediately paid by Tenant to Landlord upon demand.
4. Business and mechanical equipment which cause noise or vibration that
may be transmitted to the structure of the Leased Premises or to any space
therein to such a degree as to be objectionable to Landlord or any other tenant
of the Property, shall be placed and maintained by Tenant, at Tenant's expense,
on vibration eliminators or other devices sufficient to eliminate noise or
vibration.
5. Tenant shall comply with any governmental energy-saving rules, laws
or regulations of which Tenant has notice.
6. The sewage system shall not be used for any purpose other than that
for which it was constructed and no foreign substance of any kind whatsoever
shall be thrown therein. The expense of any breakage, stoppage or damage
resulting from the violation of this rule shall be borne by the Tenant who, or
whose employees or invitees, shall have caused it.
7. Should the Tenant, its agents or invitees, activate its sprinkler
system (if there is one in the Leased Premises), Tenant agrees that it will pay,
as Additional Rent to Landlord, any damage to the Leased Premises and to
property of other Property tenants.
8. All trash and garbage shall be kept within the Leased Premises (or in
a dumpster placed on the common areas of the Property at a location reasonably
satisfactory to Landlord) and collected on a regular basis. Tenant shall not
place in any trash box or receptacle any material which cannot be disposed of in
the ordinary and customary manner of trash and garbage disposal.
9. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by or any governmental agency having
jurisdiction.
10. Tenant assumes any and all responsibility for protecting the Leased
Premises from theft, robbery and pilferage which includes keeping doors locked
and other means of entry to the Leased Premises closed.
11. Tenant shall keep the inside and the outside of all glass in the
doors and windows within the Leased Premises clean, keep all exterior surfaces
of the Leased Premises clean, replace
promptly any cracked or broken glass of the Leased Premises with glass of like
kind, color, and quality.
12. Tenant shall be responsible for the observance of all the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
13. Tenant shall give Landlord immediate notice in case of fire or
accidents in the Leased Premises, and in case of fire or accidents on the
Property involving Tenant, its agents, employees or invitees.
GUARANTY
In consideration of, and as a material inducement to Cambridge Biotech
Corporation, a Delaware corporation qualified to do business in the State of
Maryland, with a business and mailing address at 1500 East Gude Drive,
Rockville, MD 20850 (the "Landlord"), executing and delivering simultaneously
herewith, in reliance upon this Guaranty, that certain Lease (the "Lease"),
dated as of June 30, 1992, between Landlord and BTRL Contracts and Services,
Inc., a Massachusetts corporation qualified to do business in the State of
Maryland ("Tenant"), the undersigned, Boston Biomedica, Inc., a Massachusetts
corporation (the "Guarantor"), with a business and mailing address at 375 West
Street, West Bridgewater, Massachusetts 02379, hereby unconditionally and
absolutely guarantees unto Landlord, its successors and assigns, the full,
prompt and complete payment by Tenant of the Minimum Annual Rent and Additional
Rent provided in the Lease, and the prompt, faithful and complete performance
and observance by Tenant of all of the terms, covenants and conditions of the
Lease on the Tenant's part to be performed and/or observed. Upon the failure of
Tenant to make any such payment of Minimum Annual Rent or Additional Rent
provided in the Lease, or to perform or observe any such term, covenant or
condition of the Lease on the Tenant's part to be performed and/or observed,
Guarantor shall, promptly upon demand, pay such required sum to Landlord, or
perform or observe the required term, covenant or condition of the Lease.
Guarantor does hereby waive notice of any and all defaults on the part
of the Tenant, waives acceptance and notice of acceptance of this Guaranty, and
waives all demand for payment and/or performance; and Guarantor agrees that no
delay on the part of Landlord in enforcing any of its rights or remedies or
insisting thereupon, nor any extension of time nor any changes or modifications
in or to, or in connection with the Lease, shall in any way limit, affect or
impair the liability of Guarantor hereunder; and Guarantor hereby expressly
consents to and approves thereof with the same force and effect as though its
written consent had been given to each of such delays, extensions, changes and
modifications.
This Guaranty is independent of and in addition to any security or other
remedies which Landlord has or may have for the performance of any of the
obligations on the part of Tenant; and Guarantor agrees that Landlord shall not
be required to resort to any other security or other remedies before proceeding
upon this Guaranty, but that Landlord may proceed hereunder against Guarantor at
any time it sees fit, independently of or concurrently with any other remedies
it may have.
This Guaranty shall remain in full force and effect notwithstanding the
institution by or against Tenant, of bankruptcy, reorganization, readjustment,
receivership or insolvency proceedings of any nature, or the disaffirmance of
the Lease in any such proceedings or otherwise.
If Guarantor is a corporation and is merged into or with any other
company, firm or corporation, the resulting merged company, firm or corporation
shall become liable as Guarantor under this Guaranty to the same extent as the
original named Guarantor hereunder.
Concurrently with the execution of this Guaranty, Guarantor has
delivered to Landlord a certified copy of a resolution of its Board of Directors
(or other evidence reasonably satisfactory to Landlord) approving the guaranty
by Guarantor of Tenant's obligations contained in the Lease pursuant to the
terms and conditions contained herein, stating that this Guaranty is fully
binding upon Guarantor, and authorizing the execution of this Guaranty by each
person signing this Lease on behalf of Guarantor.
This Guaranty shall be binding upon the undersigned, the undersigned's
successors and assigns, and shall inure to the benefit of Landlord, its
successors and assigns, and to the benefit of any successors to the interest of
Landlord under the Lease and/or to the Leased Premises.
IN WITNESS WHEREOF, the undersigned has duly executed this Guaranty
under seal as of the 30th day of June, 1992.
WITNESS/ATTEST: GUARANTOR:
Boston Biomedica, Inc.
/s/ signature unreadable By: /s/ signature unreadable (SEAL)
- ---------------------------- --------------------------------
Secretary Name: /s/ signature unreadable
---------------------------
Title: President
--------------------------
State of UNREADABLE
------------------
County of UNREADABLE
------------------
On this the 14th day of July, 1992, before me, the subscriber, a Notary Public
in and for the jurisdiction aforesaid, personally appeared UNREADABLE who
acknowledged himself/herself to be the President of Boston Biomedica, Inc., a
Massachusetts corporation, and that he/she, as such President, being authorized
so to do, executed the foregoing and annexed Guaranty for the purposes contained
therein, by signing the name of the corporation by himself/herself as President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ signature unreadable
-----------------------------
Notary Public
My Commission Expires 11/6/92
-------
BTRL Contracts and Services, Inc.
375 West Street
West Bridgewater, Massachusetts 02379
Re: Lease Agreement Dated as of June 30, 1992 between Cambridge
Biotech Corporation and BTRL Contracts and Services, Inc.,
covering certain premises known as 3 Taft Court, Rockville,
Maryland 20850
Gentlemen:
Reference is made to the above-reference Lease Agreement (the "Lease"),
pursuant to which Cambridge Biotech Corporation ("Landlord") has leased certain
premises known as 3 Taft Court, Rockville, Maryland, to be BTRL Contracts and
Services, Inc. ("Tenant").
In mutual consideration of Landlord and Tenant entering into the
above-referenced Lease, this will confirm that Landlord and Tenant have agreed
to supplement the provisions of the Lease as follows:
1. Landlord and Tenant have agreed to clarify the provisions of
Section 4(b)(iii), relating to insurance, so as to clarify in
the third paragraph thereof that in the event that Landlord
causes its insurance carrier to provide a written statement
reflecting the allocation of premiums paid by Landlord
attributable to the Leased Premises (as defined therein) and
the premiums attributable to the insurance carried on other
properties owned by Landlord, the premiums attributable to the
Leased Premises shall be Tenant's Proportionate Share of
insurance costs payable under the Lease.
2. Landlord has agreed to provide to Tenant, on a quarterly basis,
true and complete copies of bank statements reflecting the
status of accounts in which monies have been deposited in
escrow on account of real estate taxes pursuant to Section
4(b)(ii) of the Lease, insurance premiums pursuant to Section
4(b)(iii) of the Lease, and the Security Deposit pursuant to
Section 5 of the Lease.
3. In the event that Landlord refinances the real property of
which the Leased Premises constitute a part, Landlord agrees to
modify and amend the Lease so as to eliminate the limitations
on the Landlord's (and any subsequent owner's) liability
pursuant to Section 48 of the Lease, unless Landlord's
prospective new mortgage lender, if any, refuses (in its sole
discretion) to finance the property if such modification or
amendment is made.
EXECUTED as a sealed instrument as of the 30th day of June, 1992.
TENANT: LANDLORD:
BTRL CONTRACTS SERVICES, INC. CAMBRIDGE BIOTECH CORPORATION
BY: /s/ signature unreadable BY: /s/ signature unreadable
---------------------------- ----------------------------
Vice President
EXHIBIT 10.8
LEASE
BY AND BETWEEN
MB ASSOCIATES
AND
BBI - NORTH AMERICAN CLINICAL LABORATORIES, INC.
75 NORTH MOUNTAIN ROAD
NEW BRITAIN, CONNECTICUT
DATED AS OF JULY 28, 1995
CONTENTS
--------
<TABLE>
<CAPTION>
SECTION CAPTION PAGE
- ------- ------- ----
<S> <C> <C>
1. Demise - Premises - Term ........................................................................
2. Rent ............................................................................................
3. Renewal Options .................................................................................
4. Construction by the Landlord ....................................................................
5. Use .............................................................................................
6. Signs ...........................................................................................
7. Subordination of Lease ..........................................................................
8. Quiet Enjoyment .................................................................................
9. Assignments and Subleases .......................................................................
10. No Nuisance; Compliance with Laws and Requirements of Public Authorities.........................
11. Insurance .......................................................................................
12. Rules and Regulations ...........................................................................
13. Alterations and Improvements ....................................................................
14. Tenant's Property ...............................................................................
15. Tenant's Repairs ................................................................................
16. Landlord's Repairs, Maintenance, ................................................................
17. Access to Demised Premises ......................................................................
18. Damage or Destruction ...........................................................................
19. Condemnation ....................................................................................
20. Surrender .......................................................................................
21. Default and Damages .............................................................................
22. Parking .........................................................................................
23. Unperformed Covenants ...........................................................................
24. Holding Over ....................................................................................
25. Certain Rights Reserved by the Landlord .........................................................
26. Waiver of Notice ................................................................................
27. Notices .........................................................................................
28. Estoppel Certificate ............................................................................
29. Limitation of Liability .........................................................................
30. Rights of Landlord; Non-Waiver ..................................................................
31. Broker ..........................................................................................
32. Notice of Lease .................................................................................
33. Prior Agreements ................................................................................
34. Captions; Sections; Gender ......................................................................
35. Benefit and Burden ..............................................................................
36. Applicable Law ..................................................................................
Signatures ......................................................................................
</TABLE>
EXHIBITS
- --------
Exhibit A - Plan of Demised Premises
Exhibit B - Schedule of Landlord's Work
Exhibit C - Rules and Regulations
LEASE
-----
THIS LEASE made as of the 28th day of July, 1995, by and between MB
ASSOCIATES, a Connecticut partnership having its office at Plainville,
Connecticut (the "Landlord", and BBI- NORTH AMERICAN CLINICAL LABORATORIES,
INC., a Massachusetts corporation having an address of 75 North Mountain Road,
New Britain, Connecticut (the "Tenant").
1. Demise - Premises - Term.
(a) The Landlord hereby demises and leases to the Tenant, and the
Tenant hereby takes and hires from the Landlord, for the term hereinafter
stated, for the rent hereinafter reserved, and upon and subject to the
covenants, agreements, terms, conditions, limitations, exceptions and
reservations of this lease, the building known as 75 North Mountain Road, New
Britain, Connecticut, together with the exclusive use of the parking area and
land shown and described in Exhibit A, attached hereto and made a part hereof
(the "Demised Premises).
(b) The term of this lease and the estate hereby granted (collectively
the "term of this Lease") shall commence on the Commencement Date (as defined in
section 1(c)) and shall end on the last day of the calendar month in which
occurs the day preceding the fifth (5th) anniversary of the Commencement Date,
which ending date, unless the context otherwise requires, is hereinafter called
the "Expiration Date", or shall end on such earlier date upon which the term of
this lease may expire or be terminated pursuant to any of the provisions of this
lease or pursuant to law.
(c) The term "Commencement Date: shall be that date when the Demised
Premises are ready for occupancy by the Tenant, or on August 1, 1995, whichever
date shall occur later, and all of the following conditions are met: (i)
temporary or final certificate of occupancy shall have been issued by the City
of New Britain permitting the activities specified in Section 5 to be conducted
in the Demised Premises; (ii) the contractor engaged by the Landlord has issued
a certificate attesting that the Landlord's Work (as defined in section 4(b))
has been substantially completed; and (iii) the Landlord's Work has been
substantially completed, and it shall be deemed to be substantially completed
notwithstanding the fact that minor or insubstantial details of construction,
mechanical adjustment or decoration remain to be performed, the noncompletion of
which does not interfere materially with the Tenant's normal use and occupancy
of the Demised Premises, provided, however, that if substantial completion of
the Landlord's Work shall be delayed beyond July 31, 1995, because of changes in
the Landlord's Work at the request of the Tenant as provided in Section 4(c)
(within fifteen (15) days after the delivery of any such change request, the
Landlord shall notify the Tenant
Initials
_________ (Landlord)
_________ (Tenant)
-1-
whether or not such change request is likely to cause a delay in the completion
of the Landlord's Work beyond July 31, 1995) then the Commencement Date shall be
deemed to be August 1, 1995, provided all other work has been substantially
completed, even though the conditions set forth in this Section 1(c) shall not
have been satisfied.
2. Rent.
(a) The rent reserved under this lease (the "Rent") for the term hereof
shall commence to accrue on the Commencement Date and shall be:
(i) Annual Fixed Rent For the First Year, $125,200.00
(ii) Annual Fixed Rent For the Second Year, $132,700.00
(iii) Annual Fixed Rent For the Third Year, $140,200.00
(iv) Annual Fixed Rent For the Fourth Year, $147,700.00
(v) Annual Fixed Rent For the Fifth Year, $155,200.00
(vi) such other sums of money as shall become due and
payable by the Tenant to the Landlord as provided in
this lease, such other sums of money to be deemed to
be additional rent whether or not such sums of money
are designated as such hereunder.
(b) The Rent shall be paid to the Landlord at its address specified in
Section 27, or at such other place as the Landlord may from time to time
designate, in lawful money of the United States of America, as and when the same
shall become due and payable and without abatement or offset and without notice
or demand therefor.
(c) The annual Fixed Rent for each lease year shall be payable in equal
monthly installments in advance on the first day of each and every calendar
month during each lease year. If the Commencement Date is other than the first
day of the calendar month, the first monthly installment of the Fixed Rent shall
include a pro rata installment of Fixed Rent for the period from the
Commencement Date to the last day of the month in which the Commencement Date
occurs based upon the Fixed Rent payable during the term hereof.
Initials
_________ (Landlord)
_________ (Tenant)
-2-
(d) If the Tenant fails to pay within ten (10) days after the same is
due and payable any installment of Fixed Rent or any additional rent to be paid
by the Tenant to the Landlord as provided in this lease, such unpaid amount
shall bear interest from the due date thereof to the date of payment at the rate
equal to the lesser of (i) twelve percent (12%) per annum, or (ii) the maximum
rate permitted by applicable law. Such interest shall be paid by the Tenant to
the Landlord on the earlier to occur of A) at the time that the Tenant pays to
the Landlord the installment of Fixed Rent or the additional rent upon which
such interest shall have accrued or (B) five (5) days after written demand
therefor.
(e) As used herein, the term "lease year" shall mean the period
commencing on the Commencement Date and ending on the last day of the calendar
month in which occurs the day preceding the first (1st) anniversary of the
Commencement Date, and each period of twelve (12) consecutive calendar months
thereafter.
(f) If, on the Grand Lists of 10/1/95, 10/1/96, 10/1/97, 10/1/98 and
10/1/99, as a result of Tenant's use of the Demised Premises, the City of New
Britain provides real property tax abatement for the Demised Premises, the rent
reserved in Section 2(a), above, will be reduced by an amount equal to the
amount of tax abatement received, but in no event less than Six Thousand Dollars
($6,000.00) per year for the 2nd through the 5th year of the Term, and the first
year of the first renewal term of this Lease.
The parties agree to execute an amendment to this Lease establishing
the fixed annual rent in the event of such tax abatement and to establish the
annual fixed rent for the renewal terms set forth in Sections 3 (a) and (b).
3. Renewal Options:
(a) Tenant shall have the option to renew this Lease for a term of five
(5) years on the same terms and conditions as provided herein except that the
annual fixed rent for each year during said first renewal term shall be the
greater of (i) $161,230 or (ii) $140,200.00 plus the cumulative percentage of
increase, if any, in the Consumer Price Index All Item Figures for Urban Wage
Earners and Clerical Workers (N.Y., Northern N.J., Long Island, N.Y, NJ, CT)
(1982-94 = 100) published by the Bureau of Labor Statistics, U.S. Department of
Labor as of the date of the commencement of the first renewal period over the
said Index as of the date of the commencement of the initial term of this Lease,
which increase shall not exceed 25%.
(b) Tenant shall have a further option to renew this Lease for an
additional term of five
Initials
_________ (Landlord)
_________ (Tenant)
-3-
(5) years on the same terms and conditions as provided herein except that there
shall be no further right of renewal and that the annual fixed rent for each
year of said second renewal term shall be the greater of (i) an amount equal to
the annual fixed rent during said first renewal term plus fifteen percent (15%)
or (ii) the annual fixed rent during said first renewal term plus the cumulative
percentage of increase, if any, in the Consumer Price Index All Item Figures for
Urban Wage Earners and Clerical Workers (N.Y., Northern N.J., Long Island, N.Y,
NJ, CT) (1982-94 = 100) published by the Bureau of Labor Statistics, U.S.
Department of Labor as of the date of the commencement of the second renewal
period over the said Index as of the date of the commencement of the first
renewal period of this Lease, which increase shall not exceed 25%.
(c) The Tenant's right to exercise its options to renew hereunder shall
be contingent upon (i) the Tenant's giving to the Landlord notice of the
Tenant's election to exercise its option to renew not later than nine (9) months
prior to the expiration date of the initial term or first renewal term, as the
case may be, of this Lease and (ii) the term of this lease being in full force
and effect on the date that the Landlord receives notice of the Tenant's
election to exercise its option to renew and on the expiration date of the
initial term or first renewal term as the case may be of this lease. If such
contingencies shall be satisfied in respect to the exercise of the Tenant's
options to renew hereunder, then the renewal period shall be added to and become
part of the term of this lease and any reference in this lease to "term of this
lease"; the "term hereof" or any similar expression shall be deemed to include
such renewal period.
(d) If at any time the Landlord shall be restricted or prevented by
virtue of any law, rule, regulation or order, such as a "Wage-Price-Rent
Freeze", from obtaining the full amount of the Rent for such renewal term, then
on any occasion upon which it becomes lawful to obtain and receive the balance
(or any part thereof) of the full rent payable, the Fixed Rent payable hereunder
shall be increased by the maximum amount lawful until the full Fair Market
Rental Value for such renewal period is received by the Landlord.
(e) A memorandum recording the amount of the rent payable for such
renewal period shall be annexed hereto and signed by the Landlord and the Tenant
promptly upon the same being agreed or determined in accordance with the terms
hereof.
4. Construction by the Landlord.
(a) The Landlord may make such improvements or additions to the Demised
Premises and its appurtenances as the Landlord shall see fit except that the
Landlord shall secure the prior written approval of the Tenant, which approval
shall not be unreasonably withheld or delayed, in the
Initials
_________ (Landlord)
_________ (Tenant)
-4-
case of any change, addition or deletion which materially and adversely affects
the visibility, access of or to Tenant's use of the Demised Premises for the
purposes set forth in Section 5 or any other rights of the Tenant under this
lease.
(b) The Landlord shall perform work and make installations in the
Demised Premises in a good and workmanlike manner and in accordance with the
plans and specifications set forth in Exhibit B attached hereto. (All of the
work to be performed by the Landlord pursuant to this Section 4(b) is referred
to as the "Landlord's Work").
(c) The Tenant may make written requests for changes in the Landlord's
Work, and the Landlord shall comply with any such request that in the Landlord's
judgment is not unreasonable. Any change in the scope of the Landlord's Work
which would result from such a request and which would unreasonably interfere
with or delay the work of the Landlord's contractors and subcontractors in the
Demised Premises or elsewhere in or about the building shall be conclusively
deemed unreasonable. Any increase in the Landlord's cost of construction of the
Landlord's Work resulting from such a request shall be acknowledged in writing
by the Tenant prior to the performance of the change in the Landlord's Work. Any
net increase arising from all such changes in the Landlord's Work shall be paid
by the Tenant to the Landlord, as additional rent, within ten (10) days after
the Landlord's written demand. The Tenant shall not be entitled to any payment
from the Landlord, or to any credit against or reduction in the Rent, on account
of any net decrease arising from all such changes in the Landlord's Work.
(d) The Tenant, by entering into actual possession of any part or parts
of the Demised Premises, shall be deemed to have agreed that the Landlord, up to
the time of such possession, has performed all of its obligations hereunder with
respect to preparation of such part or parts of the Demised Premises for the
Tenant's possession, except for (i) latent defects and (ii) minor items
remaining incomplete. The Tenant, within sixty (60) days after the Commencement
Date, shall give the Landlord written notices of any incomplete work,
unsatisfactory conditions or defects, and the Landlord shall repair or replace
all materials and workmanship, fixtures, systems, facilities and equipment
installed by the Landlord in or serving the Demised Premises which prove to be
defective, and shall prosecute those items remaining incomplete to completion
with reasonable diligence.
5. Use. The Tenant shall have the right to occupy and use the Demised
Premises for a medical laboratory, clinical laboratory, biomedical
manufacturing, biomedical repository, research and general office purposes, and
the Tenant shall not use or permit the use of the Demised Premises for any other
purpose.
Initials
_________ (Landlord)
_________ (Tenant)
-5-
6. Signs. Unless the Landlord shall have given its prior written
consent, which consent shall not be unreasonably withheld, the Tenant shall not
install, paint, inscribe or maintain any lettering, name, sign, business
designation, advertising or publicity device on the Land or on any exterior
window or on any other interior or exteriors portion of the building. All
signage shall be consistent with a comprehensive sign plan for the planned area
development of this North Mountain Road area and is contingent upon approval
from all appropriate governmental agencies.
7. Subordination of Lease.
Tenant agrees that upon the request of Landlord in writing it will
subordinate this Lease and the lien hereof from time to time to the lien of any
present or future mortgage to a bank, insurance company or similar financial
institution, irrespective of the time of execution or time of recording of any
such mortgage or mortgages, provided that the holder of any such mortgage shall
enter into an agreement with Tenant, in recordable form, that in the event of
foreclosure or other right asserted under the mortgage by the holder or any
assignee thereof, this Lease and the rights of Tenant hereunder shall continue
in full force and effect and shall not be terminated or disturbed except in
accordance with the provisions of this Lease. Tenant agrees that if requested by
the holder of any such mortgage it will be a party to said agreement and will
agree in substance that if the mortgagee or any person claiming under the
mortgagee shall succeed to the interest of Landlord in this Lease, it will
recognize said mortgagee or person as its landlord under the terms of this
Lease. Tenant agrees that it will upon the request of Landlord, execute,
acknowledge and deliver any and all instruments necessary or desirable to give
effect to or notice of such subordination. The word "mortgage" as used herein
includes mortgages, deeds of trust or other similar instruments and
modifications, consolidations, extensions, renewals, replacements and
substitutes thereof.
Such subordination agreement shall include, but not be limited to,
statements that if the lender or ground lessor succeeds to the interest of
Landlord under this Lease, lender or ground lessor shall not be:
(i) liable for any act or omission of any prior landlord
(including Landlord) except for those acts or omissions which
are continuing after lender succeeds to landlord's interest;
or
(ii)subject to any offsets or defenses which Tenant might have
against any prior landlord (including Landlord); or
Initials
_________ (Landlord)
_________ (Tenant)
-6-
(iii) bound by any rent or additional rent which Tenant might
have paid for more than the current month to any prior
landlord (including Landlord).
(b) If, in connection with the procurement, amendment or renewal of any
financing of the Demised Premises, the mortgagee shall request reasonable
modifications of this lease as a condition of such financing, the Tenant shall
not withhold or delay its consent to such modifications provided that they do
not increase the obligations of the Tenant under this lease or adversely affect
the rights of the Tenant under this lease.
8. Quiet Enjoyment. The Landlord covenants and agrees that so long as
the Tenant pays the Rent and performs the remainder of the Tenant's obligations
under this lease, the Tenant shall peaceably and quietly have, hold, and enjoy
the Demised Premises without interference by any person claiming by, through or
under the Landlord.
9. Assignments and Subleases.
(a) Except as otherwise provided in this Section 9, the Tenant agrees
not to assign or in any way encumber this lease, nor to sublet the Demised
Premises, or any part thereof, nor to permit the Demised Premises, or any part
thereof, to be used by others, without obtaining the prior written consent of
the Landlord in each instance, which consent shall not be unreasonably withheld
or delayed.
(b) So long as no event of default shall have occurred and be
continuing hereunder, the Tenant may assign this lease to any corporation or
other entity into which the Tenant may be merged or with which the Tenant may be
consolidated, or to which all or substantially all of the Tenant's assets shall
be transferred, provided that such corporation or other entity shall have a net
worth at least equal to that of the Tenant immediately prior to such merger,
consolidation or transfer. The Tenant shall give notice to the Landlord of any
assignment under this Section 9(b), and shall deliver to the Landlord an
executed counterpart of the instrument effecting such assignment, together with
an undertaking by any such corporation or other entity to agree to be bound by
and to perform all of the Tenant's obligations hereunder.
(c) (Left Intentionally Blank)
(d) No assignment or subletting of this lease shall relieve the Tenant
of any of the Tenant's obligations under this lease, unless otherwise agreed to
in writing by Landlord.
Initials
_________ (Landlord)
_________ (Tenant)
-7-
(e) Notwithstanding Subparagraph 9(a) above, until such time as Tenant
is able to utilize the entire floor space of the building of the Demised
Premises, Tenant may sublet that portion of the building which it does not use
for its business purposes, with Landlord's prior written approval which shall
not be unreasonably withheld or delayed, subject, however, to the following
conditions:
1. Sublessee shall be of good reputation and financial responsibility.
2. Character of business to be conducted by such sublessee shall be
reasonably acceptable to Landlord, and the premises shall be used only for a
purpose allowed in Section 5 above and shall be in keeping with the character,
standing, and quality of the building.
3. Any assignee or subleasee shall be bound by the terms of this Lease,
including Schedule C hereto.
4. Tenant shall not be released by reason of such subletting from the
due, prompt, and punctual performance of all of the terms, covenants, and
conditions contained in this lease to be performed on its part and from the
payment of the rents and additional rents herein reserved.
5. Landlord's consent to such subletting shall not constitute a waiver
of any provision of this agreement and no further subletting shall be made
without Lessor's written consent. The sublessee shall not further assign,
sublet, or underlet the premises without Landlord's prior written consent, and
then only on compliance with all of the provisions contained in this Paragraph.
10. No Nuisance; Compliance with Laws and Requirements of Public
Authorities. The Tenant agrees (a) not to create or permit any nuisance in or
about the Demised Premises, (b) to comply with and conform to (i) all of the
laws and regulations of the State of Connecticut, and (ii) the by-laws,
ordinances, rules and regulations of the City of New Britain so far as the
Tenant's use of the Demised premises may be concerned, and (c) to save the
Landlord harmless from all damages, fines, penalties and costs for violation of
or non-compliance by the Tenant or the Tenant's servants, employees, agents,
customers, invitees, licensees, or visitors with the provisions of this Section
10 and obtain and keep in effect all permits required by governmental agencies
for the operation of a medical laboratory, including, but not limited to, waste
discharge permits from the Connecticut Department of Environmental Protection.
11. Insurance.
(a) At all times during the term of this lease, the Landlord shall
insure the building
Initials
_________ (Landlord)
_________ (Tenant)
-8-
against loss or damage by fire, and such other casualties as may be included
within the extended coverage clauses of policies which are then standard for use
in the State of Connecticut, in such amount as the Landlord in its sole judgment
shall deem appropriate.
(b) The Tenant shall not commit or permit any violation of the policies
carried by the Landlord pursuant to Section 11(a), or do or permit anything to
be done, or keep or permit anything to be kept, on or in the Demised Premises,
which, in case of any of the foregoing (i) would result in termination of any of
such policies, (ii) would adversely affect the Landlord's right of recovery
under any of such policies, or (iii) would result in the refusal by reputable
and independent insurance companies to insure the building or the property of
the Landlord therein in amounts reasonably satisfactory to the Landlord. If any
such action by the Tenant, or any failure by the Tenant to comply with the
reasonable requirements of insurance policies with respect to the building or to
perform any of the Tenant's obligations under this lease, or the use of the
Demised Premises by the Tenant, shall result in any increase in the rate of
premiums payable with respect to such policies carried by the Landlord, the
Tenant shall pay to the Landlord, as additional rent, within ten (10) days after
demand therefor, the resulting additional premiums which shall be paid by the
Landlord, it being understood that such policies obtained by Landlord will
permit without extra cost the uses described in Paragraph 5 above.
(c) At all times during the term of this lease, the Tenant shall (i)
insure the Tenant's Improvements (as defined in Section 13), but excluding all
fixtures and real property and the Tenant's Property (as defined in Section 14)
against loss or damage by fire and such other casualties as may be included
within the extended coverage clauses of policies which are then standard for use
in the State of Connecticut in amounts at all times equal to the full
replacement value of the Tenant's Improvements and the Tenant's Property, and
(ii) keep in full force and effect a policy of public liability and property
damage insurance with respect to the Demised Premises, the building and the Land
in which the limits initially shall be not less than One Million Dollars
($1,000,000.00) for each person and Three Million Dollars ($3,000,000.00) for
each accident, and in which the limit for property damage initially shall not be
less than Two Hundred Fifty Thousand Dollars ($250,000.00), such limits to be
increased from time to time as reasonably specified by the Landlord. In
addition, for and during any time when the Tenant shall be constructing or
making Tenant's Improvements, the Tenant shall keep in full force and effect a
policy of completed value builder's risk insurance (or an "installations
floater") for the Demised Premises, covering loss or damage from fire,
lightning, extended coverage, perils, vandalism and malicious mischief and
perils in an amount not less than the final cost, as reasonably estimated by the
Tenant, of such Tenant's Improvements.
(d) Each party hereto shall procure an appropriate clause in, or
endorsement on, each of
Initials
_________ (Landlord)
_________ (Tenant)
-9-
its policies for fire and extended coverage insurance covering the Demised
Premises, the Tenant's Improvements, or the building or personal property,
fixtures or equipment located thereon or therein, pursuant to which the
insurance company waives subrogation or consents to a waiver of right of
recovery against the other party, and if such a clause or endorsement of waiver
of subrogation or consent to a waiver of right of recovery is obtained, such
party hereby agrees that it will not make any claim against or seek to recover
from the other for any loss or damage to its property or the property of others
covered by such fire or extended coverage insurance; provided, however, that the
release, discharge, exoneration and covenant not to sue herein contained shall
be limited by the terms and provisions of the waiver of subrogation clause or
endorsement or the clause or endorsement consenting to a waiver of right of
recovery and shall be co-extensive therewith.
(e) All insurance provided by the Tenant pursuant to this Section 11
shall be effected under valid and enforceable policies in form and substance
then standard in the State of Connecticut, issued by insurers of recognized
responsibility licensed to do business in the State of Connecticut. Upon the
Commencement Date, and thereafter not less than thirty (30) days prior to the
expiration dates of expiring policies provided by the Tenant pursuant to this
Section 11, the Tenant shall deliver to the Landlord copies of policies or
certificates with respect to the insurance being maintained by the Tenant
pursuant to the terms of this lease. All such policies or certificates shall
contain an agreement by the insurers that such policies will not be canceled,
amended or otherwise modified without at least thirty (30) days prior written
notice to the Landlord, and that the Landlord's rights and interests under such
polices shall not be subject to cancellation by reason of any act or omission of
the Tenant. All insurance policies provided by the Tenant pursuant to this
Section 11 shall name the Landlord and the Landlord's mortgage lenders as
additional insureds as their interests may appear.
(f) The Tenant shall indemnify and hold the Landlord harmless against
and from any liability or expense, including, without limitation, reasonable
attorney's fees, on account of (i) any accident or injury to the Tenant, the
Tenant's servants, employees, agents, customers, invitees, licensees, or
visitors who may be injured or suffer an accident in the Demised Premises unless
the same is caused by the negligence or willful act of the Landlord, or the
Landlord's servants, agents or employees, and (ii) the Tenant's activities in or
use of the Demised Premises or elsewhere on the Land or in the building.
12. Rules and Regulations. The Tenant and its officers, employees and
agents shall conform to and aide by such reasonable rules and regulations,
including those Rules and Regulations as are set forth on Exhibit C attached
hereto, as shall be established from time to time by the Landlord in connection
with the operation, maintenance, safety and security of the Demised
Initials
_________ (Landlord)
_________ (Tenant)
-10-
Premises. The Landlord shall not be liable to the Tenant for violation of such
rules and regulations by others.
13. Alterations and Improvements.
(a) The Tenant may make or have made interior alterations,
improvements, decorations, installations and substitutions (collectively called
"Tenant's Improvements"), to the Demised premises without the prior written
consent of the Landlord, but shall make no structural alterations or exterior
improvements or additions without the prior written consent of Landlord. Any
improvements or alterations in the Demised Premises made by the Tenant
(including, without limitation, permanent partitions, wall paneling and lighting
fixtures, but excepting the Tenant's Property (as defined in Section 14)) shall
be and remain the property of the Landlord and, except as provided in Section
20, shall remain upon and be surrendered with the Demised Premises at the
termination of the term of this lease. If the Landlord consents to any such
alterations, improvements or additions, it may impose such conditions with
respect thereto as the Landlord reasonably deems appropriate, including, without
limitations, requiring the Tenant to furnish the Landlord with security for the
payment of all costs to be incurred in connection with such work, insurance
against liabilities which may arise out of such work and plans, specifications
and permits necessary for such work. Upon completion of such work the Tenant
shall deliver to the Landlord, if payment is made directly to contractors,
evidence of payment, contractors' affidavits and full and final waivers of all
liens for labor, services of materials.
(b) The Tenant, at its expense, shall obtain all necessary governmental
permits and certificates for the commencement and prosecution of the Tenant's
improvements (other than the Landlord's Work) and for final approval thereof
upon completion, and shall cause the Tenant's Improvements (other than the
Landlord's Work) to be performed in compliance therewith and with all applicable
laws and requirements of public authorities, and in a good and workmanlike
manner using only good grades of materials.
(c) The Tenant's Improvements shall not constitute the basis for a
claim against the Landlord, nor a lien or charge upon or against the Demised
Premises, and if at any time any such claim, lien or charge shall be filed
against the Demised Premises, the Tenant shall cause such claim, lien or charge
to be properly released of record within forty-five (45) days after the filing
thereof, and if the Tenant shall fail to do so, then the Landlord may discharge
the same. The Tenant shall defend, indemnify and save harmless the Landlord from
and against any and all such claims, liens and charges, and all costs and
expenses, including reasonable attorney's fees, incurred by the Landlord in
procuring the discharge of any such claim, lien or charge or in connection with
any
Initials
_________ (Landlord)
_________ (Tenant)
-11-
action or proceeding brought thereon.
(d) The Tenant shall pay for all materials, excluding Tenant's
equipment and personal property constituting Tenant's Improvements, and the
Tenant agrees that none of such materials that are incorporated into and made a
part of the building or real estate shall be at any time subject to or
encumbered by any lien, security interest, encumbrance, charge, installment
sales contract or the interest of any other person, firm or corporation whether
created voluntarily or involuntarily.
14. Tenant's Property.
(a) Except for Tenant's Improvements and those items furnished or
installed by the Landlord as part of the Landlord's Work as provided in Section
4(b), all movable partitions, business machinery and equipment, communications
equipment and all other property which is not attached to or built into the
Demised Premises and which is installed in the Demised Premises by or for the
account of the Tenant at its sole expense, and all furniture, furnishings and
other articles of personal property owned by the Tenant and located in the
Demised Premises (all of which are collectively called the "Tenant's Property"),
shall be and shall remain the property of the Tenant, and shall be removed by it
at the termination of the term of this lease. The Tenant shall repair or pay the
cost of repairing any damage to the Demised Premises or to the building
resulting from such removal.
(b) The Landlord shall not be liable to the Tenant or any other person
for any loss or damage to the Tenant's Property or the Tenant's Improvements, or
to any property of any other person, from any cause, including, without
limitation, theft, vandalism, illegal entry, or by steam, gases or electricity,
or by water, rain or snow, whether the same may leak into, issue or flow from
any part of the building, or from the pipes or plumbing work of the building, or
from any other place or quarter, unless caused by the negligence or willful act
of the Landlord, its servants, agents or employees.
15. Tenant's Repairs, Cleaning & Utilities.
(a) Except for the maintenance for which the Landlord is expressly
responsible pursuant to the provisions of Section 16, the Tenant agrees that
throughout the term of this lease, the Tenant, at its expense, shall (i) keep
the interior of Demised Premises in a clean condition and in clean and neat
condition, and (ii) not do or suffer any waste, damage in or to the Demised
Premises or the Tenant's Improvements.
(b) Except for loss or damage by reason of the causes set forth in
Section 11(a), the
Initials
_________ (Landlord)
_________ (Tenant)
Tenant shall reimburse the Landlord for all costs and expense incurred by the
Landlord to repair all damage to the Demised Premises as shall be required by
reason of the fault or neglect of the Tenant, or any of its officers, employees,
contractors, agents or invitees, such payment to be made within ten (10) days
after written demand therefor.
(c) Tenant shall provide its own janitorial services within the Demised
Premises and shall pay for all utility charges related to the provision of hot
and cold running water, electricity, heat, air conditioning and ventilation in
the building on the Demised Premises. At the end of the first Lease year, the
parties agree to review the costs of janitorial and utility services paid for by
Tenant. Upon the signing of this Lease, the Tenant has estimated its janitorial
costs to be $7,800.00 per year and Landlord has estimated the utility costs, for
a 5-day, 14-hour per day week, and a 1/2 day Saturday, to be $42,000.00 per
year. If the actual costs for utility services vary from the above estimate by
more than five percent (5%), the parties agree to discuss in good faith
modifying the amount of rent payable under this Lease in light of such variance.
The parties shall consider splitting the cost of purchasing and installing such
energy saving measures as they may mutually agree upon, but are not obligated to
do so.
16. Landlord's Repairs, Maintenance
The Landlord shall keep, maintain and repair the Demised Premises,
including without limitation, its fixtures, appurtenances, systems and
facilities, sidewalks, exterior, roof, structural elements, foundation, parking
lot, exterior lighting and other appurtenances thereto, in good working order
and condition and will obtain and pay for maintenance service contracts for the
Landlord's systems. The Landlord shall not be required to maintain or repair the
Tenant's Improvements.
17. Access to Demised Premises.
(a) The Landlord and the Landlord's agents shall have the right, but
not the obligation, to enter and pass through the Demised Premises or any part
or parts thereof during business hours and at such other times as such entry
shall be required by circumstances of emergency affecting the Demised Premises
(i) to examine the Demised Premises and to show them to any mortgagee,
prospective mortgagees or purchasers of the Demised Premises, and (ii) for the
purpose of performing such maintenance and making such repairs or changes in or
to the Demised Premises or its facilities as may be provided for or permitted by
this lease or as may be mutually agreed upon by the parties or as the Landlord
may be required to make by laws and requirements of public authorities. The
Landlord shall be allowed to take all materials into and upon the Demised
Premises that may be required for such repairs, changes or maintenance. Landlord
agrees to abide by Tenant's
Initials
_________ (Landlord)
_________ (Tenant)
restricted access policies and written safety procedures. Tenant shall cooperate
with Landlord in making access available consistent with such policies and
procedures.
(b) During the period of six (6) months prior to the Expiration Date,
the Landlord may, unless the Tenant shall have theretofore given notice to the
Landlord of its election to exercise its option to renew the term of this lease,
exhibit the Demised Premises to prospective tenants.
18. Damage or Destruction.
(a) In the event that the Demised Premises (other than Tenant's
Improvements), or any part thereof, or access thereto, shall be damaged or
destroyed by fire or other insured casualty, but the Tenant shall continue to
have reasonably convenient access to the Demised Premises and no portion of the
Demised Premises (other than Tenant's Improvements) shall thereby be rendered
unfit for use and occupancy by the Tenant for the purposes set forth in Section
5, the Landlord shall promptly and diligently repair such damage or destruction
(except damage or destruction to Tenant's Property or Tenant's Improvements).
During the period when such repair work is being conducted, the Rent shall not
be abated or suspended.
(b) In the event that the Demised Premises (other than Tenant's
Improvements), or any part thereof, or access thereto, shall be so damaged or
destroyed by fire or other insured casualty that the Tenant shall not have
reasonably convenient access to the Demised Premises or any portion of the
Demised Premises (other than Tenant's Improvements), or so that part of but not
more than 25% of the Demised Premises' square footage then in use by the Tenant
shall thereby be rendered unfit for use or occupancy by the Tenant for the
purposes set forth in Section 5, and if in Landlord's determination reasonably
exercised the damage or destruction may be repaired within ninety (90) days
after the occurrence of the damage or destruction, then the Landlord shall so
notify the Tenant within thirty (30) days after the occurrence of the damage or
destruction and shall promptly and diligently repair such damage or destruction
(except damage or destruction to Tenant's Property or Tenant's Improvements). In
the event that the Landlord shall not complete such repairs within ninety (90)
days after the occurrence of the damage or destruction, then the Tenant shall
have the right to terminate the term of this lease by giving written notice of
such termination to the Landlord within then (10) days after the end of such
ninety (90) day period. If in the Landlord's determination reasonably exercised
the Demised Premises (other than Tenant's Improvements), or means of access
thereto, cannot be repaired within ninety (90) days after the occurrence of the
damage or destruction or, if more than 25% of the Demised Premises' square
footage then in use by the Tenant should be rendered unfit for use and occupancy
by Tenant, then either party shall have the right to terminate the term of this
lease by giving written notice of such termination to the other party within the
period
Initials
_________ (Landlord)
_________ (Tenant)
-14-
of thirty (30) to forty-five (45) days after the occurrence of such damage or
destruction. If neither party give such notice of intention to terminate the
term of this lease, then the Landlord shall promptly and diligently repair the
damage or destruction.
(c) If any casualty results in the suspension of business in the
Demised Premises, all rents and additional charges shall abate from the date of
such suspension of business until the date business is resumed. If the casualty
or restoration results in a partial suspension of business, rent and additional
charges shall be equitably abated during any such period. If Landlord fails to
begin or complete the restoration within a reasonable time period, then Tenant
may, in addition to any other remedies it may have, perform all or a portion of
such restoration, and Landlord shall pay to Tenant the reasonable costs incurred
by Tenant to restore the Demised Premises.
(d) In addition to and apart from the foregoing provisions of this
Section, (i) if more than twenty-five percent (25%) of the Gross Rentable Area
of the Demised Premises shall be totally or almost totally damaged or destroyed
by fire or other cause at any time during the last six (6) months of the term of
this lease, or during the last six (6) months of any renewal or extension
thereof, either the Landlord or the Tenant may terminate the term of this lease
by giving written notice of such termination to the other party within ten (10)
days after the occurrence of such damage or destruction, and (ii) if the
building on the Demised Premises is damaged or destroyed by fire or other cause
to such extent that the cost of repair the damage or destruction, as reasonably
estimated by the Landlord,, will be more than twenty-five percent (25%) of the
replacement value of the building immediately prior tot he occurrence of such
damage or destruction, then either party may terminate the term of this lease by
giving written notice of such termination to the Tenant within thirty (30) days
after the occurrence of such damage or destruction.
(e) Except as provided in this Section, no damages, compensation or
claim shall be payable by the Landlord to the Tenant, or any other person by
reason of inconvenience, loss of business or annoyance arising from any damage
or destruction, or any repair thereof, as if referred to in this Section.
19. Condemnation.
(a) If all of the building, or so much of the building or the Demised
Premises as is necessary for the Tenant's use and occupancy of the Demised
Premises for the purposes set forth in Section 5, or for reasonably convenient
access to the Demised Premises, shall be taken by condemnation or in any other
manner for any public or quasi-public use and purpose, then the term of this
lease shall forthwith terminate as of the date title vests in the taking
authority and the Rent
Initials
_________ (Landlord)
_________ (Tenant)
shall be apportioned as of such date.
(b) In addition to and apart from the foregoing provisions of Section
20(a), if more than twenty-five percent (25%) of the Gross Rentable Area of the
building shall be so taken, then either party may terminate the term of this
lease by giving written notice of such termination to the other within thirty
(30) days after the date title vests in the taking authority.
(c) The Tenant shall have the exclusive right in any proceeding with
respect to any taking referred to in this Section 20 to any award payable for
the Tenant's moving expenses and the then value of the Tenant's Property, but
the Tenant shall have no other right to any award for either a total taking or a
partial taking of the land, the building or the Demised Premises, including any
right for the contract value of this lease, and any such award shall be retained
by the Landlord as the Landlord's sole property.
(d) In the event of any taking which does not result in a termination
of the term of this lease, the Rent shall be equitably suspended or abated and
the Landlord, at its expense, shall proceed with reasonable diligence to repair
and restore the remaining part of the building and the Demised Premises to
substantially its former condition to the extent that the same may be feasible.
Any suspension or abatement of Rent shall cease upon substantial completion of
such repairs or restoration.
20. Surrender. On the Expiration Date, or on the expiration of the
final renewal period to which the Tenant exercises its right, or upon any
earlier termination of the term of this lease, the Tenant shall quit and
surrender the Demised Premises, including Tenant's Improvements, to the Landlord
in good order, condition and repair, except for (a) Ordinary wear and tear and
(b) Conditions requiring repairs which are not required to be made by the
Tenant. The Tenant shall remove all of the Tenant's Property, and at the
Landlord's request, shall remove those portions of the Tenant's Improvements as
shall be designated by the Landlord for Tenant's removal at the time the
Landlord approves the plans therefor, and shall repair any damage to the Demised
Premises on account of such removal.
21. Default and Damages.
(a) Any of the following occurrences or acts shall constitute an event
of default under this lease: (i) whenever the Tenant shall default in the
payment of any Rent or any other charge payable by the Tenant to the Landlord,
on any day upon which the same is due, and such default shall continue for five
(5) days after written notice thereof from Landlord; or (ii) whenever the
Initials
_________ (Landlord)
_________ (Tenant)
Tenant shall do, or fail to do, or permit to be done, whether by action or
inaction, anything contrary to any of the Tenant's obligations hereunder, and if
such situation shall continue and shall not be remedied by the Tenant within
(A) Five (5) days after notice in the case of any voluntary
situation within the Tenant's reasonable control, or
(B) Thirty (30) days in the case of any involuntary
situation not within the Tenant's reasonable control, after the Landlord shall
have given to the Tenant a notice specifying the same, or, in the case of a
situation which cannot with due diligence be cured within a period of five (5)
or thirty (30) days, as the case may be, if the Tenant shall not (1) within such
5-day or 30-day period, as the case may be, advise the Landlord of the Tenant's
intention duly to institute all steps necessary to remedy such situation, and
(2) duly institute within such 5-day or 30-day period, as the case may be, and
thereafter diligently prosecute to completion, all steps necessary to remedy the
same; (iii) whenever the Tenant is dissolved (other than in the contest of a
corporate reorganization where the business enterprise is continued), makes
assignment for the benefit of creditors, files a voluntary petition in
bankruptcy, is adjudicated a bankrupt or insolvent, files a petition or answer
seeking for the Tenant any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation, files an answer or other pleading admitting or failing to contest
material allegations of a petition filed against the Tenant in any proceeding of
this nature, or seeks, consents to, or acquiesces in the appointment of a
trustee, receiver, or liquidator of the Tenant or of all or any substantial part
of the Tenant's properties; or (iv) if within sixty (60) days after the
commencement of any proceeding against the Tenant seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law, or regulation, the proceeding has not been
dismissed; or if within sixty (60) days after the appointment without the
Tenant's consent or acquiescence of a trustee, receiver, or liquidator of the
Tenant or of all or any substantial part of the Tenant's properties, the
appointment is not vacated or stayed; or if within sixty (60) days after
expiration of any such stay, the appointment is not vacated; or (v) the event of
an occurrence of default beyond any applicable grace period in that certain
$87,000 Promissory Note from Tenant to Landlord of even date herewith.
(b) If an event of default shall have happened and be continuing, the
Landlord shall have the immediate right at its election (i) to terminate the
term of this lease by giving the Tenant not less than five (5) days written
notice of the Landlord's election to terminate, and (ii) whether or not the
Landlord shall have terminated the term of this lease pursuant to this Section
21(b), and without demand or notice whatever, to re-enter and take possession of
the Demised Premises, removing all persons and property therefrom either by
summary process proceedings or by other action, without being liable for any
damages therefor.
Initials
_________ (Landlord)
_________ (Tenant)
-17-
(c) If the Landlord elects to re-enter and take possession of the
Demised Premises pursuant to Section 21 (b), and whether or not the Landlord
shall have terminated the term of this lease pursuant to Section 21 (b), the
Landlord may (but shall be under no obligation to) re-let the whole or any part
of the Demised Premises on behalf of the Tenant for a period equal to, or
greater or less than, the remainder of the term of this lease, at such rent and
upon such terms and conditions as the Landlord shall determine reasonable, to
any tenant the Landlord may consider suitable and for any use or purpose the
Landlord may deem appropriate in the Demised Premises. The Landlord shall not be
liable for failure to re-let the Demised Premises, and the Landlord shall be
entitled to receive and retain the rent received upon such re-letting, whether
or not such rent is in excess of the Rent.
(d) Should Landlord elect to re-enter as herein provided or should it
take possession pursuant to legal proceedings or pursuant to any notice provided
for by law, it may either terminate this Lease or make such alterations and
repairs as may be necessary in order to relet the premises, and relet said
premises or any part thereof for such term or terms (which may be for a term
extending beyond the term of this Lease) and at such rental or rentals and upon
such other terms and conditions as Landlord in its discretion may deem
advisable; and upon each such reletting all rentals received by the Landlord
from such reletting shall be applied first, to the payment of any indebtedness
other than rent due hereunder from Tenant to Landlord; second, to the payment of
any costs and expenses of such reletting, including brokerage fees and
attorneys' fees and of costs and expenses of such reletting, including the costs
of recovering possession of the Demised Premises, brokerage fees and attorneys'
fees and of costs of such alterations and repairs; third, all utility expenses
and expenses of maintaining the Demised Premises while vacant, fourth, to the
payment of rent due and unpaid hereunder, and the residue, if any, shall be held
by Landlord and applied in payment of future rent as the same may become due and
payable hereunder. If such rentals received from such reletting during any month
be less than that to be paid during that month by Tenant hereunder, Tenant shall
pay any deficiency to Landlord. Such deficiency shall be calculated and paid
monthly. No such re-entry or taking possession of Demised Premises by Landlord
shall be construed as an election on its part to terminate this Lease unless a
written notice of such intention be given to Tenant or unless the termination
thereof be decreed by a court of competent jurisdiction.
22. Parking. The Landlord shall provide to the Tenant seventy (70)
parking spaces in the parking area provided and maintained by the Landlord.
23. Unperformed Covenants. If the Tenant shall default in the
performance of any of the Tenant's obligations hereunder, the Landlord, without
thereby waiving such default, may, at the Landlord's option, by reason of any
default of the Tenant hereunder, perform the same for the
Initials
_________ (Landlord)
_________ (Tenant)
account of the Tenant. If the Landlord makes any expenditures or incurs any
obligations for the payment of money, including attorneys' fees, such sums paid
or obligations incurred shall be paid by the Tenant to the Landlord on the first
day of the calendar month next following the rendition to the Tenant of the
Landlord's bill therefor to the Tenant.
24. Holding Over. The Tenant shall pay to the Landlord an amount as
Rent equal to one hundred fifty percent (150%) of one-twelfth (1/12) of the
Fixed Rent required to be paid by the Tenant during the previous Lease Year as
herein provided for each month or portion thereof for which the Tenant shall
retain possession of the Demised Premises, or any part thereof, after the
termination of the term of this lease, whether by lapse of time or otherwise,
and also shall pay all damages sustained by the Landlord, whether direct or
consequential, on account thereof. The provisions of this Section 24 shall not
be deemed to limit or constitute a waiver of any other rights or remedies of the
Landlord provided herein or at law. Without limiting any rights or remedies of
the Landlord resulting by reason of the wrongful holding over by the Tenant, or
creating any right in the Tenant to continue in possession of the Demised
Premises, all of the Tenant's obligations with respect to the use, occupancy and
maintenance of the Demised Premises shall continue during such period of
unlawful retention.
25. Certain Rights Reserved by the Landlord. The Landlord shall have
the following rights, each of which the Landlord may exercise with notice to the
Tenant but without liability to the Tenant for damage or injury to property,
person or business on account of the exercise thereof, and the exercise of any
such rights shall not be deemed to constitute an eviction or disturbance of the
Tenant's use or possession of the Demised Premises and shall not give rise to
any claim for set-off or abatement of rent or any other claim, provided that the
Landlord agrees that in the exercise of such rights it shall not do or cause to
be done anything which is, in any material respect, inconsistent with the
operation of the Demised Premises as a first-class/laboratory office building:
(a) To change the building's street address, if required by the U.S.
Postal Service.
(b) To install, affix and maintain any and all reasonable directional
signs on the land of the Demised Premises.
(c) Upon reasonable notice to Tenant, to make repairs, or improvements,
whether structural or otherwise, in an about the building, or any part thereof,
and for such purposes to enter upon the Demised Premises, Landlord agrees to use
reasonable efforts to cause minimal disruption to the Tenant's use of the
Demised Premises.
Initials
_________ (Landlord)
_________ (Tenant)
-19-
(d) The Tenant shall not install or operate machinery or any mechanical
devices of a nature not directly related to the Tenant's ordinary use of the
Demised Premises without the prior written consent of the Landlord. The Tenant's
movements of property into or out of the building or Demised Premises and within
the building are entirely at the risk and responsibility of the Tenant.
26. Waiver of Notice. The Tenant hereby waives any notice to quit under
the statutes relating to summary process which, were it not for this waiver,
might otherwise be necessary in obtaining possession of the Demised Premises.
27. Notices. Any notice, approval, request, consent, bill, statement or
other communication required or permitted to be given, rendered, served or made
by either party hereto, shall be in writing and shall be sent by certified or
registered United Stated Mail, postage prepaid, return receipt requested, or
federal express, or hand delivery or over night carrier:
(a) addressed to the Tenant at:
BBI - North American Clinical Laboratories, Inc.
C/O Boston Biomedica, Inc.
375 West Street
West Bridgewater, MA 02379
Attn: Treasurer
Fax No. 508-580-1110
Telephone No. 508-580-1900
(b) addressed to the Landlord at:
MB Associates
414 New Britain Road
P.O. Box 99
Plainville, CT 06062
Attn: Property Management Department
Fax No. 203-747-5299
Telephone No. 203-229-4853
Either party may, from time to time, by written notice to the other, designate a
different mailing address for notices, bills, statements or other communications
intended for it.
Initials
_________ (Landlord)
_________ (Tenant)
-20-
28. Estoppel Certificate. The Tenant shall, from time to time, within
ten (10) days after the Landlord's written request, deliver to the Landlord a
written certificate, in recordable form, ratifying this lease, and stating
(a) the Commencement Date and the Expiration Date,
(b) that this lease is in full force and effect and has not been
assigned, modified, supplemented or amended (except by such writings as shall be
stated),
(c) that all conditions under this lease to be performed by the
Landlord have been satisfied,
(d) that there are no defenses or offsets against the enforcement of
this lease by the Landlord, or stating those claimed by the Tenant,
(e) the amount of advance rental, if any (or none if such is the case),
paid by the Tenant,
(f) the date to which rental has been paid, and
(g) the amount of security deposited with the Landlord, provided,
however, that the Tenant shall not be required to make written declarations as
to any matters which to its knowledge are inaccurate or not true. Any such
certificate may be relied upon by any mortgagee of the Land and the building,
any assignee of such mortgagee, and any prospective purchaser of the Land and
the building. Landlord agrees to provide written confirmation of the Lease terms
and status upon Tenant's written request.
29. Limitation of Liability. Anything in this lease to the contrary
notwithstanding, the Tenant agrees that it shall look solely to the estate and
property of the Landlord in the Demised Premises for the collection of any
judgment (or other judicial process) requiring the payment of money by the
Landlord in the event of any default or breach by the Landlord with respect to
any of the terms, covenants and conditions of this lease to be observed or
performed by the Landlord, and no other assets of the Landlord or of any partner
in the Landlord shall be subject to levy, execution or other procedures for the
satisfaction of the Tenant's remedies.
30. Rights of Landlord; Non-Waiver. No right or remedy herein conferred
upon or reserved to the Landlord is intended to be exclusive of any other right
or remedy, and every right and remedy shall be cumulative and in addition to any
other right or remedy given hereunder or now or
Initials
_________ (Landlord)
_________ (Tenant)
hereafter existing. The failure of the Landlord to insist upon the strict
performance of any provision hereof or to exercise any option, right, power or
remedy contained herein shall not be construed as a waiver or relinquishment
thereof for the future. Receipt by the Landlord of any Fixed Rent, any
additional rent or any other sum payable hereunder with knowledge of the breach
of any provision hereof shall not be deemed a waiver of such breach, and no
waiver by the Landlord of any provision hereof shall be deemed to have been made
unless expressed in writing and signed by the Landlord. In addition to other
remedies provided herein, the Landlord shall be entitled, to the extent not
prohibited by law, to injunctive relief in case of the violation, or attempted
or threatened violation, of any of the provisions hereof, or to a decree
compelling performance of any of the provisions hereof, or to any other remedy
allowed to the Landlord by law.
31. Broker. The Tenant represents that no broker or agent other than
Grubb & Ellis participated with the Tenant in this transaction. The Tenant
agrees to indemnify and hold the Landlord harmless from and against any claim or
demand of any other broker or agent who claims that he participated with the
Tenant in this transaction. Landlord represents that it has only dealt with
Grubb & Ellis in connection with this lease.
32. Notice of Lease.
(a) This lease shall not be recorded in the New Britain Land Records.
Upon the request of either party, the other party shall execute a Notice of
Lease, in recordable form, satisfying the requirements of Section 47-19 of the
Connecticut General Statutes, Rev. 1958, as amended.
(b) The parties shall also enter into recordable supplementary notices
setting forth, among other proper matters, such items as the termination of this
lease and the exercise of any options afforded by this lease.
33. Prior Agreements. This lease and the exhibits and Notice of Lease
constitute the entire agreement by and between the parties hereto affecting the
Demised Premises and supersedes any and all previous agreements, written or
oral, between the parties and affecting the Demised Premises.
34. Captions; Sections; Gender. The captions contained herein have been
inserted for convenience only and shall not have the effect of modifying,
amending or changing the express terms and provisions of this lease. All
references to a "Section" shall refer to a Section of this lease unless the
context otherwise requires. Whenever used, the singular number shall include the
plural, the plural the singular, and use of any gender shall include all
genders.
Initials
_________ (Landlord)
_________ (Tenant)
-22-
35. Benefit and Burden. The covenants, conditions, agreements and terms
of this lease shall be binding upon and shall inure to the benefit of the
parties hereto and their successors and permitted assigns.
36. Applicable Law. This Lease shall be governed by and construed in
accordance with the laws of the State of Connecticut.
37. Signatures. This Lease may be signed in counterparts and any number
of counterparts signed in the aggregate by the parties shall constitute a single
original document. Additionally, a facsimile signature shall be deemed
equivalent to an original signature.
TENANT ACKNOWLEDGES THAT THIS LEASE IS A COMMERCIAL TRANSACTION AND
THAT IT HAS THE RIGHT UNDER CHAPTER 903a of the CONNECTICUT GENERAL STATUTES,
SUBJECT TO CERTAIN LIMITATIONS, TO NOTICE OF, AND HEARING ON, THE RIGHT OF THE
LANDLORD TO OBTAIN A PREJUDGMENT REMEDY, SUCH AS ATTACHMENT OR GARNISHMENT UPON
COMMENCING ANY LITIGATION AGAINST IT. NOTWITHSTANDING, TENANT HEREBY WAIVES ALL
RIGHTS TO NOTICE, JUDICIAL HEARING OR PRIOR COURT ORDER IN CONNECTION WITH THE
ASSERTION BY THE LANDLORD OF ANY PREJUDGMENT REMEDY TO COLLECT THE OBLIGATIONS
OR TO ENFORCE LANDLORDS RIGHTS HEREUNDER.
Initials
_________ (Landlord)
_________ (Tenant)
IN WITNESS WHEREOF, the Landlord and the Tenant have hereunto caused to
be set their hands and seals as of the day and year first above written.
WITNESSES: LANDLORD: MB ASSOCIATES
___________________________ By_______________________________
___________________________ A Partner, Duly Authorized
TENANT: BBI - NORTH
AMERICAN CLINICAL LABORATORIES,
INC.
____________________________ By_________________________________
Kevin Quinlan
Its Sr. Vice President & Treasurer
____________________________ Duly Authorized
Initials
_________ (Landlord)
_________ (Tenant)
-24-
STATE OF CONNECTICUT)
) ss: July 28, 1995
COUNTY OF HARTFORD )
Personally appeared ____________________, __________________ of MB
Associates, signer and sealer of the foregoing instrument and acknowledged the
same to be his free act and deed and the free act and deed of said partnership,
before me.
-------------------------------
Commissioner, Superior Court
Notary Public
My Commission Expires:
STATE OF )
) ss: July 28, 1995
COUNTY OF )
Personally appeared ____________________, __________________ of BBI -
North American Clinical Laboratories, Inc., signer and sealer of the foregoing
instrument and acknowledged the same to be his free act and deed and the free
act and deed of said corporation, before me.
-------------------------------
Commissioner, Superior Court
Notary Public
My Commission Expires:
GUARANTY OF TENANT'S PERFORMANCE
--------------------------------
In consideration of Landlord's having executed said Lease a the request
of the undersigned and in further consideration of One Dollar ($1.00) and other
valuable considerations paid, the receipt whereof is hereby acknowledged, the
undersigned (Guarantor) hereby unconditionally guarantees to Landlord and its
successors and assigns, the payment of the rents and other sums provided for in
said Lease and the performance and observance of all agreements and conditions
contained in said Lease on the part of Tenant to be performed or observed.
Guarantor hereby waives presentment for payment, demand for payment,
notice of nonpayment or dishonor, protest and notice of protest, diligence in
collection, and any and all
Initials
_________ (Landlord)
_________ (Tenant)
formalities which may be legally required to charge it with liability; and the
Guarantor does further agree that its liability as Guarantor shall in nowise be
impaired or affected by any renewals, waivers, or extensions which may be made
from time to time, with or without its knowledge and consent, of any default or
the time of payment or performance required under said Lease, or by any
forbearance or delay in enforcing any obligation thereof, or by assignment of
said Lease or subletting of the demised premises, neglect or refusal to enforce
or to realize upon any security which may have been given or may hereafter be
given thereunder or hereunder, or by any modifications of the terms or
provisions of the Lease.
The Guarantor further covenants and agrees to pay all expenses and
fees, including attorney's fees which may be incurred by the landlord or its
successors and assigns in enforcing any of the terms or provisions of this
Guaranty.
This Guaranty shall be binding upon the successors, and assigns of the
Guarantors, shall not be discharged or affected, in whole or in part by the
bankruptcy, or insolvency of the Tenant.
This Guaranty is absolute, unconditional, and continuing and payment of
the sums for which the undersigned become liable shall be made at the office of
the Landlord or its successors or assigns from time to time on demand as the
same become or are declared due.
Dated: July 28, 1995 BOSTON BIOMEDICA, INC.
BY:_____________________________
Kevin Quinlan
Its Sr. Vice President & Treasurer
Duly Authorized
Initials
_________ (Landlord)
_________ (Tenant)
-26-
EXHIBIT A
---------
LEASED PREMISES
EXHIBIT 'A'
LEASED PREMISES
A certain piece or parcel of land with all buildings and improvements thereon
situated northerly of North Mountain Road in the City of New Britain,
Connecticut and being more particularly shown on a map entitled "Map Showing
Location Of Proposed Leasing Agreement For BBI - North American Clinical
Laboratories, Inc. Located At #75 North Mountain Road, New Britain, Connecticut
Map Prepared By: MBA Engineering, Inc., 211 New Britain Road, Suite 103,
Kensington, Connecticut 06037 (203) 827-0222 Job Number: 95068, Scale 1" = 50'
Drawn By: BNB Checked By LJM Date: July 13, 1995" and containing 4.081 +/- acres
and being more particularly bounded and described as follows:
Beginning at a point located in the westerly line of Lot No. 206 which point is
the southeast corner of the within described premises; thence running N 89o 07'
53" W. 417.53 feet to a point as shown on said map; thence running N 06o 75'
26" E, 66.77 feet to a point as shown on said map; thence running N 31o 03' 55"
W, 35.15 feet to a point as shown on said map; thence running N 00o 09' 15" W.
276.41 feet, to a point as shown on said map; thence running N 77o 44' 24" E,
291.54 feet, to a point as shown on said map; thence running S 86o 44' 06" E,
152.84 feet to a point as shown on said map; thence running S O1o 07' 17" W.
426.62 feet to the point and place of beginning.
Said premises are leased together with a 30 foot wide right-of-way from North
Mountain Road to the leased premises, in common with the Landlord and others,
for motor vehicle and pedestrian ingress and egress. Said right-of-way is shown
on said map as "Minimum 30 Ft. Wide Driveway Right-of-Way From North Mountain
Road to Leased Portion of Site. R.O.W. to be centered of 24 Ft. BIT. Driveway"
and "Minimum 30 Ft. Wide Right-of-Way From Driveway R.O.W. To Front Entrance of
Site. R.O.W. to be centered over aisle portion of existing BIT. Parking Lot."
Initials
_________ (Landlord)
_________ (Tenant)
EXHIBIT B
---------
SCHEDULE OF LANDLORD'S WORK
The Improvement list below is a detailed list subject to minor modifications.
These "modifications" must be finalized immediately. Both parties understand
that this final plan directly correlates to the Landlord's Performance Schedule.
Improvements
1. Existing cafeteria to be subdivided and used as an employee lounge and
soundproofed conference room.
2. One existing Lab area, as specified in the front left area of the facility,
to be renovated into 3 or 4 offices, to be located as reasonably determined by
Tenant.
3. One existing lab area to be refurbished as a client service/specimen
processing, as determined by Tenant.
4. all existing computer and phone wiring to be removed.
5. Floor areas, as designated by Tenant, to be sealed.
6. All carpets, as designated by Tenant, to be replaced.
7. Any damaged ceiling tiles to be replaced.
8. Interior to be cleaned and painted.
9. Landlord to warrant that electrical systems HVAC and plumbing are in good
working order, including all Emergency Lighting, exterior building/parking lot
lighting and the existing security camera in the parking area is operational.
10. New driveway and parking area adjacent to Tenant's building.
11. Lab furniture to be in good working order as reasonably determined by the
parties.
Initials
_________ (Landlord)
_________ (Tenant)
12. Landlord to warrant that the electric circuits are fully operational via the
back-up generator or will identify which circuits/outlets are operational from
this generator.
Initials
_________ (Landlord)
_________ (Tenant)
EXHIBIT C
---------
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules, stairways,
corridors and public parts of the Building shall not be obstructed or encumbered
by Tenant or used by Tenant for any purpose other than ingress and egress to and
from the Demised Premises.
2. No awnings, air conditioning units or other projections shall be attached to
the outside walls or windowsills of the Building or otherwise project from the
Building, without the prior written consent of landlord.
3. All signs or lettering affixed by Tenant on any part of the outside of the
Demised Premises shall be approved by landlord, which approval shall not be
unreasonably withheld or delayed.
4. No bottles, parcels or other articles be placed on the windowsills or in any
other part of the Building, nor shall any article be thrown out of the doors or
windows of the Demised Premises.
5. Tenant shall not make, or permit to be made, unseemly or disturbing noises or
interfere with other tenants or those having business with them.
6. Tenant shall not put any covering of any type or nature upon the exterior of
windows in the Demised Premises.
Initials
_________ (Landlord)
_________ (Tenant)
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 to the Registration
Statement on Form S-1 (File No. 333-10759) of our reports dated March 12, 1996,
except as to the information in the first paragraph of Note 11, for which the
date is September 10, 1996 on our audits of the financial statements and
financial statement schedule of Boston Biomedica, Inc. and Subsidiaries. We also
consent to the references to our firm under the captions "Selected Consolidated
Financial Data" and "Experts."
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
October 25, 1996
